[Company name]

Accounting
principles
Assignment

[Author]
3-5-2023
Contents
LO2 Financial reports for unincorporated businesses and small businesses:............................................3
P3 Preparing Financial Statements for Different Types of Entities..............................................................3
Introduction.............................................................................................................................................3
I. Solitary Dealers.....................................................................................................................................3
1. Income Report:................................................................................................................................3
2. Declaration financial position:.........................................................................................................3
II. Partnerships.........................................................................................................................................3
1. Revenue Report:..............................................................................................................................3
2. Financial Position Statement:..........................................................................................................3
3. Declaration that turn the Impartiality:.............................................................................................3
III. Non-Profit Companies........................................................................................................................4
1. Financial Position Statement:..........................................................................................................4
2. Activities Statement:........................................................................................................................4
3. To summarize Up of Cash Flows:......................................................................................................4
Conclusion:..............................................................................................................................................4
1. Introduction.........................................................................................................................................4
2. Balancing Records................................................................................................................................5
- Accruals:...................................................................................................................................................5
- Prepayments:.............................................................................................................................................5
- Depreciation:.............................................................................................................................................5
- Bad debts:..............................................................................................................................................5
- A reserve for dubious debts:......................................................................................................................5
3. Accounting Statements........................................................................................................................5
- Revenue declaration:.............................................................................................................................5
- Declaration of modifications equity:..................................................................................................5
- Stability slip:.............................................................................................................................................5
- Cash flow declaration:...............................................................................................................................6
4. Conclusion...........................................................................................................................................6
LO3 Interpret economic reports:.................................................................................................................6
P4 Calculation and Presentation of Financial Ratios from Final Accounts:................................................6
Introduction:............................................................................................................................................6

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 1. Financial Ratios Calculation:................................................................................................................6
1.1 Availability Ratios:..........................................................................................................................6
1.3 Effectiveness Relatives:..................................................................................................................7
1.4 Solvency Ratios:.............................................................................................................................7
2. Economic Ratios Presentation:............................................................................................................7
Conclusion:..............................................................................................................................................7
P5 One can evaluate the financial performance of an organization over a period by analyzing its financial
ratios...........................................................................................................................................................7
Introduction:............................................................................................................................................7
1. Selection of financial ratios..................................................................................................................7
2.Calculation of financial ratios...............................................................................................................8
3. Analysis of financial ratios over time...................................................................................................8
4. Interpretation of financial ratios over time.........................................................................................8
5. Use of financial ratio analysis to make informed decisions.................................................................8
Conclusion:..............................................................................................................................................8
M3 Measuring an Organization's Performance Over Time Using Financial Ratios..................................8
Introduction:............................................................................................................................................8
1. Introduction.....................................................................................................................................9
2. Different Financial Ratio Types.........................................................................................................9
3. Trend Analysis..................................................................................................................................9
4. Benchmarking..................................................................................................................................9
5. Interpretation of Results..................................................................................................................9
6. Summary:................................................................................................................................................9
D2 Analyzing financial statements critically to gauge organizational performance...............................10
Introduction:..........................................................................................................................................10
1. Economic reports Review:.................................................................................................................10
2. Analyze financial ratios:.....................................................................................................................10
3. Evaluation:.........................................................................................................................................10
4. Conduct a trend analysis:...................................................................................................................10
5. Make conclusions and recommendations:........................................................................................10
Letter to PFS Typing Services.....................................................................................................................10
Letter to Rich Smith...................................................................................................................................11
Letter to McDowell and Coots,..................................................................................................................12

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LO2 Financial reports for unincorporated businesses and small
businesses:

P3 Preparing Financial Statements for Different Types of Entities

Introduction
Making financial statements is a critical stage in the accounting process. They provide an
overview of a business's cash flows, effectiveness, and financial situation. In order to adhere to
accounting principles, norms, and standards, various types of companies need to produce
different financial statements. The sorts of financial statements needed by sole proprietors,
partnerships, and not-for-profit organizations will be covered in this article.

I. Solitary Dealers
A sole trader is a company that is owned and operated by just one person. The financial
statements needed by a solo proprietor are as follows:

1. Income Report:
The income statement displays the money generated and costs expended by the company during
a specific time period. The business's net revenue or cost makes up the alteration among the two.

2. Declaration financial position:

The equity, debt, and assets of the business are demonstrated in the financial statement status at a
specific time.

