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Written Assignment Unit 1

Oluseun Banjoko

Master of Business Administration, University of the People

BUS 5110: Managerial Accounting

Dr. Lorette Ordogne,

April 17, 2024

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Written Assignment Unit 1

Financial statements are a set of documents that show a company’s financial status at a

specific point in time. They include data on what the company owns and owes and how much it

has made and spent (Financial Statements, 2024). According to (SEC.gov | Beginners’ Guide to

Financial Statement, 2007), there are four main types of financial statements. They are

(1) balance sheets, (2) income statements, (3) cash flow statements, and (4) statements of

shareholders’ equity.

Balance sheets show what a company owns and owes at a fixed point in time. Income

statements show how much money a company made and spent over a period of time. Cash flow

statements show the exchange of money between a company and the outside world also over a

period of time. The fourth financial statement, called a “statement of shareholders’ equity,”

shows changes in the interests of the company’s shareholders over time (SEC.gov | Beginners’

Guide to Financial Statement, 2007).

Polly’s Pet Products statement solution

To answer the questions, I will start by calculating missing values in the Cash flow statement:
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Cash Flows from Operating Activities

Cash received from customers 600,000
Derived by deducting the
interest, taxes and the
net cash by operating
activities from cash
Cash paid out to suppliers and employees (400,000) received from customers
Interest paid (5,000)
Taxes paid (10,000)
Net cash provided by operating activities 185,000

Cash Flows from Investing Activities

Purchase of fixed assets (25,000)
Net cash used in investing activities (25,000)

Cash Flows from Financing Activities

New loans 50,000
Repayments on loans (45,000)
Issuance of common shares of stock 5,000
Summation of Financing
Net cash provided by financing activities 10,000 Activities cash flow

Sum of net cash

operating, net cash
investing and net cash
Net change in Cash 170,000 financing

Cash balance, beginning of year 30,000

Sum of net change in cash

and cash balance from
Cash balance, end of year 200,000 beginning of the year

Here, the company’s cash flow is positive, with more inflow than outflow. This indicates the

company has some liquidity (the ability to pay bills and creditors and fund future growth) and

may be solvent (3 Financial Statements to Measure a Company’s Strength, n.d.).

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Polly's Pet Products

Income Statement as of December 31, 2018

Revenues 650,000

Obtained from
Gross profi t =
Revenue -
Operating Costs 445,000 Operating costs

Gross Profi t 205,000

General and Administrative Expenses 75,000

Operating
income = Gross
profi t - Gen. &
Operating Income 130,000 Admin. Exp

Other Expense 60,000

Income before
provision =
Operating
income - Other
Income Before Provision for Income Taxes 70,000 Expense

Provision for Income Taxes 5,000

Net Income =
Income before
provision -
Provision for
Net Income 65,000 Income Taxes

Retained Earnings, Beginning Balance 103,500

As above (Net
Net Income 65,000 Income)

Sum of Net
income and
Retained
Retained Earnings, Ending Balance 168,500 Earnings

An income statement shows a business's profitability. It details how much money the business

earned and spent (Financial Statements, 2024). Polly’s Pet Products’ income statement closes

with a positive net income balance.

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Polly's Pet Products

Balance Sheet as of December 31, 2018

ASSETS

CURRENT ASSETS

Obtai ne d from
cash fl ow
Cash 200,000 state me nt
Accounts re ce i vabl e 50,000
Othe r asse ts 25,000

Sum of cash,
accounts
re ce i vabl e and
Total curre nt asse ts 275,000 othe r asste s

LONG TERM ASSETS

Fi xe d Asse ts 75,000

Sum of total
curre nt asse ts and
TOTAL ASSETS 350,000 fi xe d asse ts

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payabl e 75,000

Obtai ne d by
subtracti ng
payabl e s and
taxe s from total
Accrue d e xpe nse s 30,000 curre nt l i abi l i ti e s
Income tax payabl e 5,000
Curre nt porti on of note s payabl e 12,000
De fe rre d i ncome taxe s 1,500

Total curre nt l i abi l i ti e s 123,500

LONG TERM LIABILITIES

Subtracti ng
curre nt l i abi l i ti e s
from total
Note s payabl e (l ong te rm) 38,000 l i abi l i ti e s

TOTAL LIABILITIES 161,500

STOCKHOLDERS' EQUITY

Common stock 5,000

Addi ti onal pai d-i n capi tal 15,000

Obtai ne d from
i ncome state me nt
(re tai ne d
e arni ngs, e ndi ng
Re tai ne d Earni ngs 168,500 bal ance )

Sum of re tai ne d
e arni ngs and
e qui ty
Total stockhol de rs' e qui ty 188,500 compone nts

Sum of Total
l i abi l i ti e s and
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 350,000 Total stock e qui ty

A balance sheet provides detailed information about a company’s assets, liabilities, and

shareholder’s equity (SEC.gov | Beginners’ Guide to Financial Statement, 2007). Assets are

anything a company owns with quantifiable value (Stobierski, 2020). Liabilities refer to money a

company owes to others, such as outstanding payroll expenses, debt payments, rent and utility,

bonds payable, and taxes (Stobierski, 2020). Shareholders’ equity refers to the net worth of a

company. It is the amount of money that would be left if all assets were sold and all liabilities
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paid. This money belongs to the shareholders, who may be private owners or public investors

(Stobierski, 2020).

The following formula summarizes what a balance sheet shows (SEC.gov | Beginners’ Guide to

Financial Statement, 2007):

Assets = Liabilities + Shareholders’ equity

Conclusion

From the conclusion drawn for each financial statement, we can see that Polly’s Pet

Products has a high degree of liquidity and can meet its financial obligations, which indicates its

sustainability.
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References

3 Financial Statements to Measure a Company’s Strength. (n.d.). Schwab Brokerage.

https://www.schwab.com/learn/story/3-financial-statements-to-measure-companys-

strength

Financial statements. (2024, April 10). BDC.ca.

https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/

glossary/financial-statements

SEC.gov | Beginners’ Guide to Financial Statement. (2007, February 5).

https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguide

Storbierski, T. (2020, June 10). How to Read Financial Statements: A Beginner’s Guide.

Business Insights Blog. https://online.hbs.edu/blog/post/how-to-read-financial-statements