Analysis
Of Income Statements
Objectives
of the Course
Criteria
For Establishing Sales Departments
Sample
of Bad Accounting
Expenses
Sample of Poor Accounting
Expenses
Financial
Management and Accounting
Industry Standards
Gross Profit Percentage Factors
The Profit and Loss
Statement (Income and Expenses)
Information
Flow to Profit and Loss Statement
Sample
Gross Profit Statement
Sample
Expense Statement
Key
Terms and Concepts
Review
Test
On Analysis of Income Statement
Analysis
of Financial Statements
The purpose of this module is to gain
a basic understanding of accounting equations an the ability to determine
strengths and weaknesses in different aspects of the business operation.
Financial statements are the reports which many business decision are based
upon and provide a basis for planning, budgeting, and controlling costs.
In this course you will learn to read, understand and analyze financial
statements.
As a result of this course you will be able to:
Your instructor will
now guide you through a balance sheet, profit and loss statement and a
cash flow statement. You should take notes on these items and be prepared
to answer questions about the Financial Statements when complete. This
course is not meant to analyze the Income Statement so we will spend most
of our time on the Balance Sheet and Cash Flow Statement.
CREATIVE
ACCOUNTING SERVICES
FINANCIAL STATEMENT
FOR
Starmins Food Shop
DECEMBER 19XX
| ASSETS |
THIS MONTH
|
LAST MONTH
|
VARIANCE
|
| Cash on Hand |
$3,176.74
|
$5,891.49
|
$(2,7l4.75)
|
| Bank |
15,900.90
|
14,360.32
|
1,540.58
|
| Credit Cards |
1,444.98
|
2,591.43
|
(1,146.45)
|
| Accounts Receivable |
6.41
|
17.90
|
(11.49)
|
| Guarantee Deposits |
7,902.00
|
7,902.00
|
0.00
|
| Inventory |
38,489.79
|
32,524.15
|
5,965.64
|
| Prepaid Rent |
0.00
|
4,584.00
|
(4,584.00)
|
| Total Client Assets |
66,920.82
|
67,871.29
|
(950.47)
|
| Equipment |
60,150.41
|
60,150.41
|
0.00
|
| Accum. Depr. Equipment |
(24,228.00)
|
(23,106.00)
|
(1,122.00)
|
| Total Fixed Assets |
43,633.41
|
44,755.41
|
(1,122.00)
|
| TOTAL ASSETS |
110,554.23
|
112,626.67
|
(2,072.47)
|
| LIABILITIES | |||
| Sales Tax |
$1,202.91
|
$1,178.36
|
$24.55
|
| Fen. \Withholding & FICA |
1,503.09
|
1,837.32
|
(334.23)
|
| State Withholding |
422.60
|
184.50
|
238.10
|
| A/P Texaco |
1,601.00
|
1,609.00
|
(8.00)
|
| A/P Gasoline |
0.00
|
3,768.65
|
(3,768.65)
|
| A/P Other |
12,591.15
|
9,636.72
|
2,954.43
|
| Accrued Wages |
1,300.00
|
800.00
|
500.00
|
| Total Current Liabilities |
18,620.75
|
19,014.55
|
(393.80)
|
| Bank Loan |
48,442.37
|
49,371.57
|
(929.20)
|
| Total Long Term Liabilities |
48,442.37
|
49,371.57
|
(929.20)
|
| TOTAL LIABILITIES |
67,063.12
|
68,386.12
|
(1,323.00)
|
| OWNERS EQUITY | |||
| Net Worth January 1 |
$36,361.53
|
$36,361.53
|
$0.00
|
| Current Earnings |
60,260.60
|
50,656.43
|
9,604.17
|
| Current Withdrawals |
(53,131.50)
|
(42,777.41)
|
(10,354.09)
|
| Total Capital |
43,491.11
|
44,240.55
|
(749.47)
|
| TOTAL LIABILITIES & CAPITAL |
102,843.23
|
104,915.70
|
|
Illuminas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.
