Accounting & Financial Statement Analysis: Practical Example

Record the first transaction: the owner invests $100,000 cash on January 1, 2020, debiting cash and crediting common stock. This updates the balance sheet and cash flow from financing activity.

Purchase of property, plant and equipment for 10,000 in cash increases property, plant and equipment and decreases cash, keeping total assets unchanged and showing a cash outflow from investing activities.

learn to record a cash purchase of inventory, showing the resulting changes in cash and inventory and how it appears on the balance sheet and cash flow statement.

Record a March 1 credit sale of 30,000 by debiting accounts receivable and crediting sales revenue, and book 18,000 cost of goods sold against inventory, yielding 12,000 gross profit.

Record a 12,000 rand rent payment on April 1, 2024 as an operating cost, update cash and operating expenses, and reflect reduced cash in the financial statements.

Record a credit sale of 30,000 on June 30, 2024, by debiting accounts receivable and crediting sales revenue, and recognize 17,000 in cost of goods sold by reducing inventory.

Record cash purchases of office supplies and utilities to expense 6300; record 25,000 inventory purchase on credit with accounts payable 2000; record 50,000 loan as cash inflow and loan payable.

Record October salary transactions, including gross wages of 15,000, tax payable 12,000, and social security payable 1,500, then pay salaries and taxes, resulting in 15,000 expense and negative cash flow.

Explore how marketing and advertising costs, insurance, and credit sales transact through cash payments, accounts receivable, and inventory, leading to cost of goods sold and profit.

Learn how to record year-end adjustments, including prepaid expenses, depreciation, bad debt allowances, and corporate tax, and reflect these in trial balance and financial statements.

Close 2024 accounts by transferring income to returning earnings. Set the 2025 opening balance from the trial balance, using journal entries dated January 1, 2025, for assets, liabilities, and equity.

Analyze year 2025 transactions, including inventory purchases, sales on credit, cash collections, allowance reversals, asset purchases, and operating expenses, and reconcile the balance sheet, income statement, and cash flow statement.

Compute depreciation for 2025 using a four-year lifespan on fixed assets, prorate for year purchases, then record depreciation in journals to depreciation expense and accumulated depreciation.

Demonstrates calculating the year-end bad debt expense by applying a 3% provision to accounts receivable, and recording the journal entries using the allowance for doubtful accounts.

Explore four types of financial ratio analysis—trend, vertical, horizontal, and benchmarking—through a practical case with 2024–2025 comparisons and two Excel sheets: graph analysis and ratio analysis.

Apply horizontal analysis to the income statement, comparing 2024 and 2025 figures for net sales, gross margin, operating profit, and net income, using 8–15% industry benchmarks.

Balance sheet shows assets up 10% and equity up 14%, while net cash flow from operations rises 122% to positive and current liabilities increase 15% due to tax payable.

Profitability ratio analysis uses gross profit margin, operating profit margin, net profit margin, and return on assets to assess performance against industry standards.

Analyze liquidity ratios, including the current ratio, to gauge a company's ability to meet short-term obligations using current assets, current liabilities, inventory, cash equivalents, and working capital.

Analyze efficiency ratios like inventory turnover and inventory days to gauge asset utilization and operating performance; compare 2024 strong turnover with 2025 deterioration, signaling excess inventory and urging strategy adjustments.

Explain how accounts receivable turnover and days measure how efficiently a company collects payments, influence cash flow, and signal liquidity risks when below the 12 times and 30 days standards.

Assess accounts payable turnover and days to gauge supplier payment efficiency, noting 2024 turnover fell below eight and 2025 dropped to three, yielding 78 days and indicating delays.

explain the asset turnover ratio as a measure of how effectively assets generate revenue, targeting above 2x; 2024 lags industry standards, and 2025 emphasizes improving asset utilization and collections.