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In Assignment

Financial Accounting and Analysis

Answer 1- Introduction- Accounting is the process of recording financial transactions

pertaining to a business. The art of Recording, Classifying & Summarizing in a significant manner
& in terms of Money transaction and events which are, in part of least, financial character and
interpreting the results thereof. It is taken as Identification as like whether financial or not,
Journalizing as recording, Ledgers as classifying, trial balance as submersing, profit and loss
statement and balance sheet as interpreting the result there. For Example- A School admits 15
students for a term

13 students pay fees

Of 50,000rs/each
15

2 students are admitted free of cost as a social

welfare measurement

Concept and application- Users and uses of accounting-

In this users and uses of accounting there is of two types that is Internal and external users. In
internal, interested parties who need the accounting information to make decisions such as
plans, organization and run the business. In external users they are not directly involved in the
running of an organization. It has limited access to a firm’s accounting information. Depend on
reliable, relevant and comparable accounting information to make important decisions.

1. Owners- Object of doing business is to make profit. Owner always wants to know
Profitability and financial soundness of business.
2. Managers-
 Run the business
 Take decisions
 Analyze organization’s performance & position to improve firms results
 Eyes and ears of managers

3. Employees-
 Payment of bonus
 Job security
 Increase in salary
 Better working conditions

4. Investors-
 Invest money in company in form of equity/share
 They need to know about Profitability, financial wealth, about the
company.
 To decide whether they should invest it company or not.

5. Government-
  Government collects tax and gives subsidy to business entity.
 To take this decision they need to know about Profitability and financial
soundness and other information.
 They want to know whether the business is paying taxes according to
current tax law.

6. Creditors-
 They sell goods to the business entity on credit
 They always want to know whether the business is able to pay back or not
 They want to know about liquidity of the business entity

7. Lenders-
  Lender is to lend money for buying property
 Can be banks, credit unions or private individuals

Conclusion- So, whilst the focus of financial accounting is on meeting the needs of external
users of financial information, the focus of management accounting is on meeting the needs of
internal users of financial information.

Answer 2- Introduction- Elements of Balance sheet- A Balance Sheet is a financial

statement, which gives an idea about the current financial position of the firm. It is like a
snapshot of what the company owes and what it owes to various stakeholders. It is termed as a
balance sheet, since it represents equality – “sources of funds any business has, equal the uses
of these funds for buying resources for the business.”

There are 3 elements of balance sheets that is- Assets, Liability and equity.
Concept and application- So let’s see what are all the elements of balance sheet, which can
help Mr. Kohli in his Amul industry business.

1) Assets- Assets are probable future economic benefits obtained or controlled by a

particular entity as a result of past transactions or events.
 In this fixed assets are meant for long term use.
 It is not acquire for the purpose of resale.
 Fixed assets are of two types: tangible and intangible.
 Tangible fixed assets have physical existence, while intangible fixed assets do not.
 Account receivable (money owed to you)
 Also advance payment you made
a) Investments- Money invested outside the business is called investment.
 Investments made for a period of more than one year are called long-term
investments.
 Investments made for a period of less than one year are called current
investments.
 Long-term investments are referred to as non-current assets, short-term
investments are included in current assets.
b) Fixed assets- A fixed asset is acquired for the purpose of use in the business for a period
of time. (more than 12 months) E.g. Equipments and machinery
c) Current assets- Anything owed by the business which is likely to be turned into cash
within the next one year. E.g. stocks, debtors cash.

Assets = Capital + liabilities

Capital=assets-liabilities
 2) Liabilities- liabilities are probable future sacrifices of economic benefits arising from
present obligations of a particular entity to transfer assets or services to other entities in
the future as a result of a past transactions or events.
 Equity share capital
 Preference share capital
 Reserves & Surplus
Types of liabilities- Fixed liabilities- These are those liabilities that will not be due for a
comparatively long time, usually more than one year.
Current liabilities- These are those liabilities which will be due within a short time, usually one
year or less. E.g. - Trade creditors, bills payable etc.

a) Long-term Liabilities-
 Include borrowings from banks or financial institutions for a period of more than one
year.
 It may be secured or unsecured.
 In the case of secured loans, some assets of the firm serve as collateral for the loan.

b) Short-term liabilities- Short term or current liabilities are those that must be settled
within one year, for example, creditors (account payable), outstanding expenses etc.

3) Equity- It is the residual interest in the assets of an entity that remains after deducting
its liabilities. In a business enterprise, the equity is the ownership interest.

 Gives a snapshot of the health of your business

 Hopefully is it not a negative number

Uses of balance sheet- Balance sheet give an idea about a firm’s

 Solvency
 Liquidity
  Ability to provide money to shareholders

Limitations of balance sheet-

 Balance sheet elements should not be interpreted as market value. For most firms, the
balance sheet consists of a mixture of values.
 Balance sheet only gives data as on a point of time.

Conclusion- So, Balance sheet is useful to both investor and lenders. Investors analyze the
balance sheet to form an opinion about the financial strength of the business. Lenders use the
balance sheet to understand the capacity of the entity to repay the borrowed money.

If the balance sheet is well managed, social services will be provided cost effectively and
efficiently and taxpayers will be assured they are receiving value for money.

If the balance sheet in aggregate is well managed, we will also be able to be confident that it is
providing society with in-built resilience to the next big economic, financial or natural disaster
shock.

Below is one example of one of balance sheet:-

Answer 3a) - Introduction- Here, L&T company declared the dividend of rupees of 50 per
share, the amount will reflect at the end of financial year.

Concept- The income we earned which we not collected yet account during the current
financial year. The income we received here is dividend receivable where dividend increases the
current liabilities amount on the balance sheet.

Answer 3b) - Introduction- Here, Mehta brothers receive advance is an income or expanse.
The received income is prepaid income.

Concept- In this, 100% advance for goods which are received by Mehta Brothers will be
supplied in the next month is a prepaid income; however, it’s not revenue or expanse. This is
receivable or payable as cash method. Here, prepaid income increases the current liabilities on
the balance sheet until the customers get their product.