Starmins Food Shop
125 Intergalactic Way
Mars City, Mars, 56556-3456
| Department | Sales | Cost | Gross Profit | G.P. % | C.P.C |
|
|
|||||
| Motor Fuel |
$235,000.00
|
$218,654.00
|
$16,346.00
|
7.0%
|
$0.000
|
| Cigarettes/Tobacco |
$12,255.00
|
$9,000.00
|
$3,255.00
|
26.6%
|
$0016
|
| Soft Drinks |
$4,500.00
|
$2,900.00
|
$1,600.00
|
35.6%
|
$0.008
|
| Juice/Waters |
$3,800.00
|
$2,600.00
|
$1,200.00
|
31.6%
|
$0.006
|
| Beer/Alcohol |
$4,000.00
|
$3,100.00
|
$900.00
|
22.5%
|
$0.004
|
| Snacks/Chips |
$3,500.00
|
$2,300.00
|
$1,200.00
|
34.3%
|
$0.006
|
| Candy/Gum |
$2,678.00
|
$1,800.00
|
$878.00
|
32.8%
|
$0.004
|
| Groceries |
$3,288.00
|
$2,200.00
|
$1,088.00
|
33.1%
|
$0.005
|
| H.A.B.A. |
$1,777.00
|
$1,145.00
|
$632.00
|
35.6%
|
$0.003
|
| Milk/Dairy |
$1,121.14
|
$966.22
|
$154.92
|
13.8%
|
$0001
|
| Bakery/Breads |
$655.45
|
$422.76
|
$232.69
|
35.%
|
$0.001
|
| Fountain |
$2,500.00
|
$950.00
|
$1,550.00
|
62.0%
|
$0.008
|
| Snack Bar |
$2,166.00
|
$900.00
|
$1,266.00
|
58.4%
|
$0.006
|
| Automotive/Oil |
$1,200.00
|
$850.00
|
$350.00
|
29.2%
|
$0.002
|
| Lotto/Lottery |
$1,556.00
|
$1,475.00
|
$81.00
|
5.2%
|
$0.000
|
| Car Wash |
$8,800.00
|
$1,500.00
|
$7,300.00
|
83.0%
|
$0.036
|
| Totals |
$288,796.59
|
$250,762.98
|
$38,033.61
|
13.2%
|
$0.186
|
| Department | Dollars | Sales % | Gross Profit % |
| Employee Wages | $10,500.00 | 3.6% | 27.6% |
| Payroll Taxes | $1,500.00 | 0.5% | 3.9% |
| License & Taxes | $100.00 | 0.0% | 0.3% |
| Rent of Loan Interest | $8,000.00 | 2.8% | 21.0% |
| Maintenance/Repair | $300.00 | 0.1% | 0.8% |
| Insurance | $400.00 | 0.1% | 1.1% |
| Professional Service | $300.00 | 0.1% | 0.8% |
| Interest/Bank Charges | $175.00 | 0.1% | 0.5% |
| Supplies | $250.00 | 0.1% | 0.7% |
| Store Use | $100.00 | 0.0% | 0.3% |
| Advertising | $250.00 | 0.1% | 0.7% |
| Travel/Entertainment | $50.00 | 0.0% | 0.1% |
| Laundry/Uniforms | $250.00 | 0.1% | 0.7% |
| Vehicle Expense | $70.00 | 0.0% | 0.2% |
| Discounts/Refunds | $25.00 | 0.0% | 0.1% |
| Utilities/Telephone | $1,900.00 | 0.7% | 5.0% |
| Bad Debts | $50.00 | 0.0% | 0.1% |
| Cash Short/(Over) | $33.00 | 0.0% | 0.1% |
| Lease Equipment | $250.00 | 0.1% | 0.7% |
| Credit Card Fees | $220.00 | 0.1% | 0.6% |
| Equipment Depreciation | $1,000.00 | 0.3% | 2.6% |
| Environmental Expense | $100.00 | 0.0% | 0.3% |
| Royalties/Advertising Fees | $2,606.44 | 0.9% | 6.9% |
| Total Expenses | 528,429.44 | 9.8% | 74.7% |
| Net Profit (Loss) | 59,604.17 | 3,3% | 25.3% |
Statement
of Cash FIows
For the Periods Ended
December 31, 1996
|
|
|
|
| Cash Flows
From Operating Activities
Net income (loss) $ |
12,282.87 |
$ 7,264.27 |
| Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities;
Adjustments to cash flow for: Decrease (increase) in operating assets: |
||
| Accounts receivable |
(27,501.88)
|
(27,501.88)
|
| Increase (decrease) in operating liabilities: | ||
| Accounts payable |
3,903.21
|
3,903.21
|
| Accrued liabilities |
4,143.40
|
5,552.91
|
| Total adjustments |
(19,455.27)
|
(18,045.76)
|
| Net cash provided by (used in) operating activities |
(7,172.40) |
(10,781.49) |
| Cash Flows
