Analysing the Comparing Financial Statements of two competing Business

Question: Different roles of the financial and management accounting: How does the income statement affect the Balance Sheet? How does the income statement affect the Balance Sheet? How the regulatory environment of accounting impacts on business, commerce and society: Answer: How does the income statement affect the Balance Sheet? The bottom line of the income and the basic purpose of the income statement is the derivation of the net income. The income statement starts with the listing of the revenues and then listing with the matching expenses with the same. The matching concept requires the balancing of the income sand the revenues as against each other. If the revenues of the company exceeds the expenses, then the company earned a profit but if the company has more expenses than the revenues, it has suffered a loss. The amount that is derived is added to the amount of the retained earnings in the section of the stockholders equity and is then reported on the balance sheet. The financial statements is the summary of what has happened during the year. The components of the same are the income statements, retained earnings, balance sheet and the statement of cash flows. Each of the statement summarizes a different aspect of the organization. The income statement shows the income and the expenses that have been earned during the year. The balance sheet shows the position of the assets of the organization and the cash flow statement shows the position of cash during the year. (Small Business - Chron.com, 2015) (Wall Street Prep, 2015) How the regulatory environment of accounting impacts on business, commerce and society: It is the regulatory that has forced the business to disclose each and every aspect of it to the public. The companies are being asked to publish all the details with regard to the environment and the cost along with the financial accounts under the new set of the rules that are being discussed with the organizations that sets up the accounting standards. The business are duty bound to account for the impacts of the local quality of water, plants and the animals. The companies are causing a vast amount of damage to the living beings on the planet and the environment and they are bound by duty to disclose the amount of the damage that they are causing. Along with that they have to report the initiatives that they are undertaking in order to preserve the environment. The people think about the primary industries such as the agriculture forests, fisheries etc. (Jowit, 2010) The regulations have required the businesses to disclose everything to the public since after the scandals like Enron, Lehman Brothers, and the confidence of the public has been somewhat lost and in order to gain it back, it is really important to introduce the regulatory environment. (Baruch.cuny.edu, 2015) Financial statements of the coffee companies: Both the companies serve food and beverages. The following are the calculated ratios on the basis of which the investment decision shall be made: Particulars Caf Palomino Dew Drops Coffee and Bistro Liquidity ratios: Current assets 167000 195,408 Current liabilities 81,650 169,408 Current ratio 2.04531537 1.153475633 Current assets-inventory 142000 143,798 Current liabilities 81,650 169,408 Quick ratio 1.739130435 0.848826502 Profitability ratios: Net income 116,200 105,420 Total assets 1,301,450 1,291,158 Return on assets 8.93% 8.16% Net income 116,200 105,420 Shareholders equity 569,800 561,150 Return on equity 20.39% 18.79% Caf Palomino has a higher current ratio that the company will be in a position to better cater to the short term needs of the company whereas Dew Drops Coffee and Bistro does not enjoy a very good current ratio. Caf Palomino has a higher quick ratio that the company will be in a position to better cater to the short term needs of the company whereas Dew Drops Coffee and Bistro does not enjoy a very good quick ratio. Caf Palomino has a higher return on assets which shows that the company is able to utilize the assets in the most efficient way whereas Dew Drops Coffee and Bistro is not utilizing its assets in the most efficient way. Caf Palomino has a higher return on equity which shows that the company is able to utilize the money of the shareholders in the most efficient way whereas Dew Drops Coffee and Bistro is not utilizing the money of its shareholders in the most efficient way. Therefore, in the nutshell, it would be correct to say that from the point of view of an investor, the investment in Caf Palomino would be better. From the point of an investor, the investment is able to multiply and give some return on his investment would be better and from that point, the investment in Caf Palomino would prove to the most profitable. References: Accountingtools.com, (2015). What is the difference between financial and managerialaccounting? - Questions Answers - Accounting Tools. [Online] Available at: https://www.accountingtools.com/questions-and-answers/what-is-the-difference-between-financial-and-managerial-acco.html [Accessed 22 Mar. 2015]. Baruch.cuny.edu, (2015). Changes in the Regulatory Environment and their Effects on Audits and Auditors - The Saxe Lectures in Accounting. [Online] Available at: https://www.baruch.cuny.edu/library/alumni/online_exhibits/digital/saxe/saxe_2008/wood_05_09_11.htm [Accessed 22 Mar. 2015]. Joint, J. (2010). Accounting rules could force businesses to disclose environmental impact. [Online] the Guardian. Available at: https://www.theguardian.com/environment/2010/jul/13/accounting-business-environmental-impact [Accessed 22 Mar. 2015]. Small Business - Chron.com, (2015). How Items on the Income Statement Affect the Balance Sheet. [Online] Available at: https://smallbusiness.chron.com/items-income-statement-affect-balance-sheet-56643.html [Accessed 22 Mar. 2015]. Small Business - Chron.com, (2015). The Differences between Financial Accounting Management Accounting. [Online] Available at: https://smallbusiness.chron.com/differences-between-financial-accounting-management-accounting-3985.html [Accessed 22 Mar. 2015]. Wall Street Prep, (2015). "How are the financial statements linked together?" | Wall Street Prep. [Online] Available at: https://www.wallstreetprep.com/how-are-the-financial-statements-linked-together/ [Accessed 22 Mar. 2015].