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Financial Interpretation

Introduction

Financial statements can represent the financial position of any entity. It also shows the capability of any entity so that it can manage their financial stability and further it can achieve its goals and objectives(Epstein and Jermakowicz, 2010). Georgie Smythe have started a new business by introducing capital in it. In the given report financial statements are made and a detailed analysis of financial statements has been carried out.

(A.) Transactions into the transaction analysis chart

Journalised Transactions of Georgie Smythe

Serial No.

Particulars

Amount

Amount

1.

 

 

2.

 

 

3.

 

 

 

 

4.

 

 

5.

 

 

6.

 

7.

 

 

8.

 

 

9.

 

 

10.

 

 

11.

 

 

12.

 

 

13.

 

 

14.

 

 

15.

 

 

16.

 

 

17.

 

 

 

18.

 

 

19.

 

 

20.

 

 

21.

 

 

 

22.

 

 

23.

 

 

24.

 

 

25.

 

 

26.

 

27.

 

 

28.

 

 

29.

 

 

30.

Cash A/c Dr.

   To Capital A/c

(capital introduced)

Cash A/c Dr.

   To Capital A/c

(capital introduced)

Land and Building A/c Dr.

   To Loan A/c

   To Cash A/c

(Purchase of Land and building on cash and through loan)

Engineering Equipment A/c Dr.

   To Cash A/c

(Purchase of engineering equipments)

Software A/c Dr.

   To cash A/c

(Purchase of software)

Furniture A/c Dr.

   To cash A/c

Professional Indemnity Insurance A/c Dr.

   To cash A/c

(Payment of professional indemnity insurance)

Computer A/c Dr.

   To cash A/c

(Purchase of computer for cash)

Vehicle A/c Dr.

   To creditor for vehicle A/c

(Purchase of vehicle on cash)

Debtor A/c Dr.

   To sales A/c

(Sales made to debtors on credit terms)

Stationery A/c Dr.

   To creditor for stationery A/c

(Purchase of stationery)

Equipment A/c Dr.

   To capital A/c

(Equipments introduced by proprietor taken as capital)

Debtor A/c Dr.

   To sales A/c

(Sales made to debtors on credit terms)

Cash A/c Dr.

   To debtor A/c

(Cash received from debtors)

Debtor A/c Dr.

   To sales A/c

(Sales made to debtors)

Drawings A/c Dr.

   To cash A/c

(Drawings made by the owners)

Wages A/c Dr.

   To cash A/c

   To PAYG Tax A/c

(Wages paid and PAYD Tax deducted)

Cash A/c Dr.

   To debtors A/c

(Cash received from debtors)

Telephone Expenses A/c Dr.

   To cash A/c

(telephone expenses paid)

Debtors A/c Dr.

   To sales A/c

(Sales made to debtors on credit terms)

Wages A/c Dr.

   To cash A/c

   To PAYG Tax A/c

(Wages paid)

Motor Vehicle Expenditure A/c Dr.

   To cash A/c

(Motor vehicle expenditure paid)

Cash A/c Dr.

   To Debtor A/c

(Payment received from debtors)

Drawings A/c Dr.

   To cash A/c

(drawings made)

Creditors for office stationery A/c Dr.

   To cash A/c

(Creditors for office stationery paid)

Interest on loan A/c Dr.

   To loan A/c

Depreciation A/c Dr.

   To Motor vehicle A/c

(depreciation charged)

Depreciation A/c Dr.

   To Computer equipment A/c

(Depreciation charged over computers)

Depreciation A/c Dr.

   To Engineering Equipment A/c

(Depreciation charged on equipments)

Depreciation A/c Dr.

