GENERAL LEDGER
DEBTORS LEDGER
CREDITORS LEDGER
Debtors’ schedule
Creditors’ schedule
Trial balance
Income statement
For the month of October
Workings:
Determination of GST
- GST on cash sales
Total amount of sales = 11,980
GST is 10%
110% = 11,980
100% = 100/110 × 11,980
= 11,800
GST = 11,980 – 11,800 = 1,180
- GST on credit sales to H. Simpson
Total sales = 550
GST = 550 × 10110
= 50
Credit sales = 550 – 50 = 500
- GST on credit sales to N. Flanders
Total credit sales = 825
GST = 10110 × 825
= 75
Credit sales = 825 – 75 = 750
- GST on credit purchases from Duff Brewery
Total value = 4,884
GST = 10110 × 4,884
= 444
Credit purchases = 4,884 – 444 = 4,440
BALANCE SHEET
AS AT 31ST OCTOBER
$ $
Current assets
Bank 6,719
Debtors 13,445
GST receivable 444
Total assets 20,608
Liabilities
Creditors 6,644
GST payable 1,305 7,949
Equity
Retained earnings b/f 11,064
Net income for the month 1,595 12,659
Total liabilities and equity 20,608
Use of financial information in day- to-day operations
Financial information has a wide range of uses in the day- to- day operations of the business. Firstly, managers use financial information to determine the liquidity of the firm. This is done be evaluating the total amount of liquid/current assets of the business and comparing it with the amount of current liabilities. This helps in planning to pay off current liabilities of a business when they mature. If there are inadequate current assets, the management needs to plan to obtain necessary resources to meet the obligations. The management can also negotiate with the lenders to reschedule the payment of such obligations. Debtors’ schedule helps the management to determine the amount to be collected from its debtors while the creditors’ schedule indicates the amount that needs to be paid to creditors.
Financial information is also useful in assessing a company's short term and long term profitability. Profitability ratios are calculated for the business and then compared with those of peers in the industry as well as with past periods. Financial information for a firm with several segments or products gives the profit for each segment/product. This allows the management to identify profitable segments. Highly profitable areas are allocated more resources while less profitable areas are allocated fewer resources and may be shut down.
Financial information is used by the management of a business to determine working capital needs and to management the company’s working capital. Cash flow statement, among other statements, can be used to forecast the cash needs of the company and to prepare budgets. Analysis of financial information enables the management to determine the source of financing to meet operational and other activities. Decision making in this case involves deciding on whether to raise cash through borrowing, the amount to maintain, among other aspects of working capital management. Other managerial decisions such as whether to expand or not, whether to shut down or not, among other decisions, are facilitated by the use of financial information.
In addition, financial information can be used to assess the performance of the management and the efficiency of using assets to generate revenue. The management needs to assess its performance for control purposes to avoid adverse variances from the planned targets. Determination of the efficiency of the company in using its assets to produce revenue helps in developing measures to improve the efficiency and profitability of the business.
