As production accountant for a fake company called GemStar Productions I reported financial statements to the manager. The Balance Sheet, Profit and Loss Budget versus Actual Statement, and Statement of Cash Flows reports.
2. BALANCE SHEET
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Assets: Description:
CASH $49,280 Cash and cash equivalents.
SUPPLIES INVENTORY 1,333 Office supplies purchased for daily company tasks.
VEHICLES 13,953 Company truck purchased to deliver equipment to events.
DEPOSIT AT VENDOR 500 Deposit made on the Sound Stage arena.
TOTAL $65,066 Total Assets
DEBT TO ASSETS 23%
(Total Debt/Total Assets) Shows how often the company used debt to finance its
assets.
RETURN ON ASSETS 7%
(Net Income/Total Assets) Indicates the companyโs profitability in relation to its
total assets.
Liabilities:
LOAN PAYABLE $40,000 Cash from a bank loan.
INTEREST PAYABLE 233 Interest on the bank loan.
TOTAL 40,233 Total Liabilities
Equities:
COMMON STOCK 20,000 Company presidentโs cash injection exchanged for common stock.
RETAINED EARNINGS 4,833 Net Income
TOTAL 24,833 Total Equity
RETURN ON EQUITY 19% (Net Income/Shareholdersโ Equity) Measure of Financial Performance
TOTAL LIABILITIES AND EQUITY $65,066 Total Liabilities and Equity
3. PROFIT AND LOSS STATEMENT
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Sales: Actual Budget Variance
EVENT REVENUE $11,400 $10,500 $900
LESS EXPENSES:
UTILITIES EXPENSE $220 $500 $280
PAYROLL EXPENSE $3,200 $5,000 $1,800
DEPRECIATION EXPENSE 297 400 103
INTEREST EXPENSE 233 300 67
OFFICE SUPPLIES EXPENSE $667 $800 $133
INSURANCE EXPENSE 1,200 1,500 300
EQUIPMENT RENTAL
EXPENSE
$750 $1,000 $250
TOTAL 6,567 9,500 2,933
NET INCOME $4,833 $1,000
4. STATEMENT OF CASH FLOWS
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Operating Activities Actual
NET INCOME 4,833.12
Adjustments to reconcile Net Income to net cash provided by operations:
SUPPLIES INVENTORY (1,333.33)
VENUE DEPOSIT (500.00)
ACCOUNTS PAYABLE 1,420.00
INTEREST PAYABLE 233.33
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,653.12
Investing Activities
ACCUMULATED DEPRECIATION 296.88
VEHICLES (14,250.00)
NET CAST PROVIDED BY INVESTING ACTIVITIES (13,953.12)
Financing Activities
LOAN PAYABLE 40,000.00
COMMON STOCK 20,000.00
NET CASH PROVIDED BY FINANCING ACTIVITIES 60,000.00
NET CASH INCREASE FOR PERIOD 50,700.00
CASH AT END OF PERIOD 50,700.00
5. INTERNAL CONTROLS
Internal Control How They Work What They Prevent Enforcement
Separation of Duties
Tasks including bookkeeping,
deposits, reporting, and auditing has
been split between employees.
Chances of fraudulent activity and
misappropriated funds are now greatly
reduced.
Managers have assigned different
employees to the various accounting
duties.
Independent Reviews
Financial statements are now
reviewed by a third-party monthly to
examine the company accounts.
Employees are now frequently
scrutinized by an external audit to
ensure duties are being correctly
completed.
Management has taken on the task of
organizing and planning the monthly
independent reviews.
Approval Authority
Spot checks via software checkpoint
program on some applications
where company funds are being
spent has been installed. Managers
are now required for approval in
transactions exceeding $1,000.
This has prevented large amounts of
capital from being misused by adding
safeguards that must be overridden by
manager.
The board of directors has decided
which managers have been given
checkpoint override authority.
Establish Uniform
Financial Statements
All fincancial statements are now
required to use the same blueprint. It
will be updated once a year.
Discrepancies are now more easily
identified leading to quicker and
simpler remedies.
IT Department has created a template to
use and will produce a new one once a
year.
Password Checkpoints Passwords have been added as an
access control for employees.
This has prohibited accessibility to
documents and records for individuals
that do not have the authorization for
access.
Password changes are now required
every month.
6. RECAP
Overall, Gemstar Productions financial accounting rating gets an B minus rating.
Based on the return on assets (7%) and debt to assets (23%), we are looking at a
decently run company although revenue could be better. The statement of cash
flows also has a bit of a discrepancy considering operating income was 4,653 and
financing operations was 60,000. It could be a worrying sign.
