INCOME

STATEMENT
tristar company
partnership

sale 209
revenue 500

(cgs)

open 306
inventory 50

purc 111
hase 200

return -
outward 475
0

close - -
inventory 281 109
00 000

gross profit 100

500

other
income

discount 530
received 0

105
800

expe
nses

salaries and 421

wages 00

heat and 389

llight 0

general
expenses
(16750- 125
4200) 50

marketing 120
expense 50

rent(7500+ 100
2500) 00

doubtful 750
debt

(1500-
2250)

deprecialtio
n

motorvehicl 256
e 0

(16000-
3200)*20%

fixtures(300 300 -
00*10%) 0 869
00

net 189
profi 00
t

APPROPRIATION
ACCOUNT

Net 1890
profi 0
t

interest on
drawing

john(1000* 500
5%)
david(1000 500
*5%)

sue(12000* 600 1600

5%)

2050
0

(interest on
capital)

john(40000 160
*4%) 0

david(3500 140
0*4%) 0

sue(25000* 100 -
4%) 0 4000

1650
0

PROFIT
SHARE

david(1650 6600
0*2/5%)

john(16500 6600
*2/5%

sue(16500* 3300
2/5%)

1650
0

CURRENT
ACCOUNT

JOH DAVI SUE JOH DAV SUE

N D N ID

OPENING 100 OPENING 150 250

BALANCE 00 BALANCE 0 0
 DRAWINGS 100 1000 120 INTEREST 160 140 100
00 0 00 ON 0 0 0
CAPITAL

INTEREST 500 500 600 CAPITAL 100

ON TRANSFER 00
DRAWING

BAL 700 PROFIT 660 660 330

- - SHARE 0 0 0

BAL 800
- -

105 1050 143 105 105 143

00 0 00 00 00 00

BALANCE
SHEET

cost acc NBV

dep

vehi 1600 (3200+256 1024

cle 0 00 0

fixt 3000 17500+300 9500

ures 0 0

pre 4475
misi 0
s

6449
0

current
assets

ban 7560
k

close 2810
inventory 0

recievable 4500
0
d.d - 4275
ebt 2250 0

general expense 4200 8261

prepaid 0

total 1471
assets 00

(current
liabilities)

pay 5470
able 0

raccrued 2500 -
rent 5720
0

8990
0

finance by

capital
account

joh 4000
n 0

davi 3500
d 0

sue (25000- 1500

10000) 0

9000
0

current
account

joh 800
n dr

sue 700 -100

cr
 8990
0

SOLETRADER INCOME STATEMENT

SALE REVENUE 95800

(cgs)

open stock 10780

purchases 48340

vehicle(6500*20%) 1300

return outward -960

close stock -12600 -46860

gross profit 48940

other income

discount received 5300 5300

decrease in d.debt 190

54430

expenses

motor expense 5200

wages 11500

insurance prepaid 7250

7700-450

light & heat 5080

4950+130

marketing expense 6200

interest

30000*8% 2400

depreciation

premesis

60000*2% 1200

vehicle

20000-15000*20% 1000 -39830

net profit 14600

BALANCE SHEET

COST ACC NBV

DEP

Premesis 60000 (12000+1200) 46800

vehicle 20000 (15000+1000) 4000

50800

current assets

close inv 12600

recievables 18500

decrease in d.debt 370

prepaid insurance 450 31920

82720

liablilities

payable 9750

accrued 130

overdraft 1680

loan interst 2400

 loan 30000

cash 270

finance by

net profit 14600

capital 35000

drawing -11310

82520

LETTER

NAME

Address

Address 2

31st may 2022

Letter on ratios and contemporary accounting.

