Analysis of Financial Statements
    Objective of the Course
    Balance Sheet
       Financial Statement (example)
       Expenses (example)
       Statement of Cash FIows (example)
    Formulas Used by Accountants to Prepare Balance Sheet
    Formulas Used by Accountants to Prepare Profit and Loss Statement
    Components of Cash Flow Statement
    Formula for Cash Flow
    Key Terms and Concepts
    Review
    Test on Analysis of Financial Statements

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.
Return To The Table Of Contents
 

Objective of the Course



 

As a result of this course you will be able to:

  1. Balance Sheet
  2. Profit and Loss Statement
  3. Statement of Cash Flow


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.
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Balance Sheet


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
Fuel Gallons 205,000
 
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
Return To The Table Of Contents

Illuminas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.

Expenses
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%
Return To The Table Of Contents
 
 

Statement of Cash FIows
For the Periods Ended December 31, 1996

 
1 Month Ended Dec. 31 1996
2 Months Ended Dec. 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
Return To The Table Of Contents
 

Formulas Used by Accountants to Prepare Balance Sheet


Assets - Liabilities = Net Worth

Net Worth + Liabilities = Assets

Net Worth - Assets = Liabilities

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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

Return To The Table Of Contents

Components of Cash Flow Statement


Return To The Table Of Contents
 

Formula for Cash Flow


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

List of items to place in above 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
 

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Key Terms and Concepts


These are key terms and concepts of this module:

  1. Assets
  2. Liabilities
  3. Net Worth
  4. Double Entry
  5. Journals
  6. DayBook
  7. Debits and Credits


Return To The Table Of Contents
 

Review


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.

  1. Ledgers that are kept to record transactions.
  2. The term accountants use when posting entries to Journals.
  3. Everything you own.
  4. The book you post all transactions for the day.
  5. The term accountants use as their system for doing the books.
  6. Assets minus liabilities.
  7. Everything you owe.
Return To The Table Of Contents
 

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?

Return To The Table Of Contents
 

Analysis Of Income Statements


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.

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Objectives of the Course


As a result of this course you will be able to:

  1. Calculate and evaluate Gross Profits
  2. Calculate and evaluate Gross Profit Percentages
  3. Understand percentage of expenses to Gross Profit
  4. Determine what method of accounting your accountant is doing
  5. Determine how bad accounting affects your profits and taxes
  6. Analyze your Income Statement in detail
  7. Analyze your mix of sales, gross profits and expenses
  8. Analyze your inventory turns
  9. Determine your inventory loss from the Income Statement
  10. Why departmentalization is important


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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
  • Gasoline
  •  
  • Cigarettes 
  •  
  • Tobacco 
  •  
  • Soft Drinks 
  •  
  • Beer/Wine 
  •  
  • Fountain 
  •  
  • Deli/Snack Bar 
  •  
  • Snacks/Chips/Nuts
  •  
  • Candy/Gum/Cookies
  •  
  • Groceries 
  •  
  • Milk/Dairy
  •  
  • Juice/Waters
  •  
  • News/Magazines
  •  
  • H.A.B.A.
  •  
  • Automotive/Oil
  •  
  • Lottery
  •  

 

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.
 
DEPARTMENT 1
DEPARTMENT 2
DEPARTMENT 3
DEPARTMENT 4
 
     
ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

       
       
       
       
       
       
       
       
       
DEPARTMENT 5
DEPARTMENT 6
DEPARTMENT 7
DEPARTMENT 8
 
     
ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

       
       
       
       
       
       
       
       
       
DEPARTMENT 9
DEPARTMENT 10
DEPARTMENT 11
DEPARTMENT 12
 
     
ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

       
       
       
       
       
       
       
       
       
DEPARTMENT 13
DEPARTMENT 14
DEPARTMENT 15
DEPARTMENT 16
 
     
ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

       
       
       
       
       
       
       
       
       
DEPARTMENT 17
DEPARTMENT 18
DEPARTMENT 19
DEPARTMENT 20
 
     
ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

       
       
       
       
       
       
       
       
       
DEPARTMENT 21
DEPARTMENT 22
DEPARTMENT 23
DEPARTMENT 24
 
     
ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

ARTICLE

Code Name

       
       
       
       
       
       
       
       
       

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Illumines Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.

(Sample of Bad Accounting)

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
Cost of Goods Sold
Purchases
$241,500.00
Total Cost
5241,500.00
Gross Profit
$47,296.59

Return To The Table Of Contents

Illurninas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.

Expenses
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%

Return To The Table Of Contents

Illuminas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.
 