II. Partnerships
A partnership is a company that is owned and run by two or more people. The following financial records
must be provided by a partnership:

1. Revenue Report:
The partnership's earnings and outlays for a specific time period are shown on the income statement.
The partnership's net profit or loss is the difference among the two.

2. Financial Position Statement:

The statement of financial status shows the assets of the partnership, obligation, and ownership at
a certain point in time.

3. Declaration that turn the Impartiality:

Report of alterations in ownership depicts how equity of the partners changed during a specific
time period. This includes any contributions made by partners, profits or losses for the period,
and any withdrawals made by partners.

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III. Non-Profit Companies
A not- profit companies an entity that operates for the benefit of society rather than for profit.
The economic list required for a non-profit company are:

1. Financial Position Statement:

The company’s equity, obligations, and resources are displayed in the list of financial health at a
specific period.

2. Activities Statement:
The organization's earnings and expenses for a specific time period are shown in the statement of
operations. The change in the company's net assets differentiates the two.

3. To summarize Up of Cash Flows:

The organization's cash flows during a particular period time period are shown on the A financial
statements statement. This includes revenue from financing, operating, and investment
operations..

Conclusion:
In conclusion, it is crucial to create financial statements for various entity types in order to
adhere to accounting principles, conventions, and standards. To reflect their distinct nature and
operations, sole proprietors, partnerships, and not-for-profit organizations need various financial
statements. Accounting professionals may effectively portray an entity's financial situation and
performance by recognizing these distinctions.

M2 Using a trial balance that was provided, prepare financial

statements through the necessary alterations:
A key component of financial reporting is financial statements. They give a general picture an
organization's financial situation and routine. The financial statements are made using the trial
balance, which offers a list of all the accounts and their balances. Adjustments must be done to
make sure that the financial statements accurately reflect the entity's financial performance and
position.

1. Introduction
Information about the state and performance of an entity's finances is included in the financial
statements. The statements are produced using the trial balance, which lists all the accounts'
balances in one place. To ensure that the balance sheets appropriately reflect the business's
financial results and position, adjustments must be made.

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2. Balancing Records
For the purpose of ensuring that the accounting records accurately depict the company's financial
position. and performance, adjusting entries are made to the accounts. The following
justifications are given for the adjusting entries:

- Accruals:
Accruals are made for unpaid or unrecorded expenses that have already been incurred but not yet
been accounts. For example, salaries and wages for the last few days of the accounting period
that have not been paid yet need to be recorded as an expense.

- Prepayments:
Prepayments are made for costs that have already been paid for but have not yet been incurred or
recorded in the accounts. For example, rent paid in advance for the next accounting period needs
to be recorded as a prepayment.

- Depreciation:
Depreciation is recorded to reflect the gradual loss of the worth of a fixed asset.

- Bad debts:
Bad debts are recorded to reflect the amount of money that is unlikely to be collected from
customers.

- A reserve for dubious debts:

For indicate the quantity of money that might not be recouped from clients, provision for dubious
debts is recorded.

3. Accounting Statements
The accounting records can be created once the necessary modifications have been made. The
financial statements consist of:

- Revenue declaration:
The entity's income and expenses for the accounting period are shown throughout the income
statement. The organization's a net gain or loss is displayed on the income statement.

- Declaration of modifications equity:

This document outlines the changes to the individual's impartiality throughout course from
accounting period. Contribution made by the owners, the net profit or loss, and any dividends
given to the owners are all disclosed in the statement.

- Stability slip:
The entity's obligations, equity, and assets are displayed from balance sheet as of a special time
point. Entity's economic situation that disclosed from the balance sheet.

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- Cash flow declaration:
The deposits and withdrawals of cash for the entity during the accounting period are shown on
the cash flow statement. The cash created by making investments operating, and funding
operations is displayed on the cash flow statement.

4. Conclusion
Financial statements are important sources of information that provide insights into an
organization's financial performance and status. To create these statements, adjustments are
necessary to ensure that they accurately reflect the organization's position and performance. The
financial statements consist of four key components: the trial balance serves as the foundation for
the balance sheet, cash flow assertion, statement of modifications to equity, and income
statement.