RATIOS
partnership

CURRENT RATIO=CURRENT ASSETS/CURRENT LIABILITIES

82610/57200

1:45

QUICK RATION=CURRET ASSETS -CLOSING INVENTORY/CURRENT LIABILITIES

82610-
28100/57200

0.95

DEBT RATION=TOTAL DEBT/TOTAL

ASSETS

57200/147100
 0:39

GP RATIO=100500/209500*100%

48%

RETURN ON ASSETS=NET INCOME/TOTAL ASSETS

18900/147100

0.13

RETURN ON EQUITY=NET INCOME/EQUITY

18900/89900

0.21

INVENTORY TURNOVER CGS/AVG INV

109000/29375

3.71

ASSET TURNOVER=SALES/TOTAL ASSETS

209500/147100

1.43

SALES DAYS OUTSTANDING=DRS/CR SALES*365

42750/209500*365

74 DAYS

RECIEVABLE TURNOVER=SALES/AR

209500/42750

4.9

Sole trader ratios marshall

RATIOS
CURRENT RATIO=CURRENT ASSET/CURRENT LIABILITY

31920/14230

2.24

ACID TEST RATIO=CURRENT ASSET-INVENTORY/CURRENT LIABILITY

31920-
12600/14230

1.35

DEBT RATIO=TOTAL DEBT/TOTAL

ASSETS

44230/82720

0.53

DEBT TO EQUITY RATION=TOTAL DEBT/EQUITY

44230/38490

1.14

GP RATIO=GROSS
PROFIT/REVENUE*100

14600/95800*100

15.20%

RETURN ON ASSET RATIO=NET INCOME/TOTAL ASSETS

14600/82720

0.17

RETURN ON EQUITY=NET INCOME/EQUITY

 14600/38490

0.37

ITO=CGC/AVG INT

46860/11690

ASSET TURNOVER=SALES/TOTAL ASSETS

95800/82720

1.15

RECIEVABLES DAYS=DRS/CREDIT SALES*365

18500/95800*365

70.4 DAYS

RECIEVABLE TURNOVER=SALES/DRS

95800/18500

5.17

Ratios are generated by using data from financial statements to take meaningful information about a
company.it is used in qualitative analysis and to access companies, liquidity, growth and profitability.
Tristar was a partnership business between three partners. starting from the liquidity ratio of the
company these ratios are basically used to determine the ability to pay the short term debt obligations.
Starting from current ratios which is done just to get results that business has current cash and assets in
its hand to pay their short term debt. Its minimum value must be 1:1 which shows business can able to
pay but the best value and standard is 1:5:1 but tristar has decline value from 1:94 to 1:45 but it is good
to cover debts. Coming toward the quick acid ration which is without the inventory of the business that
is yet to sold, as it may not be sold or took more time so the exclude to determine the best and standard
results. It is not good as it is 0.95:1 less than 1 that business is not in position to pay its debt now as it
also be concluded that it id down from 1:25 to 0.95 that business is facing decline in current assets
stream or their liabilities are increasing with the time passes. Moving to debt ratios and equity debt ratio
in which they try to analyze the debt burden against assets and equity as business has 0.39 debt ratio
and 0.64 debt equity. Debt ratio is low and good that business has lesser debt on it by its assets it also
demonstrates that business is doing good and operating in good hands so but debt equity is 0.64 more
than .050 which is concerning as business has more payable than its equity that is alarming business
may have to get their receivable as soon as possible to get this down. Forwarding with the gp ratio
which shows the gross profit margin of the company as it is 48% this time declining from other years due
to increase in their cgs or decrease in their sale revenue they have to took precaution to make it better
but it is not as bad as well but its declining while comparing to last years. return on assets shows how
much a business efficiently making profits from its total assets, it is shown in percentages and it is better
as higher it is. But we see its declining from 0.59 to 0.13 it may be due to increase in firm size if it
increased or developed in recent years so this amount would be considerable but if its with the same
size so it is in very bad position. ROE shows how well a company is managing the capital that
shareholder invested as it .21 percent which is considerable a good return on equity but its declining
from recent year comparison because of increase in scale of production. Inventory turnover measures
that how much time a inventory is sold or used in time period or in a year it shows the excess amount of
inventory which exceeds the storage cost. Our business is doing good sales by having 3.71 time of
inventory sold to its customer in a year it is low from last years but considerable business is performing
good. Asset turnover also decrease from those years this may be due to increase in sale revenue more
than the assets as assets are usually used for longer periods with the depreciation so their value may not
be increase but sale revenue increase so that what it is about 1.43.. moving to debtor ration the
receivable turnover ratio shows that how well company is managing the credit and how long it takes to
collect the debt. Receivable turnover ratio also declines which may indicates business is collecting
eagerly their debt or their sale decline from last years as it is 4.90 while they are using 74 days in
collecting whole debt that is also more than their previous years may be because of increase in credit
sales in the recent year but Tristar company is doing good if its operating on large scale, these ratios
show that company has depth to grow and doing good in competitive world.

