Unit 5 Accounting

Assignment - Production and Interpretation of Financial Statements

A detailed letter to a named client. The letter must be clear worded, well-structured and should make use of appropriate business language and terminology. The letter can also include clearly labelled tables and charts. It will accompany and support the appropriately constructed financial statements (income statement and statement of financial position) for the business in question.

The word count is 2,000-2,500 words, although you will not be penalised for going under or exceeding the total word limit. A bibliography should be provided using the Harvard referencing system (or an alternative system). Inaccurate use of referencing may lead to issues of plagiarism if not applied correctly.

Learning Outcome 1: Prepare basic financial statements for unincorporated and small business organisations in accordance with accounting principles, conventions, and standards.

Learning Outcome 2: Interpret financial statements.

Vocational scenario

Having successfully completed your six-month probation as a Graduate Trainee at the accountancy firm, you have now been attached to a unit in the firm that deals with the provision of accountancy and consultancy services to small businesses that are typically set up as sole traders, not-for-profit or partnerships. The firm is careful about which small and emerging businesses it works with as it seeks to spot growth potential and identify and work with clients that have scalable business models.

Assignment activity and guidance
You are initially working with a selection of these small businesses that have been trading for three years and which now need annual trading statements to be compiled and submitted in line with government requirements.

You have been given:
• an extended trial balance for each business, including accruals, prepayments and figures for bad debts and depreciation
• a range of comparative key performance ratios from the previous year.

Note: this data will be given to you in spreadsheet format. Financial data must be realistic and in context to meet local needs.

These local businesses do not make use of contemporary software to support its book-keeping and accounting function. This is something which concerns you as you feel that it represents an opportunity for the business to save time and resource. Your supervisor, one of the firm's Key Account Managers, has asked you to compile the year-end financial statements ready for submission and provide, for each client, some detailed analysis of the figures produced, which will be presented in the form of an accompanying letter. Specifically, you will undertake the following:

1. From the data provided, you are required to prepare the year-end financial statements, taking into consideration accounting principles, conventions, and standards. You will need to make and show appropriate adjustments to both the income statement and the balance sheet.

2. Write an accompanying letter to the client that will be sent with the completed financial statements. The letter needs to include:
• calculation of relevant profitably, liquidity, asset usage and investment ratios.
• critical evaluation of the performance to the business year on year (making reference to data you have calculated, and data provided from the previous year), with reference to relevant benchmarks as well as any limitations of using financial ratios as performance
measures.
• an outline of the benefits of contemporary accounting software packages, with examples of products on the market.
• justified conclusions and recommendations for your client.