Research Paper on "Accounting Summary Report: The Lemon Stand Business"

Research Paper 3 pages (1171 words) Sources: 1+

[EXCERPT] . . . .

Fruity Lemon Stand needs to increase word of mouth advertisement in order to increase sales and revenues. Expenses incurred each day should also be minimized in order to increase the amount of retained earnings, and more equipment should be bought to increase the amount lemonade sold in a day.

The balance sheet

The balance sheet provides information that reveals the financial position of a business at the end of a particular period (Drake and Fabozzi, 2013). It shows the total numbers of assets, liabilities, and owners' equity. Table 2 shows the balance sheet for Fruity Lemon Stand as at the end of the first season.

Table 2

Balance Sheet for Seasons 1

Assets

Season_1

Cash

Inventories

12.64

Equipment

11

Total Assets

Liabilities

Accounts Payable

31.9

Total Liabilities

31.9

Equity

Owner, Capital

50.00

Retained Earnings

Total Equity

Total Equity & Liabilities

By the end of the first season, Fruity Lemon Stand has a total of $177.5 in cash, $12.64 in inventory, and $11 in Equipment. At a total of $201.14, the business has a good number of total assets which contribute significantly to the generation of revenue. However, it could use more equipment to cater for the increasing number of customers. The figure for the accounts payable is also quite high - ($31.9); because majority of the proceeds from the business have to be used to meet the short-term obligations. The owner's capital of $50 and retained earnings amounting to $119.24 reveal that Fruity Lemon Stand finances its business with earnings and the owner's contribution (Drake and Fabozzi, 2013). The fact that the business does not use debt financing is encouraging as it will not be considered risky by those who may want to invest. Furthermore, the business also avoids the stringent conditions that are always associated with debt finance. It is advisable for Fruity Lemon Stand to finance with retained warnings in subsequent seasons. However, it should reduce the accounts payable in order to increase the revenue and the retained earnings at the end of the second season.

The income statement

The income statement discloses information about the revenue and expenditure of the operating and non-operating activities of a business in a given period (Gilbertson and Lehman, 2008).

Table 3

Income Statement for Seasons 1

Season_1

Revenue

Expenses

58.26

Net Income

The income statement for Fruity Lemon Stand shows the revenue generated in the first season, the expenses incurred, and the resultant net profit. The net income ($119.24) is computed by deducting the expenses ($58.26) from the revenue earned in the first season ($177.5). This season, the net income was reduced significantly by the large number of expenses. Fruity Lemon Stand, therefore, can either reduce its expenditure or increase the total glasses of lemonade sold in a day. However, since the sales were limited by weather conditions, the best alternative is to reduce the daily expenses incurred in running the business. This will reduce the difference between the revenue and expenses, which will in turn increase the net income for the next period.

Conclusion

It is clear from the financial statements that Fruity Lemon Stand has had a good season. It generated a good amount of revenue; and the cash and inventories that are present will be sufficient to sustain operations in the second season. However, some of the revenue should be used to purchase new equipment, which will increase the total number of sales. The huge difference between sales and the revenue also needs… READ MORE

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