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Individual Case Study on

Financial Accounting

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Table of Contents
INTRODUCTION......................................................................................................................1

TASK 1 Main financial findings................................................................................................1

AC 1.1 Summary of the first 6 months business operations..................................................1

AC 1.2 Financial accounting statements................................................................................1

TASK 2.......................................................................................................................................2

AC 2.1 Initial analysis in the context of three financial statements.......................................2

AC 2.2 Investigation to increase efficiency...........................................................................3

Conclusion..................................................................................................................................3

References..................................................................................................................................4

Appendix....................................................................................................................................5

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INTRODUCTION
Financial accounting is a process of recording all the business operating and financial
transactions in a correct manner. Fashion cloth business manufacture clothes products and
sell directly to the consumers through its shops and online websites. Present project report
aims at determining the performance of Fashion clothing to assist a group of friends who
invested their own funds in the organization.

TASK 1 MAIN FINANCIAL FINDINGS

AC 1.1 Summary of the first 6 months business operations


The operations of the Fashion cloth business include all the trading functions such as
purchase and sales activities. As per the given business scenario, the estimated business
incomes and expenditures are given for the first six months. Fashion cloths business is
generating revenues through selling the products in the market. In the first six months,
company's estimated revenue is 1,350,000. However, expenditure includes material, labour
and other business expenses for selling the cloths product at the market place. Business
forecasted material, labour and other expenses are 390,000, 480,000 and 345,000. On the
basis of expected cash flow, profit and loss and balance sheet. It is seen that the business unit
is expected to generate high amount of profit. The organization is going to generate sufficient
amount of net profit in the first six months of operations. Moreover, the cash flow generated
from business unit is expected to increase on continuous basis. It can be therefore said that
the business planned is highly profitable in nature. The organization is not taking much of the
time to reach breakeven point. On the basis of analysis of financial forecasts for the first six
months of business operations, it can be claimed that the new venture is highly profitable in
nature. This in turn encourages investment into the venture for fashion cloth planned
herewith.
AC 1.2 Financial accounting statements
The business unit needs to prepare different form of financial statements as stated
underneath.

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Statement of financial position: Balance sheet summarizes all the assets and liabilities
of Fashion cloths. It helps to determine financial position of the business hence, also known
as statement of financial position. It is through statement of financial position that the net
worth of business unit is determined.
Statement of cash flows: Cash flow statement represents cash inflows and cash
outflows for a given period. It helps to determine changes in business cash balance between
two different accounting periods (Hoskin, Fizzell and Cherry, 2014). The organization can
estimate inflow and outflow of cash through its cash flow statement.
Income statement: It combines Fashion clothes expenditure and revenues of its
operating activities. Determining operational results in terms of gross profit and net profit as
well as net losses are the main purpose of the statement. The income statement helps in
estimating profit generated on part of business unit.

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TASK 2
AC 2.1 Initial analysis in the context of three financial statements
In order to judge the variability of new venture, the fashion clothing forecasted
statements for six months have been prepared. It is through estimations of profit and cash
flows for upcoming year that the feasibility of the business unit can be judged. An in-depth
evaluation of three forecasted financial statements is presented underneath.
Statement of financial position: The statement of financial position is prepared as on
July 2015 and December 2015. It is seen that the net value of assets has been increased
drastically during the period of six months. The business unit has been initiated with the
amount of 2, 00,000. The value of business unit as determined by its assets has been
increased to 11, 70,000 in the period of six months. This in turn indicates the significant
growth that is expected to achieve buy the newly established venture in period of six months.
However, it is expected that the organization is going to avail sufficient level of credit on its
purchases (Weil, 2012). The venture is also expected to allow credit to its clients on sale. It
can be therefore said that the venture is expected to improve its financial position
significantly in the period of six months.
Income statement: The forecasted income statement for six months has been prepared
so as to ascertain the expected level of income. It is seen that the organization is going to
generate sufficient amount of income during the period of six months (Parsian and Shams
Koloukhi, 2014). The high amount of revenue is expected to be earned on part of the business
unit. The venture has expected to earn revenue of 1350000. Moreover, the net profit margin
of 10% is forecasted to be earned for six months of operations. This in turn indicates
sufficient level of profitability to be earned on part of business unit.
Cash flow statement: The statement of cash flow indicates the amount of cash
generated or used by business unit (Lchigo, 2011). It is forecasted that the business unit is
expected to generate cash flow of 680000 in period of six months. It can be therefore said that
the venture planned is capable of generating adequate amount of funds in liquid form.