LO3 Interpret economic reports:

P4 Calculation and Presentation of Financial Ratios from Final

Accounts:
Introduction:
Financial ratios are instruments for assessing a business's performance and Economic stability.
These are derived from the company's financial statements and offer important insights into a
number of operational areas. In this assignment, we'll talk about calculating and displaying
financial ratios using a set of final accounts.

1. Financial Ratios Calculation:

Financial ratios can be categorized into different types, including the solvency, profitability,
efficiency, and liquidity ratios. The following are some examples of commonly used financial
ratios:

1.1 Availability Ratios:

Current Liabilities are subtracted from Current Assets to check the current relation.

- flowed Ratio: determined by subtracting inventories from current assets to arrive at quick
assets.

1.2 Financial success:

The margin of gross profit and net income margin are two profitability ratios that are often
employed in financial research. The margin of profit is determined by dividing the net profit by
expenditure as opposed to net margin of profit, which is determined by dividing netted profit by
sales.

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1.3 Effectiveness Relatives:
Efficiency ratios are an important aspect of financial analysis and can be calculated using
different metrics. Inventory Turnover and Accounts Receivable Turnover are two often utilized
efficiency ratios. While turnover of inventory is calculated through multiplying cost of
merchandise sold by average inventory, the turnover of accounts receivable is calculated by
dividing revenue by average accounts receivable.

1.4 Solvency Ratios:

The Interest Rate Coverage Ratio and the Debt-to-Equity Ratio are two financial measures that
are frequently used to evaluate an organization's financial standing. Divide total liabilities by
shareholder equity to get the debt-to-equity to calculate the interest coverage ratio, divide income
before taxation and interest ( EBIT ) by the cost of interest..

2. Economic Ratios Presentation:

Financial ratios can be presented in different ways, including as percentages, decimals, or ratios.
They can be presented as standalone ratios or as part of a larger analysis of the business's
financial performance. Financial ratios are often presented in tables or graphs to make them
easier to understand and interpret.

Conclusion:
Financial ratios offer useful information about a company's financial well-being and
performance. These ratios are derived to increase their accessibility, they can be presented in a
variety of ways derived from the company's financial statements. It is essential to remember that
financial ratios should be used in conjunction with other analytical tools to gain a more complete
understanding of the organization's financial performance.

P5 One can evaluate the financial performance of an organization

over a period by analyzing its financial ratios
Introduction:
Financial ratios do a crucial evaluating a company's financial performance an organization and
aid in making informed business decisions. Comparing the achievements of an organization over
time using financial ratios is one application for them. This process is called trend analysis,
which helps in identifying the strengths and weaknesses of the organization.

1. Selection of financial ratios

Choosing the appropriate financial ratios is crucial when comparing an organization's
performance over time. Some of the often-utilized financial ratios for trend analysis include the
bankruptcy, earnings, effectiveness, and liquidity ratios.

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2.Calculation of financial ratios
After choosing the appropriate financial ratios, the next step is to calculate them. Financial ratios
are obtained by dividing one financial statement item by another. For instance, some of the often-
utilized financial ratios for trend analysis include the bankruptcy, earnings, effectiveness, and
liquidity ratios.

3. Analysis of financial ratios over time

After calculating the financial ratios, they can be compared across different time periods. Trend
analysis entails examining financial ratios from various time intervals, such as quarterly or
annually. Comparing financial ratios over time enables the identification of variations and trends
in the organization's financial performance.

4. Interpretation of financial ratios over time

- After analyzing the financial ratios over a period of time it's crucial to interpret the results.

- In the event that the ratios show improvement over time, it indicates that the organization's
financial performance is improving.

- If the financial ratios show a decline over time, it indicates that the organization's financial
performance is declining.

5. Use of financial ratio analysis to make informed decisions

- Financial ratio analysis can help in making informed business decisions.

- By comparing financial ratios over time, it can help in identifying areas of improvement.

- For example, if the profitability ratios have been declining over time, it may indicate that the
organization needs to improve its cost structure.

Conclusion:
In conclusion, comparing an organization's financial ratios over time can help in identifying trends and
changes in the organization's financial performance. By using financial ratio analysis, organizations can
make informed business decisions and improve their financial performance over time.

M3 Measuring an Organization's Performance Over Time Using

Financial Ratios
Introduction:
Insights into the company's financial health and trends are provided by financial ratios, which
can be used to evaluate an organization's success over time. Comparing the findings to pertinent
benchmarks, such as industry norms, rivals, and the company's historical data, is crucial when
examining financial ratios. The financial performance of the business can be better understood as
a result, and problem areas can be found.

