Question & Answer: Perform vertical and/or horizontal analysis of the statements and identify two things that appear to be un…..

The balance sheet and income statement for ABC Company for the years 2015 and 2016 are as follows:

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Perform vertical and/or horizontal analysis of the statements and identify two things that appear to be unusual and could be possible symptoms of fraud.

BALANCE SHEET 2015 S 460 620 1,000 $2,080 S 580 500 400 600 $2,080 2016 $ 300 Accounts receivable Inventory Total assets Accounts payable Notes payable Common stock Retained earnings Total liabilities and stockholders’ equity Income Statement Net sales Cost of goods sold Gross margin Expenses: 730 $1,510 S 310 100 400 700 $1,510 S 550 120 S 430 $ 840 160 S 680 S 100 $ 150 120 90 75 $ 435 $ 245 Warehousing costs 45 S 285 S 145 Total expenses Net income

Expert Answer

ABC COMPANY
Balance sheet

	2015	2016
Cash	460	300
%	22%	20%
Acccounts Receivable	620	480
%	30%	32%
Inventory	1000	730
%	48%	48%
Total Assets	2080	1510
	100%	100%
Acounts payable	580	310
%	28%	21%
Notes payable	500	100
	1080

%	24%	7%
Common stock	400	400
%	19%	26%
Retained earnings	600	700
%	29%	46%
Total liabilities and	2080	1510
Stockholders’ equity


ABC COMPANY
Income sheet

	2015	2016
Sales	550	840
%	100%	100%
Cost of goods sold	120	160
%	22%	19%
Gross profit	430	680
%	78%	81%
Salaries	100	150
%	18%	18%
Warehouse costs	80	120
%	15%	14%
Advertising costs	60	90
%	11%	11%
Taxes	45	75
%	8%	9%
Total Expenses	285	435
%	52%	52%
Net income	145	245
%	26%	29%


1. The accounts receivable management has is showing a negative figure as can
be seen from its proportion as a percentage of total assets (30% to 32%)
with a corrsespondingdecrease in cash balance from 22% to 20%.

2. We can conclude that cost of goods has gone down by 3% from the previous year
which is resulting in an an incresed net profit margin , by the same proportion.

3. Warehouse costs have gone down by 1% as a percentage of sales.

4. We can conclude that the operational efficiency has gone up from last year.

ABC COMPANY
Balance sheet

	2015	2016	Change
Cash	460	300	65%
Acccounts Receivable	620	480	77%
Inventory	1000	730	73%
Total Assets	2080	1510	73%
Acounts payable	580	310	53%
Notes payable	500	100	20%
Common stock	400	400	100%
Retained earnings	600	700	117%
Total liabilities and	2080	1510	73%




ABC COMPANY
Income sheet

	2015	2016	Change
Sales	550	840	153%
Cost of goods sold	120	160	133%
Gross profit	430	680	158%
Salaries	100	150	150%
Warehouse costs	80	120	150%
Advertising costs	60	90	150%
Taxes	45	75	167%
Total Expenses	285	435	153%
Net income	145	245	169%

From the analysis we can conclude that :

1. The proportion of all assets has come down compared to last year
with a corresponding decrease in liabilities, resulting in a increase in
retained earnings by 117% over the last year.

2. From the analysis of the income statement we can say that the performance
has improved compared with the previous year , as we have already observed
in the vertical analysis.
Whereas the sales has gone up by 53% , the cost of goods sold has gone up by only 33%
which has resulted resulted in the net income going up by 69%.

3. This confirms that the company has imrpoved its performance from the last year.

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