M6 Assignment 2 – Business Performance Review
3.1) Source and structure of the trial balancePAGE: 3
3.2) Evaluation of a range of business accounts, adjustments and notes 3.3) Process and purpose of budgetary controlTO
3.4) Calculation of variances with suggestions for appropriate future management action PAGE: 7
4.1) Calculation and analysis of ratios and consistent interpretation of historical business performancePAGE:
4.2) Recommendations for future management strategies for a business and services operationPAGE:
James has returned after a year for a review of his business performance. This performance is based on his original budget and historical data of James Catering Company.
James from JCC catering was advised 12 months ago on a start-up business plan. Now that he has been operating for a year, he has brought back his business accounts for Activate to evaluate. The purpose of this evaluation is to advise him on the health of his business and supply him with a progress report. The purpose of proper budgetary controls and analysis of variances will be discussed with James and advice will be given on the appropriate management actions needed to ensure future growth of his business.
3.1) Describe the source and structure of the trial balance 3.2) Evaluation of a range of business accounts, adjustments and notes 3.3) Explain the process and purpose of budgetary control
3.4) Calculate and analyse variances from budgeted and actual figures. Offer suggestions for appropriate future management action.
A trial balance is required before the annual final balance sheet and income statement for the business can be produced. It is a complete list of all the accounts contained in the business, both debtors and creditors. The purpose of it is to illustrate that the total value of the debtors accounts are equally balanced by the total value of the creditors accounts. If there are discrepancies and the two do not balance, the errors have to be found before your final accounts can be drawn up. The following are errors that could be made: (Wikipedia, 2011 ) Errors of:
Original entries – where you include the wrong amount on both sides of the transaction and accounts then still balance Omission – where a transaction is not recorded at all. The accounts will still balance but one part may be completely missing like your stationery costs. Your totals will be unaffected. Reversal – where a transaction is made with the correct amount but in the wrong column. A credit recorded as a debit or the other way around. Totals will be unaffected. Commission – where a transaction is recorded with the right amount in the right column, but may be made into the wrong account – e.g. you recorded your fuel costs in another expense account like car maintenance. Totals will be unaffected. Principle – where a transaction is made with the correct totals on the correct side of the T, but the transaction is placed in the wrong account. It won’t affect your totals. Compensating – more than one error that would normally lead to totals not balancing, but when recorded together, they balance out. This then leaves totals unaffected. Transposition – where two digits next to each other are switched around. Accountants can find these numbers due to the fact that the error can always be divided by 9.
The trial balance is a total picture of all the financial transactions that have taken place in the business, in the accounting period, which will be reflected in the final statements, but has limitations as it only checks the total sum of the debits against the total sum of the credits. It uses a T-format –...