week 6 Economic Summary Report

Running a lemonade business requires a lot especially in terms of finances involved and the capacity to use them efficiently. The business requires a number of accounting information in order for the accounting records to be properly presented. First, there is the recording of the day to day operational activities of the stand which includes recording of the sales revenues, cash received from customers as well as the expenses incurred throughout the day. Presentation of this information can be done through daily journaling or journaling at the end of the week. Also after the journaling, the information is then presented in legers from which the ledger is used to fill in both the income statement and the balance sheet. It therefore requires the use of reports in order to fully analyze how to use the products appropriately and price the product. The aim of this paper is to summarize the accounting information derived from Season one, two and three and combine that data in order to present a full overview of the Lemonade Stand. More precisely we will look at the daily journal, the income statement and balance sheet as well as the economic profit report in order to evaluate the economic opportunities available to the business.

Looking at the daily journal in season one, it was clear that the weather did not only have an impact on the level of sales revenue that the business was able to achieve. It was therefore an experiment to increase the price of each glass of lemonade which had a positive effect on the level of revenue achieved.

For the income statement, Season three revealed the lowest level of earnings with season two being the most profitable season. However, there were losses experienced in season one and two. It is important to note that the income statement provided an alarming report of the business.

On the other hand, the balance sheet provided an overview of the position of the business across the seasons. It was evident that the retained earnings which affected the equity levels continually increased. Also, it was evident in the increase in investor confidence as they increased their contributions towards the business.

The economic profit report was quite accurate in revealing a true financial position of the business. According to the report, the Lemonade stand began making a profit in season three, a true profit in that matter.

The Return on Equity generated by the business is quite high at around 68% by Season three. This indicates that in season three the business became more profitable and therefore was able to generate a return to its owners. On the other hand, the return on assets was quite constant over the seasons, this could be due to the level of assets held by the business. Also these assets are a necessity and therefore they affect the constant level of ROA throughout the seasons. The current ratio shows that the business is at a capacity to pay off its short term debts within the period they fall due using its current assets. The business eventually experienced a decrease in the current ratio which shows that the company liquidity position was increasing and therefore the company was in a good position which was a lowered business risk. Since the company operates in a cash basis, they do not have a debt ratio. This implies that the company has a strong position of the debt to equity ratio as most of the assets in the company are owned by the investors and not debtors which reduces the amount of leverage the company is exposed to. The profit margin was high in season two as it was nearly 100 %, it was 50% in season one and it was quite low in season three. The business owners need to identify why this was the case and look into what can be done to remedy the situation. To sum, the lemonade business was profitable especially since the investment was done in a conservative manner as well as the investment in inventory which ensured that the Lemonade stand had sufficient product to satisfy the demand.