report

Dear Student

Please go back to the assignment and solve it according to the requirements

In point 2.1, show the transaction effect in the accounting equation

In 2.3 part b and c, make ledger and trail balance

Financial Statements for Public Limited Companies
1. Introduction
Public limited companies are an important model in the business world, as they allow
the public to own shares in them, similar to joint stock companies. Due to its publicly
accessible nature, it has a significant responsibility to be completely transparent
towards all those involved in its business, whether they are shareholders (who have
purchased shares), employees or new investors who are considering putting their
money into it.
But it is not only the shareholders and stakeholders who are interested in the
company’s financial statements, there are other parties who are interested in this data.
For example, there may be new investors who want to see whether they will invest in
the company or not. Also, financial institutions such as banks may want to view
financial statements to decide whether the company will provide loans or not. There
are also government agencies that want to see the data to ensure that the company is
complying with tax laws.
(A) Financial Statements: Integrated Transparency Language:
In order to ensure that public limited companies fulfill their obligations to their
stakeholders, they submit their financial statements periodically. This data provides
access to vital information of enormous strategic value, including:
•
The company’s financial resources: measuring the size of the company’s
financial assets, determining the amount of money it possesses, in addition to
the size of its annual profits.
•
Uses of Funds: Track the movement of funds and their distribution to various
business items, such as payroll, new equipment purchases, tax payments, and
other operational expenses.
•
Financial performance: measuring the company’s ability to achieve profits or
suffer losses and identifying the strengths and weaknesses of its financial
performance.
Who cares about financial statements?
1) Financial statements are of broad strategic importance and are of critical
interest to a wide range of parties, including:
2) Shareholders: Shareholders rely on financial statements to evaluate the size of
a company’s profits and how their money is being used, which helps them
make informed investment decisions.
3) Employees: Financial statements constitute an important source for employees
to ensure the stability of the company and its continued ability to pay their
salaries and bonuses, which enhances their sense of job security and stability.
4) New Investors: Financial statements provide new investors with vital
information to evaluate potential risks and returns before deciding to invest in
a company.
5) Banks: Financial statements are used by banks to determine the company’s
ability to repay loans and meet its financial obligations, which helps them
make informed decisions about providing loans to the company.
6) Government: Financial statements help the government ensure that a company
complies with laws and regulations, including tax and business laws, which
enhances the overall business environment.
(B) The importance of publishing financial statements:
Building trust between the company and stakeholders:
•
Transparency enhances stakeholder confidence in the company, which
contributes to attracting new investors and facilitating obtaining loans from
banks.
•
Financial statements allow shareholders and employees to objectively evaluate
a company’s financial position, enhancing their sense of security and stability.
Supporting sound decision making:
•
Analyzing financial statements helps the company identify its strengths and
weaknesses, allowing it to make effective strategic decisions that contribute to
achieving its goals.
•
Understanding how money is used can improve efficiency and reduce waste,
which contributes to long-term profitability.
Objectives of financial statements:
•
Understanding financial performance: Measuring a company’s ability to
generate profits through analysis of revenues, expenses and net income, which
enables an assessment of the company’s efficiency and profitability.
•
Evaluating the financial position: Evaluating the company’s financial position
by analyzing its assets, debts, and equity, which helps determine its ability to
meet its financial obligations.
•
Cash flow analysis: tracking the movement of funds entering and exiting the
company to understand its ability to meet its financial obligations,
2. Discussion
2.1 The Accounting Equation
The accounting equation, Assets = Liabilities + Owner’s Equity, is a fundamental
principle in accounting that ensures the books are balanced. Let’s examine how
transactions impact the accounting equation:
i. Increase in Asset & Owner’s Equity
•
Transaction: An investor contributes $20,000 cash to start a business.
•
Effect: This transaction increases cash (an asset) and owner’s equity (capital)
by $20,000 each.
ii. Increase in Asset & Liability
•
Transaction: Purchase office equipment worth $8,000 on credit.
•
Effect: This transaction increases office equipment (an asset) by $8,000 and
accounts payable (a liability) by the same amount.
