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Finance & Accounting
Pages 4 (1004 words)
[Student Name] [Course Title] [Instructor Name] [Date] Modern Furniture (1.a) Purpose of Profit and Loss Account: Profit and loss account is one of key area of the financial statements. It covers the transaction relating to the two fundamentals of accounting; that is the revenue, and expenses (Day and Krakhmal).
However, profit and loss account does not provide information about future. (1.b) Profit and Loss Account Review: When looking at the profit and loss account of the Modern Furniture of both years, there are some items that are worth considering for decision making. The gross profit has declined by 10.75% from 2011. The major reason is the increase in the inventory cost. The other important thing to notice is that, there is a sharp decline of 5.8% in the net profit from last year which clearly indicates that there are no effective controls over the cost. Specially, salaries, maintenance and cleaning costs have increased to a significant amount. In addition to the facts mentioned above the Modern Furniture has also paid a bank interest of ?5200 due to the bank overdraft facility availed by the business in 2012; whereas, there was no such facility in the previous year. Marketing cost has also increased to ?51,500 from ?45,000 which is normal in a growing business like Modern Furniture. (2.a) Purpose of Balance Sheet: As the profit and loss account shows the results of revenue and expenses for the whole year, the balance sheet reflects the financial position of the entity on a particular point of time including the details of total assets, liabilities and owner’s equity. ...
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