(Sample of Poor Accounting)

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

Return To The Table Of Contents

Illurninas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.




Expenses
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%
Laundry/Uniforms 
$250.00
0.1%
0.6%
Vehicle Expense
$70.00
0.0%
0.2%
Discounts/Refunds
$25.00
0.0%
0.1%
Utilities/Telephone
$1,900.00
0.7%
4.8%
Bad Debts
$50.00
0.0%
0.1%
Cash Short/(Over)
$33.00
0.0%
0.1%
Lease Equipment
$250.00
0.1%
0.6%
Credit Card Fees
$220.00
0.1%
0.6%
Equipment Depreciation
$1,000.00
0.3%
2.5%
Environmental Expense
$100.00
0.0%
0.3%
Royalties/Advertising Fees
$2,606.44
0.9%
6.6%
Total Expenses
$28,429.44
9.8%
72.4%
Net Profit (Loss)
$10,815.21
3.7%
27.6%
Return To The Table Of Contents
 

Financial Management and Accounting


Industry Standards

This module covers the financial and business management aspects of the business, the accounting records used to analyze the business, and the retention of business records.

Business records for the operation of the Star Mart should be retained according to IRS, EPA, and state agencies.

Since this business is a products business, we will start by reviewing the profits of the products sold. It should be noted that these profits are for non-fuel and do not include any oil company reimbursements. We will start by looking at the gross profit averages for the departments listed. We will then look at the effect of sales and gross profits on the business profitability.

The following are guidelines for your Star Mart. They should be used only until you have established your own customized objectives. The guidelines are based on industry averages.
 
 

Star Mart Gross Profit Guidelines


  • Tobacco/Cigarettes
20%
  • Beer/Wine
26%
  • Soft Drinks (non-fountain)
33%
  • Soft drinks (fountain)
60%
  • Fast foods/food service
45%
  • Oil/Auto motive
33%
  • Deli/snack bar
45%
  • Milk/Dairy
18%
  • Baked goods
36%
  • Ice Cream (Freezer)
33%
  • Groceries
31%
  • Candy
38%
  • Newspapers/Magazines
23%
  • Snacks
39%
  • Lottery tickets
5%
  • Total gross profit (average 35%)

*excludes fuel and fountain

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Gross Profit Percentage Factors

Gross profit percentages are effected by the following:

  1. Shrink (product loss)
  2. Vendor purchase program and pricing
  3. Correctness of your inventory
  4. Product mix
The Profit and Loss Statement (Income and Expenses)

To analyze a profit and loss statement it should meet three basic criteria.

  1. Accurate
  2. Timely
  3. Useful
The profit and loss statement is a snap shot of the business taken at a specific point in time. In addition, it is the report card of the business. The result of all things operationally will be reflected eventually in the profit and loss statement. Some things will be reflected quickly, others will take more time.

For example, having too much staff will show up as an immediate budgetary problem resulting in high payroll and reduced profits. The key to making money in the Star Mart is running with the appropriate staff for the sales volume of the business.

Another example of a problem that will reflect itself promptly is gross profit. If your objective for soft drinks is, as shown, 35-40%, and you only achieve a gross profit of 25% because of high shrink you have a 10% shortfall of profits. If you sold $4,000 in soft drinks, that 10% would be a loss of $400 in profits.

In addition to the profit and loss statement there are other Star Mart management report that should be created and reviewed:
 
 

Daily

  1. Cash Balancing Report
  2. Cash Balancing Summary by Shift
  3. L.P.O.S. End of Shift and End of Day Reports
  4. Critical Inventory Summary
  5. All Cash Audits and Journal Audit Forms
  6. Department Sales Report
  7. Cash Paid Out Report
Monthly
  1. Inventory Turnover Report
  2. Inventory Ratio Analysis
  3. Department Sales Report
  4. Purchase Analysis Summary by Vendor
  5. G/L Weekly Overview Report
  6. Monthly Sales History
  7. Purchase Analysis Detail be Department
All of the management reports listed analyze your business in the following areas:
  1. Sales analysis

  2. Product turnover analysis
    Hit rate analysis
    Shelf space analysis
    Sales trends
     
  3. Profit Analysis

  4. Price books
    Shelf space analysis
    Inventory ratio summary
    Velocity report/month to date category analysis
    Shrink analysis
     
  5. Expense Analysis

  6. Budget vs. actual comparison
    Payroll hours and expense analysis
From the information given in the following Profit and Loss Statements, analyze and determine what areas are strong and weak. Be prepared to discuss in class. As your tools use the following: Card showing national standards for Gross Profit percentages and expenses and the Industry Averages by Product Category sheet.

