Billy Bristol Assignment Example | Topics and Well Written Essays - 1000 words

Billy Bristol - Assignment Example There are two examples to support my answer. The profit is generated by deducting the total operating expenses from the gross profit. The gross profit is arrived at by deducting the cost of sales from the net sales. Since collections include revenues from prior or future accounting periods, cash collection is not the best basis for determining current period net income. Current period $10,000 collection for sales generated during the prior accounting period does not affect the current period net income (Berry, 2011). Likewise, expense payments may include expenses for future accounting periods. Consequently, an adjusting entry is made to include only the current (accrued) portion of the total expense payments in the computing the current accounting period’s net income. A payment of $1,200 insurance expense 2 years should adjust to only include $600 for the current period insurance expense. Based on the above financial statement analysis ratios, Brisbane fared financially bette r than Perth. Brisbane’s 38 % Gross profit margin is higher than Perth’s 25 gross profit margin. A higher gross profit ratio indicates a better financial or operations performance. Brisbane’s 7 % profit margin is higher than Perth’s profit margin. A higher profit ratio indicates a better financial or operations output. Brisbane’s 3.65 times current ratio is higher than Perth’s 2.92 times current ratio. This clearly shows that Brisbane’s has more current assets allocated to pay for the currently maturing liabilities.