B120 TMA03 
Part I
Question 1
a.) The income statement, also called the profit & loss account (P & L), is used to illustrate a company’s revenues and expenses over a particular period of time. It shows the net profit and/or loss for the given period (the difference between the business’ total income and its total costs). It also allows shareholders to see the performance of the business and if it has made an acceptable profit.
An income statement is very useful when assessing the performance of John’s Furniture as it shows what changes can be made in order for the business to be more profitable in the next financial year and what immediate areas needs to be focused on in order to save on expenses.
b.) By looking at the statement, there are a few reasons for concern. The first thing I would like to point out is that even if the business is making a profit, the margin from 2011 to 2012 has decreased dramatically. The net profit is £249,200 less than previous year. A decreasing net profit means less money to spend in to the business for next year. Another cause for concern is the cost of goods sold for 2012, a cost of £793,300, compared to the gross profit of £799,000. This is concerning as the business is spending too much money on stock without barely making a profit.
Marketing expenses has decreased from £84,000 to £27,000. While this is considered as an expense for the business it is also an investment supporting the business. With the predicted product demand increase in mind, marketing should be invested in, as this will return a profit.
Another cause of concern is the amount spent on wages and salaries, an increase by £33,200 compared to previous year. The cost has risen but there is no greater outcome in terms of profit.
Looking at purchases and the cost of £861,000, deducted with the purchase of the sawing equipment of £160,000, shows a difference of £45,900 compared to purchases made 2011. Comparing this with the less closing stock, a margin of £67,000
Question 1
a.) The income statement, also called the profit & loss account (P & L), is used to illustrate a company’s revenues and expenses over a particular period of time. It shows the net profit and/or loss for the given period (the difference between the business’ total income and its total costs). It also allows shareholders to see the performance of the business and if it has made an acceptable profit.
An income statement is very useful when assessing the performance of John’s Furniture as it shows what changes can be made in order for the business to be more profitable in the next financial year and what immediate areas needs to be focused on in order to save on expenses.
b.) By looking at the statement, there are a few reasons for concern. The first thing I would like to point out is that even if the business is making a profit, the margin from 2011 to 2012 has decreased dramatically. The net profit is £249,200 less than previous year. A decreasing net profit means less money to spend in to the business for next year. Another cause for concern is the cost of goods sold for 2012, a cost of £793,300, compared to the gross profit of £799,000. This is concerning as the business is spending too much money on stock without barely making a profit.
Marketing expenses has decreased from £84,000 to £27,000. While this is considered as an expense for the business it is also an investment supporting the business. With the predicted product demand increase in mind, marketing should be invested in, as this will return a profit.
Another cause of concern is the amount spent on wages and salaries, an increase by £33,200 compared to previous year. The cost has risen but there is no greater outcome in terms of profit.
Looking at purchases and the cost of £861,000, deducted with the purchase of the sawing equipment of £160,000, shows a difference of £45,900 compared to purchases made 2011. Comparing this with the less closing stock, a margin of £67,000
References: Day, J, Eller, L, Preston, D, Watson, G (2011), An introduction to accounting and finance in business, Milton Keynes, The Open University.