Beruflich Dokumente
Kultur Dokumente
(UNDERSTANDING FINANCIAL
STATEMENTS)
Financial
Question Answer Statement
1. How well did the
Revenues
company perform Trading
– Direct Expenses
(or operate) during Account
Gross income (Gross loss)
the period?
Gross Profit Profit and
– Indirect Expenses Loss
Net income (Net loss) Account
Trading account and Profit and Loss account are together known as
Income Statement or Statement of Profit and Loss.
Information Reported on the Financial
Statements
Financial
Question Answer Statement
2. What is the company’s Assets
Balance
financial position at the = Liabilities
sheet
end of the period? + Owners’ equity
Sales Rs100
Cost of Sales 40
Gross Profit 60
Expenses 30
Operating Profit 30
Other Expense/(Income) 5
Profit Before Tax 25
Corporate Income Tax 7
Profit After Tax 18
Dividends 12
Retained Earnings 6
11
Income Statement
• Trading Account
The left hand side of this equation depicts debit side and right
hand side depicts credit side of the Trading Account.
Proforma for Trading Account
Trading account
For the year ended 31st March, 20XX
Particulars Amount Particulars Amount
Opening stock Sales
Purchases Less: Returns Inwards
Less:- Returns Outwards
Closing stock
-Drawings
Gross Loss c/d
Direct Expenses:-
Carriage inward
Wages
Fuel & Power
Customs/Import duty
Octroi
Gross profit c/d
(balancing figure)
Proforma for
Profit and Loss Account
Profit and Loss Account
Debit for the period ending on ----- Credit
Particulars Amount Particulars Amount
Gross loss b/d Gross Profit b/d
Administration Expenses Interest Received
Rent, Rates & Taxes Discount Received
Office salaries Comm. Received
Printing & Stationery
Dividend from shares
Telephone charges
Rent from property
Insurance
Audit fees Profit on sale of fixed
Selling & Dist Exp :-
assets/investments
Advertisement Net Loss c/d
Traveller’s Salary, exp. &
commission
Bad Debts
Carriage outwards
Bank charges
Net Profit c/d (bal)
Income Statement
For the year ended…………. (All figures in Rs. ‘000)
Sales 16,000
Less: Cost of Goods Sold:
Raw materials consumed 7,800
Consumables 800
Direct Labour 750
Other Direct Expenses 480 9830
Gross Profit 6170
Less: Operating Expenses
Administration Expenses 1200
Selling Expenses 260
Depreciation 700 2160
Operating Profit 4010
Add: Non Operating Income 50
4060
Less:Non-Operating Expenses 100
Net Profit before Interest & Tax 3960
Less: Interest Paid 360
Net Profit Before Tax 3600
Less: Income Tax @ 50% 1800
Net profit after tax 1800
For the year ended…………. (All figures in Rs. ‘000)
Revenue from Sales
Gross Sales XXXX
Less: Sales Returns XXXX
Net Sales XXXX
Less: Cost of Goods Sold:
Opening Stock XXXX
Purchases XXXX
Less: Purchase Returns (XXXX)
XXXX
Add Carriage Inwards XXXX
Net cost of Purchases XXXX
Cost of goods available for sale XXXX
Less: Closing Stock (XXXX)
Cost of Goods Sold XXXX
Gross Profit XXXX
Less: Operating Expenses
Administration Expenses XXXX
Selling Expenses XXXX
Depreciation XXXX XXXX
Operating Profit/ Profit Before Interest and Taxes XXXX
Less: Interest Paid (XXXX)
Net Profit Before Tax XXXX
Less: Income Tax (XXXX)
Net profit after tax XXXX
The Accounting Terms- Income Statement
Revenue - the proceeds that come from sales to customers
Cost of Goods Sold (COGS) - an expense that reflects the
cost of the product or good that generates revenue.
Gross profit (gross margin) - excess of sales revenue over
the cost of inventory that was sold. This is revenue minus
COGS
Operating expenses - a group of recurring expenses that
pertain to a firm’s routine operations. It includes any expense
that doesn't fit under COGS such as administration and
marketing expenses.
Other revenues and expenses - items not directly related to
the main operations of a firm
The Accounting Terms- Income Statement
EBIDTA - measures a company's annual earnings before
deducting interest, taxes, depreciation, and amortization. It
allows comparison of one business with another without the
effect of different capital structures, different tax structures and
different CAPEX Policies
Assets:
There are two main types of assets
Fixed Assets
+ Total Assets
Current Assets
Land &
Balance Sheet Statement
Buildings
Fixed Assets:
Fixed assets are assets held for long term use in the business
(more than one year) and not intended for resale, such as:
Vehicles
Current Assets:
Current assets are cash or other assets that will be converted
into cash or consumed in the normal course of business
within 12 months such as
Stock Cash
Debtors
Other Classifications of Assets
1. Liquid Assets and Illiquid Assets
• Liquid assets: are assets which are immediately convertible into
cash without much loss.
Liquid assets = Current assets- Stock - Prepaid expenses
2. Tangible Assets and Intangible Assets
• Tangible Assets: Are assets that can be seen, touched or felt
physically eg. Buildings, vehicles
• Intangible Assets: are assets that can be seen, touched or felt
physically. These assets do not have a physical form. eg.
Goodwill, patents, trademarks, copyrights, intellectual property,
Franchise rights, Business Licences
Intangible Assets
1. Goodwill:
It generally refers to the good reputation or image of an
organization. It represents the extra earning capability of a
firm which is the result of its good reputation in the market.
Long-Term Liabilities
Total Liabilities
Current (Short-Term) Liabilities
Contributed Capital
+ Equity
Retained Earnings
• Assets Reserves: These reserves are maintained for set off the
losses of the valuation of the assets.
Total Total
Balance sheet, as at ____________
Liabilities Rs. Assets Rs.
Current Liabilities Current Assets:
Bank Overdraft Cash in Hand
Bill Payable Cash at Bank
Outstanding Expenses Bills Receivable
Sundry Creditors Sundry debtors
Income received in advance Stock in Trade
Prepaid Expenses
Long Term Liabilities: Accrued income
Loan from Bank
Investments:
Capital:
Opening balance Fixed Assets:
Add: Net Profit Furniture & Fixtures
Or Motor Car
Less: Net Loss Plant & Machinery
Add capital introduced during the year Building
Less: Drawings Land
Intangible Assets
Patents,Copyright
Licenses
Goodwill
Total
Total
Closing Entries and Adjustment Entries
• Closing entries are journal entries passed at end of
accounting period to close the temporary accounts by
transferring their balances to statement of profit &loss
– eg. Closing stock, revenues and expenses are closed to
trading, profit and loss account