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Case Study: After graduating from college, best friends Sally and Sandy decided to open a...

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Accounting

Case Study:

After graduating from college, best friends Sally and Sandy decided to open a landscaping business. Sally had majored in accounting, so she would handle the business financial operations. Sandy, who had majored in landscaping, would handle the landscaping operations.

Sandy worked with clients to recommend plants, develop and implement landscape plans, and run the retail store that featured seasonal plants and landscaping supplies. Sallys responsibilities were to review the financial reports and monitor the business accounts, both accounts payable and accounts receivable. She prepared the business activity reports and financial forecasts.

Although each managed completely different aspects of their landscaping business, Sally and Sandy agreed to meet each quarter to review what had transpired in the landscaping operations and where their business stood financially through use of a profit and loss (P&L) statement and a balance sheet.

Explain to Sandy what a P&L statement is and what it tells the manager about the financial condition of the business. Explain how the P&L statement is different than the balance sheet. How is the balance sheet helpful to a business manager?

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