From Investing Activities
(Purchase) Sale of fixed assets |
(32,302.56) |
(32,302.56) |
| Net cash provided
by (used in)
investing activities |
(32,302.56) |
(32,302.56) |
| Cash Flows
From Financing Activities
Notes payable borrows/repayment |
7,653.90 |
43,762.99
|
| Net cash provided
by (used in)
financing activities |
7,653.90
|
43,762.99
|
| Net increase
(decrease) in cash
and cash equivalents |
(31,821.06)
|
678.94
|
| Cash and cash
equivalents
at beginning of period |
32,500.00
|
0.00
|
| Cash and cash
equivalents
at end of period |
$678.94
|
$678.94
|
Formulas
Used by Accountants to Prepare Balance Sheet
Assets - Liabilities = Net Worth
Net Worth + Liabilities = Assets
Net Worth - Assets = Liabilities
Formulas
Used by Accountants to Prepare Profit and Loss Statement
Revenues - Cost of Goods Gone = Gross Profit
Gross Profit - Operating Expenses = Net Profit
Net Profit + Operating Expenses = Gross Profit
Gross Profit + Cost of Goods Gone = Revenue
Components
of Cash Flow Statement
Net Profit (+ or -) Operation,
Investments, Financing =Ending Cash
You have just started your
business. The following items (based on their cost) are available to start.
Beside each one, designate if it should be part of Assets, Liabilities
or Net Worth.
| Equipment |
40,000
|
| Note at Bank |
150,000
|
| Cash in Bank |
10,000
|
| Accounts Payable |
5,000
|
| Starting Capital |
30,000
|
| Goodwill |
100,000
|
You have had your first month of operations.
From the following information, prepare a simple Profit and Loss Statement.
| Sales for the month were | $156,000 |
| Cost of product for the month was | $124,500 |
| Operating Expenses for the month were | -$20,000 |
You have completed your first month of operation and are now preparing your information
for the accountant. What
information would you give the accountant to complete your Profit and Loss
Statement Balance Sheet and Cash Flow Statement. Be prepared to discuss
in class.
Below are a list of items that are found in a Balance Sheet. Place each one in the proper category listed.
Categories
You are attempting to
put together your Profit and Loss Statement Below please give the formulas
to calculate the following:
Cost of Goods Gone
Gross Profit
Gross Profit Percentage
Net Profit
These are key terms and concepts of this module:
Match one of the key terms and concepts listed above with one of the brief examples or definitions listed below. Try to find the best fit for the answers that seem to fit more than one term or concept. Get ready to defend your choices.
Test
on Analysis of Financial Statements
Name of Participant
1. What is the formula to
obtain Net Worth in a 13alance Sheet?
2. What is the formula to
obtain the Net Profit in a P&L Statement?
3. What components make up
the Statement of Cash Flow?
4. In a Profit and Loss Statement
where is "Other Income" placed? placed?
5. Are Assets usually Debit
or Credit balances?
6. what does "double entry"
mean?
7. Name one item that would
be classified as a Current Asset.
8. Name an item that would
be classified as a Fixed Liability.
9. what is the formula for
calculating Cost of Goods Gone?
