Introduction To Finance And Accounting

Learning outcome 1: Prepare basic financial statements for sole proprietorship and explain how they interrelate

Learning outcome 2: Prepare a trial balance using relevant accounting concepts including prepayments, accruals and depreciation

Learning outcome 3: Explain the purpose of accounting and demonstrate abilities to be able to analyse and record transactions for merchandise purchases.

BACKGROUND

The assignment is based on Yours Trader, a sole proprietorship. You work in the business as a consulting Finance Analyst. You are expected to assess the financial performance of the business for the year ended December 31, 2023. The financial performance can only be measured from the financial statements; hence you will be required to first extract a trial balance from which you then prepare the financial statements for the business. The financial statements comprised the Statement of Profit and Loss and the Statement of Financial Position (Balance Sheet).

Your assistant has informed you that s/he has extracted the account balances listed below along with additional information for the purpose of preparing the trial balance:

The business;

owes £250 in loan interest
has prepaid insurance £500
You are to use these financial statements to assess Yours Trader's financial performance measured against the ratios published by the Confederation of British Industry (CBI). You are to assess whether Yours Trader is likely to be accepted as a member of the CBI.

Your coursework requires you to communicate in writing in a clear and effective manner, including a description, explanation, and analysis of tasks 1 and 2.

The recommended structure of your submission is:
Front cover with appropriate title
Table of contents
Findings - calculations, statements, explanations and analysis
Conclusion
References
Appendices

SECTION A

TASK 1

Preparation of the Trial Balance and the Financial Statements

Using the list of balances in the partially completed trial balance and the additional information, you are REQUIRED to:

Extract a Trial Balance for the business at December 31, 2023 by extending the account balances to the appropriate debit (DR) or credit (CR) column in the table and totalling each column.

Explain what the purpose of the trial balance is and;

Explain the source and structure of the trial balance.

Prepare the Statement of Profit and Loss

Explain the purpose of the Statement of Profit and Loss.

Prepare the Statement of Financial Position (Balance Sheet).

Explain the purpose of the Statement of Financial Position and explain the headline figures in the statement.

SECTION B

TASK 2

Interpretation of the Financial Statements

Yours Trader is seeking to join the Confederation of British Industry (CBI), the CBI however, only accepts new businesses if their performance is above the CBI's benchmark. The CBI benchmark is in the form of six (6) profitability, liquidity and efficiency ratios given below:

Using the financial statements produced in Task 2 you will need to assess whether YOURS Trader is likely to be accepted as a new member of the CBI, hence you are REQUIRED to:
Calculate the identical ratios published by the CBI for Yours Trader.

Compare the ratios you have calculated with the CBI's ratios.

Use the results of your calculations to analyse and interpret each ratio.
Assess whether the CBI will accept the business.