Accounting Summary Report of Gurudev Lemonade Stand: Season One

Accounting Summary Report of Gurudev Lemonade Stand: Season One Rahul Parikh BUS599: Introduction to Quantitative Principles (MWF1133A) Dr Zhimin Huang August 20, 2011

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Gurudev Lemonade stand is a partnership firm established by me, and my friend, by investing initial capital of $20.00 each, to sale refreshing lemonade drinks. Business was started from scratch during season one, when weather was partly cloudy, and partly sunny, targeting the thirst aspect of peoples physiological need. This report is the study of six days business of the firm, during season one, creating general journal of its transactions in chronological order, an income statement, and balance sheet for the business operation. General Journal:

Appendix-1: General Journal of Gurudev Lemonade Stand, For Season One:

Accounting Summary Report

General journal is prepared in this business (Appendix-1: Page 2), to record each transactions in chronological order, showing debits, and credits, for each transaction during season one (Brownfield, 2007, p.55). All transactions were recorded starting from owners capital of $40.00, to total debits or credits of $404.85, in chronological order that occurred date wise. For example it includes all revenue earned, by selling lemonade, during each day of season one, which was credited in the journal, but at the same time it was debited as cash account in journal on same day. Similarly all supplies purchased, which are inventories, were debited, and also were credited as account payable on the same day in the journal. Transactions in the journal makes us know, whether it is income statement or balance sheet account. For example equipment or inventories purchased, and cash earned by selling lemonades are reflected as total assets, in balance sheet account, and revenue earned deducting the expenses incurred, is reflected as earning in income statement of season one. Income statement:

Appendix-2: Income Statement of Gurudev Lemonade Stand, For Season One: The income statement reflects total revenue earned, and expenses incurred, with resulting net income over the six days business activities of season one. Income statement of this lemonade business (Appendix-2) mentions that they have generated revenue of $185.90 by selling lemonade over span of six days in season one, and have incurred total expenses of $59.95 by using supplies, while earning this revenue. Subtracting the expenses from

Accounting Summary Report revenues, gave net earnings/income of $125.95 in income statement of six day business activity of season one. Balance Sheet:

Appendix-3: Balance Sheet of Gurudev Lemonade Stand, For Season One: Balance sheet describes financial position of lemonade business with respect to type, and amounts of assets, liabilities, and equity, over six day business during season one (Brownfield, 2007, p.17). It reveals (Appendix-3) that Gurudev lemonade started as partnership business with owners capital of $40.00, made investment of $10.05 in inventories, and $9.00 in equipments, during six days business of season one. Company generated $185.90 in cash as revenue, thus it has total assets of $204.95 during season one. On liability aspect, company has $39.00 as account payable. In equity, company has retained earnings of $125.95, plus owners capital of $40.00, thus total equity in balance sheet is $165.95 for six days operation. The balance sheet shows that company has total liabilities of

Accounting Summary Report $39.00, total equity of $165.95, thus total equity and liabilities of $ 204.95, which balances the total assets of $204.95 during six days of business operation in season one. Financial Ratios:

Appendix-4: Financial Ratios of Gurudev Lemonade Stand, For Season One: Financial Ratio (Appendix-4) gives actual condition of current status of business compared to balance sheet or income statement. Following are significant ratios, used to comment on operation of Gurudev lemonade stand business. Profit margin or return on sales is a ratio of net income to net sales, and it is a useful measure of companys operating result, as it reflects the percent of profit corresponding to each dollar of sales (Brownfield, 2007, p.108). It is a measure of profitability, and indicates what portion of sales contributes to the income of the company. In season one; Profit margin was 67.8%, which means company has roughly net income of $0.67 for each dollar of sales. This is a terrific profitable operation; indicating strong financial return. Inventory turnover is 5.97, which is a function of total sales over net income ($185.90), and represents number of times, the inventories has turned over into sales. This means that

Accounting Summary Report business operation has short shelf life, signifying restocking planning for the company. Also such high turnover signifies high demand of product, which in turn signifies strong, and potential, financial status of the Company.

Cash ratio is a function of total cash to its current liabilities. It is 4.77 which suggests strong companys liquidity, and serves as measure of how quickly company can repay its short-term debt, thus it is a good indicator of the solvency of the company, and also indicates strong condition of the company as far as cash on hand is concerned. Return on earning (ROE) of 75.9% calculates the return generated by owners of the company. It is one of the most important indicators of a firms profitability, and potential growth, as it is a ratio of net profit divided by equity. Company showing such high ROE is able to grow without large expenditure. Return on assets (ROA) of 61.5% illustrates how profitable company is relative to its assets. It indicates that company is generating strong return on owners investment, and owner has strong efficiency of using current assets to generate revenue. Recommendations: Lemonade stand has excellent financial performance, but few recommendations regarding its operation can be applied to have better business effectiveness. 1) To achieve better growth, company needs to increase its equipments to increase its revenue, which will help to increase its assets. 2) Based on current inventory turnover, company has generated significant amount of cash, but still company should increase its inventory to create more sales, and increase its revenue, and cash on hand. 3) Company should increase its assets, which will increase its leverage ratio, which will make company attractive to potential investors. Conclusion: Operation of Gurudev Lemonade Stand Company over six days of season one was very successful. The income statement shows revenue of $185.90 compared to expenses of $59.95,

Accounting Summary Report thus making a net income of $125.95. The balance sheet shows total assets of $204.95, with total liabilities of $39.00, and total equity of $165.95. This figures states that company

generated significant revenue, with minimal expenses, and minimal liabilities, thus generated significant assets, retain earning, and generous profit, in a short duration of six days business operation. Based on such success, it is recommended that company must plan for best use of its profit, and significant cash flow, to make effective better run, and growth, of the business.

Accounting Summary Report References: Brownfield, David L. (Ed.). (2007). MBA essentials. New York: McGraw-Hill Learning Solutions. ISBN: 978-0-697-77527-6. Season One Sample, Retrieved on August 15, 2011 from http://threadcontent.next.ecollege.com/pub/content/fab89beb-0b4f-42fa-9a4f30c5bb68e87c/BUS599_Season_1_Sample.pdf Season Two Sample, Retrieved on August 15, 2011 from http://vizedhtmlcontent.next.ecollege.com/pub/content/2ab7e0d8-c328-4bf2-867982e34a53a936/BUS599_Season_2_Sample.pdf .