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Illurninas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.

(Sample of Poor Accounting)

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%
$0.015
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
Lotto/Lottery
$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%
$0.036
TotaIs
$288,796.59
$249,551.95
$39,244.64
13.6%
$0.191

Return To The Table Of Contents

Illuminas Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.






Expenses
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%
Laundry/Uniforms
$250.00
0.1%
0.6%
Vehicle Expense
$70.00
0.0%
0.2%
Discounts/Returns
$25.00
0.0%
0.1%
Utilities/Telephone
$1,900.00
0.7%
4.8%
Pad Debts
$50.00
0.0%
0.1%
Cash Short/(Over)
$33.00
0.0%
0.1%
Lease Equipment
$250.00
0.1%
0.6%
Credit Card Fees
$220.00
0.1%
0.6%
Equipment Depreciation
$1,000.00
0.3%
2.5%
Environmental Expense
$100.00
0.0%
0.3%
Royalties/Advertising Fees
$2,606.44
0.9%
6.6%
Total Expenses
528,429.44
9.8%
72.4%
Net Profit (Loss)
$10,815.21
3.7%
27.6%

 

Illurniuns 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%
$0113
Cigarettes/tobacco
$12,255.00
$9,000.00
$3,255.00
26.6%
$0.023
Soft Drinks
$4,500.00
$2,900.00
$1,600.00
35.6%
$0.011
Juice/Waters
$3,800.00
$2,600.00
$1,200.00
31.6%
$0.008
Beer/Alcohol
$4,000.00
$3,100.00
$900.00
22.5%
$0.006
Snacks/Chips
$3,500.00
$2,300.00
$1,200.00
34.3%
$0.008
Candy/Gum
$2,678.00
$1,800.00
$878.00
32.8%
$0.006
Groceries
$3,288.00
$2,200.00
$1,088.00
33.1%
$0.008
H.A.B.A.
$1,777.00
$1,145.00
$632.00
35.6%
$0.004
Milk/Dairy
$1,121.14
$966.22
$154.92 
13.8%
$0.001
Bakery/Breads
$655.45
$422.76
$232.69 
35%
$0.002
fountain
$2,500.00
$950.00
$1,550.00
62.0%
$0.011
Snack Dar
$2,166.00
$900.00
$1,266.00
58.4%
$0.009
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%
$0.051
Car Wash
$8,800.00
$1,500.00
$7,300.00
83.0%
$0.051
Totals
$288,796.59
$250,762.98
$38,033.61
13.2%
$0.213

Return To The Table Of Contents
 
 

Illumines Accounting Co. 123 West Audit Rd. Anyplace, U.S.A.






Expenses
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/flank 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
$28,429.44
9.8%
74.7%
Net Profit (Loss)
$9,604.17
3.3%
25.3%

Return To The Table Of Contents
 
 

Information Flow to Profit and Loss Statement



 

From Profit and Loss statement
Sample Sales Report



 
 
 
 
 
 
 
 

Sales as shown come from Monthly Sales Report

Department
Sales
Fuel Gallons 144,339
Gasoline
$195,733.11
Cigarettes/Tobacco
$7,550.33
Soft Drinks
$2,755.10
Juice/Waters
$1,275.22
Beer/Alcohol
$3,311 11
Snacks/Chips
$2,156.15
Candy/Gum
$2,133.16
Groceries
$756.44
H.F.
$234.15
Milk/Dairy
$1,121.14
Bakery/Breads
$65 5.45
Fountain
$1,333.46
Snack Bar
$675.44
Automotive/Oil
$955.25
Lotto/Lottery
$1,555.00
Subtotal Store
$26,473.40
Totals
$222,2O6.51

Statement of Costs


 
 
 
 

Beginning Inventory Plus Purchases Minus Ending Inventory equals cost. The Purchases come from the Monthly Purchase Summary

Department
Costs
Motor Fuel
$185,225.24
cigarettes/Tobacco
$6,435.25
Soft Drinks
$1,702.12
Juice/Waters
$877.33
Beer/Alcohol
$2,505.00
Snacks/Chips
$1,445.90
Candy/Gum
$1,401.35
Groceries
$501.00
H.B.A
$165.65
Milk/Dairy
$966.22
Bakery/Breads
$422.76
Fountain
$656.25
Snack Bar
$488.12
Automotive/Oil
$700.00
Lotto/Lottery
$1,415.00
Subtotal Store
$19,741.95
Totals
$2O4,967~19

Note that the cost departments match the sales departments. This was discussed in an earlier module where the retail inventory method was discussed.
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Sample Gross Profit Statement



 

 

This information is provided to the accountant from a combination of check stubs and invoices.

