lcan Company’s statement of profit or loss for last month is given below: Statement for profit or loss for the month ended June 30th Revenue £750.000 Less variable expenses £336.000 Contribution margin £414.000 Less fixed expens
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Vulcan Company’s statement of profit or loss for last month is given below:
| Statement for profit or loss for the month ended June 30th | |
| Revenue | £750.000 |
| Less variable expenses | £336.000 |
| Contribution margin | £414.000 |
| Less fixed expenses | £378.000 |
| Operating profit | £36.000 |
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining revenue and cost records, you have determined the following:
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The company is divided into two sales territories – Northern and Southern. The Northern territory recorded £300,000 in revenue and £156,000 in variable expenses during June; the remaining revenue and variable expenses were recorded in the Southern territory. Fixed expenses of £120,000 and £108,000 are traceable to the Northern and Southern territories, respectively. The rest of the fixed expenses are common to the two territories.
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The company sells two products – Paks and Tibs. Revenue of Paks and Tibs totalled £50,000 and £250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that £30,000 of the Northern territory’s fixed expenses are traceable to Paks and £40,000 to Tibs, with the remainder common to the two products.
Required
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Prepare segmented statements of profit or loss first showing the total company broken down between sales territories and then showing the Northern territory broken down by product line. Show both amount and percentage columns for the company in total and for each segment.
Step by step
Solved in 3 steps with 2 images
1.Which points revealed by the statement segmented by sales territory should be brought to the attention of management?
2.Which point revealed by the statement segmented by product lines should be brought to the attention of management?
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