Cash Sales and Credit Sales - Essay Example

Accounting Form Adjustments/Workings Working Sales= Cash Sales + Credit Sales (Arora, Debtors Control A/c 2011Accounts receivables’ b/d 12600 Bad debts (cheque) 500 Sales (2011) 39900 Bank 52000 £52500 £ 52500Working-2 Debtors Control A/c 2012 Balc/d 52100 Accounts receivables’ b/c 10,000 bal b/d 38900 Bad debts 800 Credit Note Issued 2400 Credit sales 52 £10,000 £10,000Sales= Cash Sales + Credit Sales =£ 28800+£52100 = £34000Working 3Purchases= Cash Purchases + Credit Purchases Creditors Control A/c 2011 Balance b/d 4800 Bank 37000 Credit Purchases 32200 £37000 £ 37000Working 4 Creditors Control A/c 2012 Bal b/d 32200 Bank 7100 Balance c/d 40000 Discount received 700 £40000 £40000Working 5 Rates A/c 2011Balance b/d 400 Bank 2800 Profit and loss a/c (p&l) 3200 £ 3200 £ 3200Working-6 Rates A/c 2012 Profit and loss a/c (p&l) 500 Accrued Rates £500Working- 7 Loan Interest A/c 2011Balance b/d (8% of 10000) 800 Bank 600 Profit and loss a/c (loan interest) 1400 £1400 £ 1400Working- 8 Loan Interest A/c 2012Balance b/d (8% of 10000) 800 Accrued Loan Interest 200Bank 71000 Profit and loss a/c (loan Interest) 71600 £71800 £71800Working- 9 Drawings A/c 2012Balance sheet £600 Bal b/d £600 Working -10 Drawings A/c 2011Bal c/d £600 Bal b/d £19000Balance sheet 18400Working -11 Bank A/c 2011Bal b/d £ 76200 Bal b/d £ Creditors Control a/c 37000 Rates 2800 Loan interest 600 Debtors Control a/c 52000 Bal c/d 87800 128,200 128,200 Working-12 Bank A/c 2012Bal b/d £29400 Creditors Control a/c 800 Debtors Control a/c 800 Loan interest 71000 Bal c/d 41600 71,800 71,800 C.

Egget Sole TraderProfit and Loss AccountFor the Year Ended 2011 and 31st May 2013Details 31st May 2012 £Sales (working 1 and 2) 80900 Less Cost of Sales Opening Inventory 8200 Add Purchases (working 3 and 4) 40000Less closing Inventory (6400) (41800) Cost of Sales (39100)Gross Profit/loss £41800 Fewer ExpenseRates (working 5 and 6) (500) Loan Interest (29200)Bad Debts Written off (800) Motor Expenses (1400)Heating and Lighting (1500) (£33400) Net Profits/loss (8400)C.

Egget Sole TraderBalance Sheet of a sole trader at 2011/2012Details 2012 £ Non-Current AssetsEquipments 31800Current AssetsInventory 6400Bank (working-11 and 12) 14200Prepaid rates 400Account receivable 600 Total Assets 53400Financed ByLoan 10,000Drawings (600) Current LiabilitiesAccounts Payable 5000Accrued Rates 39,000Total Equity and liabilities 53400Accounting ratios 20121.

Profitability ratios -Gross Profit =Gross Profit = (£41800) = 0.52 Net sales 80900 (Beenhakker, 1996). -Net profit margins= Gross Profit × 100 (£41800) ×100= =52% Net sale 80900-ROCE ratio=Earnings before Interest and Tax = (8400) = 0.

264 Total Assets-Current Liabilities (53400-21600) (Bhattacharya, 2009).2. Efficiency ratio -Stock turnover rate=Cost of Goods Sold = 39100 =5.01 Average Inventory 7800 3. Liquidity ratios – Current ratio=Current Assets =21600 =0.49 Current Liabilities 44000 (Mukherjee and Mohammed, 2006).

-Acid test ratios= Current Assets – Inventory= 21600-7800=0.314 Current liabilities 44000 (Bradshaw and Brooks, 1996).4. Stability ratio – Gearing ratio=Long term liability = 10,000=1 Capital employed 53400 (Bose, 2010).Comment on the above ratios Based on the above financial ratio it can be observed that profitability ratios computed above were higher in 2012.

This means that the company was able to make more profits in 2012 than in 2013 (Stickney, 2010). In addition, the company was able to manage its cost/expenses in 2012 than in 2011. On the other hand, the turnover ratio in 2011 was low compared to 2012. This means that the employee was more satisfied with their job in 2011 as compared to the year 2012 (Kleinbrod, 2006). The current and acid test ratio was less in 2012. This means that the company's ability to meet its creditor’s obligation was compromised during this period.

However, in 2012 the current and acid test ratio was 0.314. This means that the ability of the company to meet its creditor’s obligation increased. Finally, the gearing ratio in 2011 and 2012 remained constant (Gupta, 2005). This means that the level of financial risk because of financing business via debt remains higher during the two financial periods (Khan and Jain, 2010).