Running head: THE FINAL ACCOUNTS OF POLLY’S PET PRODUCTS 1

Final Accounts for Polly’s Pet Product

BUS 5110 Managerial Accounting Term 4

Written Assignment Unit 1

University of the People

2020, April 14
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Final Accounts of Polly’s Pet Product

The final accounts of Polly’s Pet Product consist of the income statement, cash flow

statement and the balance sheet as at 31st December 2018. This assignment seeks to ascertain the

missing accounting information as well as rationale narrative used in the accounting treatments

of entries.

Income statement

Income statement is also called profit & loss statement (P&L). Income statement enables

users such as manager, investors, customers, and other stakeholders to assess and ascertain

financial performance of the business during the accounting period. According to Lumen

learning (n.d.) stated, “Income statement reports a company’s revenue, expenses, and net income

over a period of time” (para.7). To calculate operating cost (costs incurred during day to day

running of the entity), take the difference between revenue and gross profit ($650,000-$205,000

= $445,000). Therefore, the operating cost is $445,000.

To arrive at the operating income, minus other operating expenses such general and

administrative expenses from gross profits i.e. ($205000- $75000 = $130,000). The value

obtained from subtracting operating income from other expenses is referred to as the income

provision before taxes ($130,000-$60,000 = $70,000). After that, to arrive at the net income,

subtract income tax from the residual balance ($70,000- $5000 =$65,000). Finally, to calculate

retained earnings, final balance, add the retained earnings, initial balance and net income

($103,500+$65,000=$168500). Therefore, revenue statement of the Polly’s pet indicates retained

earnings of $168500.
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Cash flows statement

Kenton (2019) stated, “cash flow statement is a financial statement that provides

aggregate data regarding all cash inflows a company receives from its ongoing operations and

external investment sources” (para. 1). Cash flows statement consist of three key activities such

as operating, investing and financing.

Under the headline “Cash Flows used in the Operating Activities”, in order to calculate

cash paid out to suppliers and employees, take the difference between net income and summation

of cash received from customers, interest paid, tax paid ($185,000+$5,000+$10,000-$600,000 =

$-400,000). Moreover, “Net cash provided from financing activities” can be ascertained by

summation of rows under the cash flows utilized in financing activities ($50,000-$45,000+

$5,000 = $10,000).Therefore, the “net cash utilized in financing activities” is $10,000.

Furthermore, to arrive at net change in cash, sum net cash provided from operating activities,

“net cash used in investing activities” and “net cash used in financing activities” ($185,000-

$25,000+$10,000 = $170,000). Finally, to ascertain final cash balance of the year, sum net cash

and beginning cash balance of the year ($170,000+$30,000 = $200,000). Therefore, cash balance

of Polly’s pet as at 31st December 2018 is $200,000.

Balance sheet

Balance sheet refer to financial report that show financial position of the business at

particular time. A business balance sheet encompasses assets, liabilities and owners’ equity.

(Lumen learning, n.d.).

Cash balance as at 31st December 2018 from cash flows statement (cash balance brought

forward =$200,000). To ascertain total current assets, sum cash balance from cash flow
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statement , account receivable and other assets ($200,000+$50,000+$25,000 = $275,000). Total

assets can be ascertained by adding “current assets” and “long-term assets” ($275,000+$75,000

= $350,000). Accrued expenses can be calculated by finding the difference between total current

liabilities and the aggregation of account payable, income tax payable, current note payable, and

income tax($123,500-($75,000+$5,000+$12,000+$1,500) = $30,000). To arrive at the note

payable (long term), take the difference between total liabilities and total current liabilities

($161,500-$123,500 = $38,000). To calculate total stockholders’ equity, take the difference

between total assets and total liabilities ($350,000-$161,500 = $188,500). Afterwards, subtract

common stock and additional paid- in capital to obtained the value for Retained earnings

($188,500-$5,000-$15,000 = $168,500), that is the residual value after shareholders are being

paid. Total liabilities and stockholders’ equity is calculated by summing total liabilities and

stockholders’ equity ($161,500+$188,500 = $350,000). When total asset of the Polly’s business

equate sum of total liabilities and owners’ equity, it means the sheet balance is correct.

Final accounts such as income statement, cash flows statement and balance sheet enable

the organization to show its financial position and performance and help internal users such as

management team, stockholders, investors, and other stakeholders of the business to make well-

informed decision.
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References
Kenton, W. (2019 June 13). Cash Flow Statement. Retrieved from

https://www.investopedia.com/terms/c/cashflowstatement.asp

Lumen learning. (n.d.).The Income Statement. Retrieved from

https://courses.lumenlearning.com/boundless-accounting/chapter/the-income-statement/

Lumen learning. (n.d.). The Statement of Cash Flows. Retrieved from

https://courses.lumenlearning.com/boundless-accounting/chapter/the-statement-of-cash-

flows/

Lumen learning. (n.d.). The Balance Sheet. Retrieved from

https://courses.lumenlearning.com/boundless-accounting/chapter/the-balance-sheet/