FROM:Accountant, Business Solutions
SUBJECT:Financial Statements Analysis
Themain purpose of this memorandum is to express the currentprofitability and stability of S. Rey Business. It will also indicateseveral business solutions from professions and their reports whichare based on relevant rations that were extracted from the company’sfinancial statements (Boros, 2012).
Thecurrent ratio refers to the financial tool that is used to test theability of the company to pay for its short-term liabilities by usingits current assets. The current ratio for the three months ending on31stDecember is 2.04. It is calculated as follows
Theabove calculated current ratio 2: 1 indicates to us that the businessis doing quite well since it is able to pay for its liabilities.
Thereare three financial statements that I have prepared. The first one isthe statement of the financial position of S. Rey Company. The mainpurpose of this one is to state the assets, the liabilities and theequity of the business. The main asset of this company is thecomputer services revenue which is $31,284. This helps in improvingthe position of the company.
Thesecond financial statement that I have prepared is the cash flowstatement. This gives the detailed movement of cash and bank balancesof the three months period. It also indicates the cash flow from themain activities of the business and the cash flow made frompurchasing and selling the assets of the business to the final cashwithdrawal of $7,100. This one helps in finding out if the companyis on the right track.
Thelast financial statement that I have prepared is the incomestatement. This is the profit and loss statement of the company andit is very important since it provides a detailed report of thefinancial performance of S. Rey Company in terms of the net profit orloss over the three months period. The net income of S. Rey is$14,460. This statement helps in finding out if the company is makingprofit or loss.
AccountingPrinciples and Assumptions
Thismeans that the financial statements only recognize monetary terms asa measurable element. The evaluation of the business simply impliesthat money is used as a standard measurement unit for financialreporting.
Revenuecan be recognized in the financial states that states that it isrecorded it is only when the process of generating money is on thatthe revenue collection can be termed as substantially complete.
Expense Recognition Principle
Expensesare also recognized in the financial statement in the period whichrelates to when the revenues are recognized and when the cash hasbeen paid out.
Time Period Assumption
Theresults of an accounting entity would be the most measurable duringthe time when the business liquidates. This implies that the assumedindefinite life can be sub-divided into three periods as in the caseof S. Rey business.
Adequatedisclosure means that all relevant facts concerning the financialposition of the business and the results of the operations arecommunicated to users. Items that can be disclosed include summaryof the accounting method that was used the monetary effect of anychanges in the business, the accounting period and any contingentlosses that may have material effect upon the financial position ofthe business.
6. Lastly, it has come to our realization that the S. Rey companyobserves the accounting principles and concepts as required by theInternational Accounting Standards, and we, therefore, recommend thatit should also observe all accounting systems for financial purposes.
Iwill avail myself to you in case you will need to discuss more aboutthe above recommendation and to follow up and see the decisions thatwill be implemented.
Boros,L. C. (2012) The Fundamentals of Business Writing: At Corporationsand Governments.