The report will be divided accordingly: The first section of the report will discuss the principles of bookkeeping and accounting, giving an understanding as to why financial statements are important and how Gemma can use these financial statements to aid her in decision making. It will also answer the Gemma's first question regarding her profits. The second pat of the report will discuss Gemma's business as it compares with the industry figures. Based on the figures, the report will also indicate the areas in her business that require improvements and provide suggestions on how these can be improved. The third part of the report will discuss Gemma's plans for expansion and provide suggestions on how profitability can be ensured during and after expansion. A section to coordinate the whole report will come after and provide concluding comments regarding the whole report.
Gemma's catering business is a private enterprise under single proprietorship. Even though this does not obligate her to publish her accounts, it does not exclude her from having to document her financial records for taxation and other legal purposes. There are at least three minimum documents needed to properly audit her company's finances. Among these are the balance sheet, the income statement, and the cash flow statement, each of which has a specific purpose within a business enterprise.
The balance sheet, from which a company's assets are balanced with their liabilities, "shows a 'snap shot' of the firm at the particular point in time"(Blandon, 2001). It contains important information such as the company's assets (cash in bank, stock, debtors, and fixed assets), liabilities (creditors, tax payables, other types of liabilities such as long-term loans), and net worth. By understanding the relationship between the information contained in balance sheet, a business owner can learn valuable information such as: the sources and uses of cash, which indicates if cash was obtained through sales or loans and if the cash obtained was used to buy inventory, purchase equipment or kept in the bank; the type of assets a company owns that indicates where a company's profits are - is it in the form of cash, or could it be in the form of debit, which the company has yet to receive; how much money the company owes others, and with what timeframe should the company settle these accounts; the book value of a company's equipment and fixed assets; and more importantly, how much actual cash does the company have
The aforementioned information contained in the balance sheet can greatly help company owners understand the trends in their business, and consequently aid them towards more informed decision making. In Gemma's case, the balance sheet reveals that most of her current assets are in the form of debtors. This shows that, while she constantly makes profits in her business, based on the profit and loss statement that she submitted, the bulk of her profits are in