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AC 2.2 Investigation to increase efficiency
It is forecasted that the newly established venture is going to generate sufficient amount
of cash flow and profits. The organization is expected to earn high amount of revenue during
the period of six months. However, the business unit is allowing high credit to its customers.
The promoters should adopt risk-averse nature during the period of establishment. The
business unit should lower down its credit facility. Moreover, the organization should try to
avail lower discounting facility. This in turn results in reducing operating cycle. Moreover,
the business unit is going to conduct operations in a highly efficient manner. It is with lower
operating cycle that the business unit is going to generate fast amount of cash within the
business unit. Moreover, risk will be reduced on part of the organization.

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CONCLUSION
The report proposed herewith emphasizes on evaluating feasibility of Fashion clothing. It
is seen that the venture of Fashion clothing is highly viable in nature. The business unit is
expected to generate adequate amount of profits and revenue. However, the promoters should
adopt risk averse in nature so as to increase efficiency.

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REFERENCES
Books and journals

Hoskin, R. E., Fizzell, M. R. and Cherry, D. C., 2014. Financial accounting: a user
perspective. Wiley Global Education.

Parsian, H. and Shams Koloukhi, A., 2014. A study on the effect of free cash flow and
profitability current ratio on dividend payout ratio: Evidence from Tehran Stock
Exchange. Management Science Letters. 4. pp. 63-70.

Weil, L.R., 2012. Financial Accounting. 14th edition. Cengage Learning.

Online

Lchigo, H. D., 2011. The different between the formats of financial statements (income
statement and balance sheet) for different types of business such as sole
proprietorship, partnership and limited company. [Online]. Available through <
http://www.studymode.com/essays/The-Different-Between-The-Formats-Of-
729498.html> [Accessed 25th January 2016].

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APPENDIX
Statement of financial position as on July 2015
Particulars Amount
Capital & Liabilities
Equity capital 200000
Liabilities 0
Total liabilities & equity 200000
Assets
Non-current assets (Fixed assets) 150000
Bank 50000
Total assets 200000

Income statement for the six months ending December 2015


Particulars Amount
Sales 1350000
Cost of material 390000
Labour cost 480000
Gross profit 480000
Marketing cost and depreciation 345000
Net profit 135000

Aug Septem Octob Novem Decem


Particulars July ust ber er ber ber
1500 1200 21000
Sales receipts 00 00 150000 0 260000 285000
1500 1200 21000
Cash inflow 00 00 150000 0 260000 285000
Payment for material, labour and 1200 1000
other expenses 00 00 60000 60000 60000 60000
Tax bill 20000
Additional non-current assets 30000
1200 1000
Cash outflow 00 00 60000 60000 60000 110000
3000 2000 15000
Cash flow 0 0 90000 0 200000 175000
Add: Depreciation 15000
3000 2000 15000
Net cash flow 0 0 90000 0 200000 190000
5000 8000 19000
Opening balance 0 0 100000 0 340000 540000
Net cash flow 3000 2000 90000 15000 200000 190000

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0 0 0
8000 1000 34000
Closing balance 0 00 190000 0 540000 730000

Particulars Amount
Sales 1350000
Cash sales 1175000
Credit sales (Debtors) 175000
Material purchases 520000
Labour cost 480000
Marketing cost and depreciation 345000
Total expenditure 1345000
Payment made 510000
Total trade and other creditors 835000

Particulars Amount
Opening stock 0
Add purchases 520000
Less: Materials utilized 390000
Closing stock 130000

Statement of financial position as on December 2015


Particulars Amount Amount
Capital & Liabilities
Equity capital 200000
Add: Net profit 135000 335000
Liabilities 0
Creditors 835000
Total liabilities 835000
Total liabilities & equity 1170000
Assets
Non-current assets (Fixed assets) 150000
Less: Depreciation 15000 135000
Bank 730000
Debtors 175000
Inventory 130000
Total assets 1170000

Cash flow statement


Particulars Amount Amount

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Cash flow from operating activities
Net profit 135000
Adjustments for:
Depreciation 15000
Increase in debtors -175000
Increase in creditors 835000
Increase in inventory -130000
Cash generated from operating activities 680000
Cash flow from investing activities 0
Net cash used in investing activities 0
Cash flow from financing activities 0
Net cash generated from financing activities 0
Net increase/(decrease) in cash and cash equivalents 680000
Cash and cash equivalents at the beginning of the period 50000
Cash and cash equivalents at the end of the period 730000

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