10. what is the formula for calculating Gross Profit?
The purpose of this module is to teach the skills that are required to read, understand and to analyze income statements. The income statement, also known as the profit and loss statement, is the measure of how a business has performed over a specific period of time. Investments, purchases of assets and distribution of profit are just a few of the decisions that rely on the information provided in the income statement.
As a result of this course you will be able to:
Criteria
For Establishing Sales Departments
Sales Flow
If an item has substantial sales, it needs to be tracked on its own. For example in a snack shop, cigarettes should always be one department.
Gross Profit Percentages
Products which produce different gross profit percentages should be tracked separately. If not, when your profit and loss statement is produced, it is difficult to determine the proper weighted gross profit percentage. If the sales mix changes, it further complicates analysis of the gross profit margins arid percentages. An example is combining cigarettes with a gross profit percentage of 20% with groceries which has closer to a 35% gross profit margin.
Inventory Controls
It is difficult to control
inventory of a product that is not isolated into its own sales department.
If for example, dairy and fountain are combined, it is difficult to control
the inventory of either department. It also makes it more difficult to
be able to spot shrink(age in those product.
| Suggested Departments | Other Possible Departments |
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From the page and Department/PLU Codes,
fill in the departments you think your station should have and why. Be
prepared to discuss in class.
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Code Name |
Code Name |
Code Name |
Code Name |
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Code Name |
Code Name |
Code Name |
Code Name |
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Code Name |
Code Name |
Code Name |
Code Name |
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Code Name |
Code Name |
Code Name |
Code Name |
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Code Name |
Code Name |
Code Name |
Code Name |
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Code Name |
Code Name |
Code Name |
Code Name |
Illumines Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.
Starmins Food Shop
125 Intergalactic Way
Mars City, Mars 56556-3456
| Department |
Sales
|
| Fuel Gallons 205,000 | |
| Motor Fuel |
$235,000.00
|
| Cigarettes/tobacco |
$12,255.00
|
| Soft drinks |
$4,500.00
|
| Juice/Water |
$3,800.00
|
| Beer/Alcohol |
$4,000.00
|
| Snacks/Chips |
$3,500.00
|
| Candy/Gum |
$2,678.00
|
| Groceries |
$3,288.00
|
| H.A.B.A. |
$1,777.00
|
| Milk/Dairy |
$1,121.14
|
| Bakery/Breads |
$655.45
|
| Fountain |
$2,500.00
|
| Snack Bar |
$2,166.00
|
| Automotive/Oil |
$1,200.00
|
| Lotto/Lottery |
$1,556.00
|
| Car Wash |
$8,800.00
|
| Totals |
$288,796.59
|
|
|
|
| Purchases |
$241,500.00
|
| Total Cost |
5241,500.00
|
| Gross Profit |
$47,296.59
|
Illurninas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.
| Department |
Dollars
|
Sales %
|
| Employee Wages |
$10,500.00
|
3.6%
|
| Payroll Taxes |
$1,500.00
|
0.5%
|
| License & Taxes |
$100.00
|
0.0%
|
| Rent of Loan Interest |
$8,000.00
|
2.8%
|
| Maintenance/Repair |
$300.00
|
0.1%
|
| Insurance |
$400.00
|
0.1%
|
| Professional Service |
$300.00
|
0.1%
|
| Interest/Bank Charges |
$175.00
|
0.1%
|
| Supplies |
$250.00
|
0.1%
|
| Store Use |
$100.00
|
0.0%
|
| Advertising |
$250.00
|
0.1%
|
| Travel/Entertainment |
$50.00
|
0.0%
|
| Laundry/Uniforms |
$250.00
|
0.1%
|
| Vehicle Expense |
$70.00
|
0.0%
|
| Discounts/Refunds |
$25.00
|
0.0%
|
| Utilities/Telephone |
$1,900.00
|
0.7%
|
| Bad Debts |
$50.00
|
0.0%
|
| Cash Short(Over) |
$33.00
|
0.0%
|
| Lease Equipment |
$250.00
|
0.1%
|
| Credit Card Fees |
$220.00
|
0.1%
|
| Equipment Depreciation |
$1,000.00
|
0.3%
|
| Environmental Expense |
$100.00
|
0.0%
|
| Royalties/Advertising Fees |
$2,606.44
|
0.9%
|
| Total Expense |
$28,429.44
|
9.8%
|
| Net Profit (Loss) |
$18,867.15
|
6.5%
|
Illuminas Accounting Co.