Moving to the Marshall company which is sole trader business. Ratios are generated by using data from
financial statements to take meaningful information about a company.it is used in qualitative analysis
and to access companies, liquidity, growth and profitability. Starting from current ratios which is done
just to get results that business has current cash and assets in its hand to pay their short term debt. Its
minimum value must be 1:1 which shows business can able to pay but the best value and standard is
1:5:1 but Marshall is having 2.24 current ratios which means he can pay his debt more than 2 time as
well its quick ratio is 1.35 more than 1 that is increasing from last years it also shows without having
inventory in assets it also met its company expenses. Moving to debt ratios and equity debt ratio in
which they try to analyze the debt burden against assets and equity as it is 0.53 and 1.14 both are more
than .50 as business is taking more debt even long term loan of 30000 and having overdraft also. It is
concerning for the company as their equity can’t able to meet their debt. Moving next to the gp ratio
which is declining from 32% to 15.20% in a year gap difference this may be because of decrease in sale
or increase in production cost they have to cover it by took precautions as soon as possible. return on
assets shows how much a business efficiently making profits from its total assets, it is shown in
percentages and it is better as higher it is but it declined by 0.59 to.17 it may be due to increase in firm
size if it increased or developed in recent years so this amount would be considerable but if it’s with the
same size so it is in very bad position. ROE shows how well a company is managing the capital that
shareholder invested as it .37 percent which is considerable a good return on equity but its declining
from recent year comparison because of increase in scale of production it is drastically decreases they
have to be concern about it. . Inventory turnover measures that how much time a inventory is sold or
used in time period or in a year it shows the excess amount of inventory which exceeds the storage cost.
Our business is doing good sales by having 4 times sales so we need 4 inventories to hold in a year. It
increased but it also increases storage cost. Asset turnover also decrease from those years this may be
due to increase in sale revenue more than the assets as assets are usually used for longer periods with
the depreciation so their value may not be increase but sale revenue increase so that nears to 1.15.
receivable days are increasing from 62 days to 70.4 day may be because of boosting credit sale so the
debtors bought more on credit or may be delay be their side but them must need to recover it by giving
cash discounts to boost sales on cash so people will have bought more on cash so the receivable days
would be managed.

Contemporary accounting

Contemporary accounting is a set of accounting software and technology to systemize the financial
tracking. Everything will be done automatically no need to write down manually. As company is not
using it so there may be time consuming accounting process in the company as well as it would not be
error free as there may be mistake when it done by manually. As maintain accounts is not as easy it
seems so the errors may lead to wrong decisions as well as delay in the accounting process would lead
to low business efficiency. Accounting involves reconciliation of statement so tracking transactions
manually would be very difficult and time taking. Company is increasing in production day by day so the
need to adopt contemporary accounting to assist and boost up their accounting procedure.
Further moving towards the accounting system which shows how to keep business reports, data and
records in accounting system all the data such as transactions such as invoices and payments to
suppliers and reports like income statement would be saved. All the date gathers and will be saved in
software in form of prescribed format. It has past data which helps the business to track their past
transaction at any time if they need them for any governmental and for any purpose in future. It works
on the collection and preservation of data for future. Technology assist accounting and made it very
easy and efficient process as it restricted accounting procedure and process and made them according
to the era need. Technology made these storage of large files easy and facilitates easy access to
information and date. Accounting apps are also introduced with several functions that helps everyone in
their accountancy field as they can do some simple tasks on their own without hiring accountant. The
impact of technology on accountancy has become so crucial and time saving as the simple click of a
button can have made hard transaction in seconds and store that data in their records. It also helps and
give time to accountant and other managers to use their time more on business decision

Recommendation

Company must use this software’s and adopt new technology process in their accounting system as it
speeds up the whole process as well as it assures accuracy and accuracy is key in accounting so they
must use this software in their account process it will benefited them in various ways as mentioned
above.

tristar company and marshal company has their ratios declined from previous years but they are doing
good except their debt ratios for them they have to decrease their debts or may increase their assets
and equity while marshall company had a loon in their long term liability so they must need to took
some measures to increase sale the best solution is cash discounts for both of them as it automatically
increase their sale as well as it increase cash inflow of the business which will assist both companies in a
positive way

yours sincerely,

name. Fatima Masood