iii. Increase in One Asset & Decrease in Another
•
Transaction: Sell inventory worth $5,000 for cash.
•
Effect: This transaction increases cash (an asset) by $5,000 and decreases
inventory (another asset) by the same amount.
iv. Decrease in Asset & Liability
•
Transaction: Pay off a $3,000 loan from the bank.
•
Effect: This transaction decreases cash (an asset) by $3,000 and reduces loans
payable (a liability) by the same amount.
v. Decrease in Asset & Owner’s Equity
•
Transaction: The owner withdraws $2,000 for personal use.
•
Effect: This transaction decreases cash (an asset) by $2,000 and reduces
owner’s equity (capital) by the same amount.
2.2 Financial Transactions for HR Consultancy Services
Let’s provide examples of different financial transactions relevant to an HR
consultancy service:
i. Business Started by Investing Money
•
Transaction: Invest $25,000 cash into the HR consultancy business.
•
Record: Cash (Asset) increases by $25,000, and Owner’s Equity (Capital)
increases by $25,000.
ii. Asset Purchased for Credit
•
Transaction: Purchase office furniture worth $7,000 on credit.
•
Record: Office Furniture (Asset) increases by $7,000, and Accounts Payable
(Liability) increases by $7,000.
iii. Service Rendered for Cash and Credit
•
Transaction 1: Provide HR consulting services to a client for $3,500 cash.
•
Record: Cash (Asset) increases by $3,500, and Service Revenue (Income)
increases by $3,500.
•
Transaction 2: Provide HR consulting services to another client for $4,000 on
credit.
•
Record: Accounts Receivable (Asset) increases by $4,000, and Service
Revenue (Income) increases by $4,000.
iv. Expenses Paid
•
Transaction: Pay monthly office rent of $1,200.
•
Record: Rent Expense (Expense) increases by $1,200, and Cash (Asset)
decreases by $1,200.
v. Income Received from Other Sources
•
Transaction: Receive interest income of $800.
•
Record: Cash (Asset) increases by $800, and Interest Revenue (Income)
increases by $800.
vi. Money Collected from Debtors
•
Transaction: Collect $2,500 from a client on account.
•
Record: Cash (Asset) increases by $2,500, and Accounts Receivable (Asset)
decreases by $2,500.
vii. Payment Made to Creditors
•
Transaction: Pay $3,000 to a furniture store for previously purchased
furniture.
•
Record: Accounts Payable (Liability) decreases by $3,000, and Cash (Asset)
decreases by $3,000.
2.3 Pro-Forma Templates
a. Journal Entries
Journal entries record each financial transaction in chronological order:
Date
Account
April 1 Cash
Debit
Credit
$25,000
Capital
April 2 Office Furniture
$7,000
$3,500
$4,000
$1,200
$800
Received interest income
$800
$2,500
Accounts Receivable
April 8 Accounts Payable
Cash
Paid monthly rent
$1,200
Interest Revenue
April 7 Cash
Provided HR services on credit
$4,000
Cash
April 6 Cash
Received cash for HR services
$3,500
Service Revenue
April 5 Rent Expense
Purchased office furniture on credit
$7,000
Service Revenue
April 4 Accounts Receivable
Invested cash into the business
$25,000
Accounts Payable
April 3 Cash
Description
Collected money from debtors
$2,500
$3,000
Paid creditor for furniture
$3,000
b. Ledger Accounts
Ledger accounts summarize transactions and calculate account balances:
Account
Debit
Credit
Balance
Cash
$32,300
$7,200
$25,100
Office Furniture
$7,000
$7,000
Accounts Receivable
$2,500
$1,500
Accounts Payable
$10,000
$7,000
Capital
$25,000
$25,000
Service Revenue
$7,500
$7,500
Rent Expense
$4,000
$1,200
$1,200
Interest Revenue
$800
$800
c. Trial Balance
The trial balance provides an overview of ledger accounts and their balances:
Account
Debit
Cash
$25,100
Office Furniture
$7,000
Accounts Receivable
$1,500
Credit
Accounts Payable
$7,000
Capital
$25,000
Service Revenue
$7,500
Rent Expense
$1,200
Interest Revenue
$800
3. Conclusion
Publicly traded companies, those on the stock market, face a variety of challenges
because of their structure and shareholder involvement.
First, there’s a lot of regulatory oversight. They have to follow strict financial
reporting rules, which takes time and resources.
They also face pressure for quick results. Investors and analysts want fast gains,
sometimes at the expense of long-term plans that could benefit the company down the
road.
When a company has many shareholders, the original founders or managers might
lose control over big decisions, shifting the company’s direction.
Keeping a good reputation is important. Negative news or poor PR can harm their
image and stock prices.
These companies can also be targets for takeovers by other firms, which can disrupt
their stability.
To tackle these challenges, public companies can do a few things:
First, improve corporate governance with clear policies for transparency and
accountability. This builds confidence in the company and creates stability.
Plan for the long term. Balancing immediate expectations with future goals is crucial
for lasting success.
Communicate well with shareholders, customers, and employees to build strong
relationships and understanding.
Manage risks. Companies need to identify potential risks and handle them proactively
to avoid problems.
Lastly, invest in research and development to stay competitive and grow. Innovation
helps companies stand out and stay ahead in the market.
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