B120 Finance Question
TMA 03- Designer Labels
Question 1
a) An income statement is used to show profit and loss; Kathryn can compare each financial year to see how the company is getting on and what department is doing well. An income statement will show all expenses incurred in the business such as delivery, office space, staff wages and the products. The income statement becomes useful to Kathryn when deciding to see how Designer Labels is getting on because it would show the income from sales and this can be broken down rather than just showing a sum of money. The sales will be matched up against the costs of goods so she can see how much profit is made. This statement should also give a growing business an idea of the projected income for the next year. Statements like this use accrual accounting which is done by looking at income and expenditure projections are usually undertaken by professional judgements of accountants.
b) The income statement for Designer Labels shows the year 2011 and 2012. Kathryn may look and see that the income had dropped by 12.5% in year ending 2012. However more money was used on wages, maintenance, delivery and travel. Another aspect that may have affected the profit is that the 2011 year had 17.7% more stock then the 2012 year. Looking at the statement I do not think that there are any particular concerns for Kathryn to look at other than the net profit at the end. Kathryn has increased more expense then in her previous year. You can see the net profit has dropped significantly; the increase of money spent on wages can be blamed for some of the 81% drop in profit between the years 2011 and 2012 as expenses only went up by 4%. I believe this could be due to Kathryn not investing in as much stock and she may be overstaffed.
Question 2
a) The purpose of a balance sheet is to show the financial position of a business; each accounting period has 2 balance sheets and 5 basic accounting elements these are- incomes, expenses, liabilities, assets and
Question 1
a) An income statement is used to show profit and loss; Kathryn can compare each financial year to see how the company is getting on and what department is doing well. An income statement will show all expenses incurred in the business such as delivery, office space, staff wages and the products. The income statement becomes useful to Kathryn when deciding to see how Designer Labels is getting on because it would show the income from sales and this can be broken down rather than just showing a sum of money. The sales will be matched up against the costs of goods so she can see how much profit is made. This statement should also give a growing business an idea of the projected income for the next year. Statements like this use accrual accounting which is done by looking at income and expenditure projections are usually undertaken by professional judgements of accountants.
b) The income statement for Designer Labels shows the year 2011 and 2012. Kathryn may look and see that the income had dropped by 12.5% in year ending 2012. However more money was used on wages, maintenance, delivery and travel. Another aspect that may have affected the profit is that the 2011 year had 17.7% more stock then the 2012 year. Looking at the statement I do not think that there are any particular concerns for Kathryn to look at other than the net profit at the end. Kathryn has increased more expense then in her previous year. You can see the net profit has dropped significantly; the increase of money spent on wages can be blamed for some of the 81% drop in profit between the years 2011 and 2012 as expenses only went up by 4%. I believe this could be due to Kathryn not investing in as much stock and she may be overstaffed.
Question 2
a) The purpose of a balance sheet is to show the financial position of a business; each accounting period has 2 balance sheets and 5 basic accounting elements these are- incomes, expenses, liabilities, assets and