Department
Gross Profit
G.P.%
Motor Fuel
$10,507.87
5.4%
Cigarettes/Tobacco
$1,115.08
14.8%
Soft Drinks
$1,052.98
38.2%
Juice/Waters
$397.89
31.2%
Beer/Alcohol
$812.11
24.5%
Snacks/Chips
$710.25
32.9%
Candy/Gum
$731.81
34,3%
Groceries
$255.44
33.8%
Gross Profit Dollars divided by the sales in each department equals Gross Profit Percentages. H.B.A.
$68.50
29.3%
Milk/Dairy
$154.92
13.8%
Bakery/Breads
$232.69
35,5%
Fountain
$677.21
50.8%
Snack Bar
$187.32
27.7%
Automotive/Oil
$255.25
25.7%
Lotto/Lottery
$80.00
5.1%
Subtotal Store
$6,731.45
25.4%
Totals
$17,239.32
7.8%

By comparing the gross profit percentages with the guidelines, you should be able to identify possible gross profit problems.
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Sample Expense Statement



 

 
 
 
 
 
 

Sales minus cost equals Gross Profit Dollars

Department
Dollars
Sales %
Gross Profit %
Employee Wages
$6,875.00
3.1%
39.9%
Payroll Taxes
$900.00
3.4%
5.2%
License & Taxes
$50.00
0.0%
0.3%
Rent
$5,500.00
20.89%
31.9%
Maintenance/Repair
$] 12.00
0.4%
0.6%
Insurance
$400.00
1.5%
2.3%
Professional Service
$250.00
0.9%
1.5%
Interest/Bank Charges
$115.00
0.1%
1.0%
Supplies
$195.00
0.7%
1.1%
Store Use
$20.00
0.1%
0.1%
Advertising
$177.78
0.7%
1.0%
travel/Entertainment
$35.00
0.1%
0.2%
Laundry/Uniforms
$55.00
0.2%
0.3%
Vehicle Expense
$70.00
0.3%
0.4%
Discounts/Refunds
$25.00
0.1%
0.1%
Utilities/Telephone
$200.00
0.8%
1.2%
Bad Debts
$50.00
0.2%
0.3%
Cash Short/(Over)
$33.00
0.1%
0.2%
Lease Equipment
$125.00
0.5%
0.7%
Credit Card Fees
$220.00
0.8%
1.3%
Equipment Depreciation
$215.00
1.0%
1.6%
Environmental Expense
$25.00
0.1%
0.1%
     
0.0%
Total Expenses
$1 5,761.788
59.6%
91.5%
Net Profit (Loss)
$1,471.54
5.6%
21.9%

Return To The Table Of Contents

Key Terms and Concepts


These are key terms and concepts of this module:

  1. Components
  2. Purchase Method
  3. Averaging on Margin Method
  4. Inventory Method
  5. Mix of Product
  6. Operational Expenses
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Review


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.

  1. What kind of products are selling.
  2. Beginning inventory plus purchases minus ending inventory.
  3. Sections of income statement.
  4. Costs of operation.
  5. All items bought during month counted as cost of sales.
  6. Showing desired Gross Profit Percent with cost being forced,
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Test On Analysis of Income Statement


Name of Participant

  1. Name five departments you would have on your EPOS in a Star Mart?

  2.  

     
     
     
     
     
     

  3. If the cost of an item is $1.34 and the price is $1.65, what is the Gross Profit and the Gross Profit percentage?

  4.  
  1. Of the following methods, which would you choose to have your accountant track your inventory and why?
  1. If my intended gross profit is 33% and the cost of an item is $2.45, what will my price be?

  2.  

     
     
     
     
     
     
     

  3. What is shrink and why is it important to track?

  4.  

     
     
     
     
     
     
     

  5. If I have an ending inventory of $560 and I sell $33 per day, how many days of inventory do I have in stock and how many times will it be sold in one year?

  6.  

     
     
     
     
     
     
     
     
     

  7. If my wages are $5,000 and my gross profit on gasoline is $10,000 and my gross profit on the Star Mart is $7,000, what is my percent of wages to total Gross Profit?

  8.  

     
     
     
     
     
     
     
     
     

  9. If I purchase a Star Mart for $400,000, and my profit per year is $70,000, how many years will it take me to have a full return on my investment?

  10.  

     
     
     
     
     
     
     
     
     

  11. If I have a beginning inventory of $35,768 and my purchases for the month were $45,987 and my ending inventory is $33,615, what is my Cost of Goods Gone?

 
 

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