ACC100: Individual Assignment Case Study - Accounting Cycle

Individual Assignment Case Study

Case Scenario/ Task

As a friend of Gerald with a reasonable amount of accounting experience, you have been asked to perform the Accounting Cycle process for the month of July 2017 based on the June 2017 Post-closing Trial Balance and the transactions that took place in July. You have also been asked to make a report on the performance of the business based on its profitability, retained earnings and financial position. You have been provided with the statements made in June 2017 to assist you with this process.

Part 1: Accounting Cycle

This part of the assignment is the practical application of the Accounting Cycle, which will require you to make the following:

• General Journal
• General Ledger
• Trial Balance
• Income Statement
• Statement of Retained Earnings
• Balance Sheet
• Closing Process General Journal
• Closing Process General Ledger
• Post-Closing Trial Balance

To get started, you will be provided with two pieces of information:

• The Post-Closing Trial Balance of the previous quarter
• The accounting transactions of this quarter

This report is an entire analysis of the performance of tuition business of Gerald Jones. The entire business report is a study of the various business aspects. Such performance can be analyzed by assessment of the profitability, financial position and retained earnings which can determine the future of the business. The profitability of the Joneses Education ltd business is obtained from the amount of the net profit as depicted by the income statement. The statement of the changes of equity shows the amount of dividend paid and the retained earnings and finally, the balance sheet shows the position of assets and liabilities. A comparison has been made in each of the aspects called profitability, retained earnings and the financial position. The comparison is made between financial statements of June 2017 and July 2017. After the comparison necessary advises are given in each aspect so that the business can become successful in future which is followed by a conclusion.

Business profitability since July

The company Joneses education ltd provides tuition services so it gets a specific amount of revenue by way of the tuition fees and the sale of the materials which are adjusting from the expenses of the business. Charging the expenses against the revenue gives the profit income for Jones business (Fairfield et al. 2003, p.353). This is the way in which the income statement can determine the profitability of the tuition business. In the month of July, the amount of money received from the sale of textbooks and tuition fees are the major sources of revenue. Besides, the expenses comprise of the laptops purchased, purchase of textbooks and stationery materials, repayment of the loans from Shark Bank and the Common Bank. Besides, the company has incurred other expenses such as the payments for advertisements, payment of salaries to employees, payment of dividend to owners etc. As compared to the previous month the business had increased its sales of textbooks and other resources. The revenue from the sales and services has increased which has led to the increase in the amount of service revenue. This had led to the increase in the total amount of revenue earned. Besides, it is also found that there is a profit on the sale of the textbooks which has been added to the revenue incomes. From the assessment of the expenses, it is clear that the Joneses education ltd has increased its electricity expenses of July 2017 as compared to June 2017. These are also a fall in the value of the property and the equipment which has increased the depreciation expenses of July as compared to June. Moreover, there is an increase in the interest payments as the loans are repaid. From this, it is clear that the business was more or less profitable as it could increase the amount of revenue but it was not fully profitable as there was a rise in a number of expenses (Penman and Penman, 2007, p.476). In future, the business should try to improve itself by reducing its expenses and accumulated depreciation.

Retained earnings of the business

Retained earnings are the amount of net profit that is reinvested into the business (Hyz and Gikas, 2016, p.73). Similarly, in this case, the profits that have been earned by Joneses tuition business have not been distributed fully. A part of the net profit has been used for reinvestment which is the retained earnings of Joneses tuition business (Wulf and Wieland 2013). As per as the statement of equity, the retained earnings have increased tremendously. In June 2017 the amount of retained earnings was about 10000 dollars which had increased up to 44969 dollars. This shows that a lot of the profits of the business have been reinvested in the month of July 2017. As it is seen that Joneses Education Ltd has earned a huge amount of profits as compared to the previous month, Joneses have decided to reinvest huge amount of profits. In order to make further improvement in the retained earnings, Joneses Education Ltd would have to reduce the costs that are incurred for running and operating the tuition business but as a friend of Gerald Jones he is advised not too excessive reinvestment as it can cause dissatisfaction among the owners and can also reduce the current cash in hand.

Financial position

The balance sheet is used to determine the position of the assets and the liabilities for the Joneses Education Ltd (Iacoviello, 2015, p.140). Such position of the assets and the liabilities would help in the assessment of the financial position of the business. From the balance, it is clear that the amount of the short-term loan from the Shark Bank has vanished in the Balance sheet for July 2017. This is because the loan has been repaid. Moreover, there is a significant change in the value of the equipment and the property. Such change in the values of equipment and property is significant because these types of fixed assets have undergone a fall in its value. It suggests a rapid depreciation of these assets. The other change in the asset column is the amount of cash which has undergone a significant change in its value. This is because during the month of July there have been purchases and sales of various items along with payments and receipts which has resulted in the outflow and the inflow of cash. Such inflow and the outflow of cash have led to the change in the cash value at the end of July 2017. Such change suggests a drastic change in the amount of working capital in July 2017 because cash is the best form of working capital (Council, 2014). In the equity and the liability section, the significant change has taken place in the retained earnings column. This is because the Joneses Education Ltd has reinvested a large amount of profit in its tuition business. In future, the business is recommended not to provide any provision for depreciation as it can reduce the value of the fixed assets drastically. Besides, the tuition business should restrict the outflow of cash in future. Such recommendations would help the Joneses Education Ltd to protect the amount of working capital and improve the financial position of the business.

Conclusion

From the case, it is clear that the Joneses education ltd have repaid short-term loans. The cash position of the business has changed which has changed the amount of working capital. It has increased the amount of retained earnings by way of larger sums of profit reinvestment which may reduce the cash in hand and also cause dissatisfaction among the shareholders as they would get a very fewer profits as a dividend. Moreover, it is seen that the business have a large amount of depreciation on the fixed assets and other outstanding electricity expenses are higher which can affect the financial position and future operations. In order to become successful in future the business needs to reduce the unnecessary costs and should not increase its retained earnings more.