123 West Audit Rd. Anyplace, U.S.A.
Starmins Food Shop
125 Intergalactic Way
Mars City, Mars 56556-3456
| Department |
Sales
|
Cost
|
Gross Profit
|
G.P%
|
C.P.G
|
| Fuel Gallons 205,000 | |||||
| Motor Fuel |
$235,000.00
|
$218,654.00
|
$16,346.00
|
7.0%
|
$0.080
|
| Cigarettes/tobacco |
$12,255.00
|
$9,191.25
|
$3,063.75
|
25.0%
|
$0015
|
| Soft Drinks |
$4,500.00
|
$2,925.00
|
$1,575.00
|
35.0%
|
$0.008
|
| Juice/Waters |
$3,800.00
|
$2,470.00
|
$1,330.00
|
35.0%
|
$0.006
|
| Beer/Alcohol |
$4,000.00
|
$3,000.00
|
$1,000.00
|
25.0%
|
$0.005
|
| Snacks/Chips |
$3,500.00
|
$2,275.00
|
$1,225.00
|
35.0%
|
$0.006
|
| Candy/Gum |
$2,678.00
|
$1,740.70
|
$937.30
|
35.0%
|
$0.005
|
| Groceries |
$3,288.00
|
$1,972.80
|
$1,315.20
|
40.0%
|
$0.006
|
| H.A.B.A. |
$1,777.00
|
$1,066.20
|
$710.80
|
40.0%
|
$0.003
|
| Milk/dairy |
$1,121.14
|
$224.23
|
$896.91
|
80.0%
|
$0.004
|
| Bakery/Breads |
$655.45
|
$393.27
|
$262.18
|
40.0%
|
$0.001
|
| Fountain |
$2,500.00
|
$750.00
|
$1,750.00
|
70.0%
|
$0.009
|
| Snack Bar |
$2,166.00
|
$1,191.30
|
$974.70
|
45.0%
|
$0.005
|
| Automotive/Oil |
$1,200.00
|
$720.00
|
$480.00
|
40.0%
|
$0.002
|
| Subtotal(C-Store) |
$43,440.59
|
$27,919.75
|
$15,520.84
|
35.7%
|
$0.076
|
| Lottery/Lotto |
$1,556.00
|
$1,478.20
|
$77.80
|
5.0%
|
$0.000
|
| Car Wash |
$8,800.00
|
$1,500.00
|
$7,300.00
|
83.0%
|
$0036
|
| Totals |
$288,796.59
|
$249,551.95
|
$39,244.64
|
13.6%
|
$0.191
|
Illurninas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.
| Department |
Dollars
|
Sales %
|
Gross Profit %
|
| Employee Wages |
$10,500.00
|
3.6%
|
26.8%
|
| Payroll Taxes |
$1,500.00
|
0.5%
|
3.8%
|
| License & Taxes |
$100.00
|
0.0%
|
0.3%
|
| Rent or Loan Interest |
$8,000.00
|
2.8%
|
20.4%
|
| Maintenance/Repair |
$300.00
|
0.1%
|
0.8%
|
| Insurance |
$400.00
|
0.1%
|
1.0%
|
| Professional Service |
$300.00
|
0.1%
|
0.8%
|
| Interest/Bank Charges |
$175.00
|
0.1%
|
0.4%
|
| Supplies |
$250.00
|
0.1%
|
0.6%
|
| Store Use |
$100.00
|
0.0%
|
0.3%
|
| Advertising |
$250.00
|
0.1%
|
0.6%
|
| Travel/entertainment |
$50.00
|
0.0%
|
0.1%
|