   Furniture and Fittings A/c

(Depreciation charged over furnitures)

 

80000

 

 

20000

 

 

250000

 

 

 

 

10000

 

 

2400

 

 

3000

 

2400

 

 

15000

 

 

24000

 

 

2000

 

 

1200

 

 

6500

 

 

4800

 

 

2000

 

 

7200

 

 

1500

 


1600

 

 

 

2300

 

 

270

 

 

8400

 

 

1800

 

 

 

240

 

 

2500

 

 

2200

 

 

200

 

 

950

 

4800

 

4500

 

 

1500

 

 

300

 

80000

 

 

20000

 

 

225000

25000

 

 

 

10000

 

 

2400

 

 

3000

 

2400

 

 

15000

 

 

24000

 

 

2000

 

 

1200

 

 

6500

 

 

4800

 

 

2000

 

 

7200

 

 

1500

 

 

1200

400

 

 

2300

 

 

270

 

 

8400

 

 

1300

500

 

 

240

 

 

2500

 

 

2200

 

 

200

 

 

950

 

4800

 

4500

 

 

1500

 

 

300

(B.) Fully classified Income Statement and Balance Sheet for March 2017 for GS Engineering

Income Statement for the year 31st March 2017 For GS Engineering

Particulars

Schedule No.

Amount

Income:

Sales

Other Income

Total

Expenses:

Depreciation

Interest

Motor vehicle expenditure

Wages

Telephone Expenses

Stationery expenditure

Professional indemnity insurance

Profit/(Loss)

 

 

22400

Nil

22400

 

(11100)

(950)

(240)

(3400)

(270)

(400)

(2400)

3640

Balance Sheet as 31st March 2017

Particulars

Schedule No.

Amount

Fixed Asset

Motor vehicle

Computer

Engineering Equipments

Furniture and Fittings

Land and Building

Computer software

Current Assets

Debtors

Stock of Stationery

Equity and Liability

Capital

Current Liability

creditor for stationery

Non Current Liability

Loan

creditors of vehicle

PAYG Tax

 

 

19200

10500

5000

2700

250000

2400

 

15600

800

 

99940

 

1000

 

225000

24000

900

(C.) Differences between straight line and reducing balance depreciation methods and explain the impact on the income statement over the asset’s life 

Balance sheet: Balance sheet is a summary of financial statements of a company or a organisation. It can be a sole proprietorship, a business partnership and can be a company also .Balance sheet shows the financial position of the company. A standard balance has two sides one side is assets  side and the other is liability side (Chand, Patel and Patel, 2010). Usually balance sheet is calculated after every quarter, six month or in a year. Balance sheet includes Liabilities which are the obligation for the organisation which organisation has to pay to his creditors. Liabilities are of two type short term liability and long term liability. On the other hand assets include property and investments of the company and also the amount which the company will receive from his debtors.

Income statement: Income statement is a financial statement of a company that reports the financial performance of a company over a specific period of time. Income statement shows how a company is performing or shows all the revenues and loss incurred to the the company in a specific time period.

Journal entry: Journal entry is a record that keep accounting transactions in a manner as they occur. Journal entry record all the accounting transactions with showing their names,amount and also state that whether it will be debited or credited(Lisowsky, 2010). Ledger is a book or collection of financial accounts. Ledger is a record that keeps accounting transactions by account names.

Assets of an enterprise affects its income statement in various ways. Like depreciation charged on assets of  enterprise is counted in income statement and change the numbers of income statement. Other than depreciation  repair and  maintenance cost of an assets also come under in income statement which has its own effects on income statement(Wray,2012). Debtors from assets side of balance sheet also affect  income statement like some debtors become bad debts so that amount of bad debts is included in income statement of enterprise.

Conclusion

From the above mentioned income statement and balance sheet it can be analysed that through analysis of these financials an enterprise or user can implement better decisions. On the other hand assets and their impacts over the income statement is also mentioned there in.

References

  • Epstein, B. J. and Jermakowicz, E. K., 2010. WILEY Interpretation and Application of International Financial Reporting Standards 2010. John Wiley & Sons.
  • Chand, P., Patel, C. and Patel, A., 2010. Interpretation and application of “new” and “complex” international financial reporting standards in Fiji: Implications for convergence of accounting standards. Advances in Accounting. 26(2). pp.280-289.
  • Lisowsky, P., 2010. Seeking shelter: Empirically modelling tax shelters using financial statement information. The Accounting Review. 85(5). pp.1693-1720.
  • Wray, L. R., 2012. Global financial crisis: A Minskyan interpretation of the causes, the fed’s bailout, and the future.
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