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The headings for using financial ratios to assess an organization's performance over time in
relation to pertinent benchmarks are as follows:

1. Introduction
- A succinct overview of financial measures and their significance in gauging an organization's
success over time.

2. Different Financial Ratio Types

- Overview of the major kinds of ratios related to finances, including profitability ratios, ratios of
liquidity, solvency ratios, and effectiveness ratios.

- An explanation of each sort of ratio and how it might be applied to gauge the organization's
financial success.

3. Trend Analysis
- A description of trend analysis and how it can be applied to gauge the financial success of a
company over time.

- An explanation of how to do a trend analysis using financial ratios.

4. Benchmarking
- An explanation of benchmarking and how it can be used to compare a company's financial
performance to industry standards, competing companies, and historical data.

- An explanation of how financial ratios are used in benchmarking.

5. Interpretation of Results
- A description of how to interpret financial ratio results and how to use them to assess the
financial performance of the company.

- An explanation of how to pinpoint areas that need improvement in light of the findings.

6. Summary:
The usefulness of financial ratios in assessing an organization's performance over time in relation
to pertinent standards:

- A succinct discussion of the usage of financial ratios as a decision-making tool.

In conclusion, financial ratios are a useful tool for assessing an organization's success over time.
Financial ratios can be used to assess a company's financial health and identify areas for growth
using trend analysis., benchmarking against industry standards, and comparison to competitors.
Financial ratio data should be properly interpreted and used to guide decision-making.

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D2 Analyzing financial statements critically to gauge organizational
performance
Introduction:
The following actions must be conducted in order to critically analyses financial accounts and
evaluate organizational performance using a variety of metrics and benchmarks:
1. Economic reports Review:
firstly, for evaluating economic reports is to review them thoroughly. This will help identify
any inconsistencies or issues that need to be addressed.
2. Analyze financial ratios:
Financial ratios can offer insightful data regarding the operation of an organization. ratios of
liquidity, ratios of profitability, and efficiency ratios are a few examples of common financial
ratios. These ratios can be examined to determine areas where an organization is doing well
and those that want development.
3. Evaluation:
Comparing an organization's performance to industry norms or rivals is the process of
benchmarking. This can assist in identifying areas where a company may need to improve its
performance.

4. Conduct a trend analysis:

Conducting a trend analysis involves comparing an organization's financial performance over
time. This can help identify any long-term trends that may be affecting the organization's
performance.
5. Make conclusions and recommendations:
Based on the findings of the financial statement analysis, conclusions can be drawn about an
organization's performance. Recommendations can then be made to address any issues or
improve performance further.

It is important to approach the evaluation of financial statements with a critical mindset.

Factors such as industry trends, economic conditions, and company-specific events should all
be taken into consideration when making conclusions and recommendations. By following
these steps, it is possible to make justified conclusions about an organization's performance
and identify opportunities for improvement.

Letter to PFS Typing Services

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Dear PFS Typing Services,

Thank you for sending through your year-end financial statements. I am pleased to see that the
introduction of a revenue stream has led to a significant improvement in your financial
performance, and that your liquidity appears strong.

I would like to recommend that you investigate using contemporary software to help with your
accounting and bookkeeping function. As you mentioned, products like QuickBooks and Xero
are suitable for small businesses and can save time and resources that can be used to focus on
your core activities.

Please let me know if you require any further assistance.

Best regards,

[Your Name]

Letter to Rich Smith

Dear Rich Smith,

Thank you for allowing me to review your financial statements. I am pleased to see that your
business is performing well, with a healthy net profit margin.

I would like to recommend that you consider implementing a cash flow management system to
help you better manage your cash inflows and outflows. This can help you ensure that you have
enough funds available to cover your expenses and invest in your business's growth.

Please let me know if you require any further assistance.

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Best regards,

[Your Name]

Letter to McDowell and Coots,

Dear McDowell and Coots,

Thank you for sending through your financial statements. I am pleased to see that your business
is profitable, with a healthy return on investment.

I would like to recommend that you review your accounts receivable management process to
ensure that you are collecting payments from your customers in a timely manner. Late payments
can have a significant impact on your cash flow and profitability.

Please let me know if you require any further assistance.

Best regards,

[Your Name]

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