It is very important from a company's point of view to maintain a trial balance periodically, so that the entity can have a record of the mathematical corrections of all the events during the period. Trial balance is useful for making cash flows, ratio analysis and several other accounting calculations
Functions of trial balance
A recording worksheet in which all the completed ledger balances of the firm are arranged in the debit and credit columns is known as a trial balance. An organisation prepares a trial balance repeatedly, generally it is done at the end of every reporting period.( Ostroumova et al. 2016) Basically a trial balance is made to be get ensured about the entries of all the events over a certain period of time of the company are mathematically correct. If the debit and credit column of the trial balance are matched it is considered that all the entries are mathematically correct. The trial balance is made
|Rent, rates and insurance||6622|
|Postage and stationery||3001|
|salaries and wages||26420|
|cash in hand||177|
|Cash at bank||1002|
|Equipment at cost||58000|
|provision for bad debts||130|
A trial balance contains several key terms such information for the balance sheet, figures for calculating, information for ratio analysis. Explanation of the key terms are as follows -
- Balance Sheet : A financial statement that sums up the assets and liabilities of a company and the amount of the shareholders capital at a certain point of time is known as a balance sheet. (Bodie et al. 2014)The investors can get a clear knowledge from the above three sections of the balance sheet of what the organisation owns, what is the amount of dues that the company needs to pay and also the amount of investment that is done by the investors. Balance sheet contains the following formula :
Assets = Liabilities + Shareholders capital.
- Gross profit : It is a organisation’s total revenue (equal to total sales) deducting the cost of goods sold. Gross profit is the earnings of the company deducting the total cost relating to the manufacturing and selling of its product or the expenses associated with the contribution of the services. Gross profit can be either appear on the firm's income statement or it can be calculated with the following formula
Gross profit = Earnings - Cost of goods sold
- Ratio analysis : A ratio analysis is a significant analysis from a company's point of view containing the firm financial statements. The calculation of a ratio or a combined ratio is generally based on the balance sheet, income statements and cash flow statement. Although there are many financial ratio most of the interested parties prefers to use the ratios which are easy to calculate like current ratio, acid test ratio, dividend payout ratio, debt-equity ratio and the price-earning ratio(P/E ratio). Early warning can be provided by the ratio analysis relating to the improvement or deterioration of the firm's financial performance(Bay et al. 2015 ).
Profit and loss statement
: cost of goods sold
|Postage and stationery||3001|
|salaries and wages||26420|
Explanation of use of cash flow forecast
- Cash flow forecast : Calculation of timing and the volumes of total cash inflows and cash outflows throughout a certain period of time (generally a year), the cash flow forecast shows is there any need of borrowing, the amount, the period and in which way the company would repay its loans. This forecast is also known as the cash flow budget or the cash flow projection.
Cash flow forecast can be affected by inflation -
- Inflation : Inflation means the sudden price hike of the goods and services in a country and it is calculated as an annual percentage change. During inflation period the prices of the things falling under the condition of inflation increases throughout that period. Putting differently as inflation increases each dollar owned by a person buys a small part of the goods and services.(Uechi et al. 2015).
Ratio analysis crucial in a business :
It is an important task for analysing the firm's financial operations. Importance of this task :
- Analysing financial statements : Financial positions of the company can be understood clearly by the usage of accounting ratio. The investors, management, creditors, bankers etc can use this analysis to understand the firm's wealth position and can make appropriate decisions.
- Efficiency to decide : Ratio analysis are helpful in judging a firm's capital position as per its activities and management. This analysis reflects the utilizing capacity of the firms over its assets and resources and to extract profits.
Properties of current assets and liabilities :
- Current assets : Current assets are those which can be substituted, normally can be used within a year after the end of a period or its general activity cycle(whichever is lengthy), or it is in cash. Examples -
Cash and cash equivalents, stocks, expenses paid in advance etc.
- Current liabilities : If liabilities are due within twelve months afterwards of the balance sheet date. In short can be paid at the end of the next year. Now if the general operating cycle of the company is more than 12 months, it will be current if its due within the period. Example - trade payables and other payables, current provisions, short-term loans, current part of the long-term liability, current tax-liabilities(Tosun, 2013).
The economic and commercial environments for the restaurant is increasing everyday. Presently the markets are full of various restaurants with powerful economic strengths. The competition for the restaurant are getting tougher as the competitive restaurants are have several variations of food and services. The restaurant should focus on the overall development and and services as to stay in fight with other competitors.