Sie sind auf Seite 1von 41

FINANCIAL STATEMENTS

(UNDERSTANDING FINANCIAL
STATEMENTS)

Compiled by Dr. Divya Jindal


Financial Statements
• Are statements prepared at the end of accounting period or
as on a specified date to provide the following information:
1. Profit or Loss of business during an accounting period
(results from operations)
2. Financial position of the business
3. Cashflows of the business
• Are also known as Final Accounts.
Each financial statement relates to a specific
date or covers a particular period.
Components of Financial Statements
The three main financial statements produced by a
business at the end of an accounting period:

Profit & Loss Statement


Cash Flow Statement
(Income Statement)

Balance Sheet Statement


3
Components of Financial Statements

Financial statements of Companies include the following:


a) Balance Sheet at the end of financial year.
b) statement of Profit & Loss (Income Statement)
c) Cash Flow statement
d) Statement of Changes in equity, if applicable
e)Explanatory statement, Note annexed to & forming
part of Financial statements.
Objective of Financial Statements

• Objective is to provide information about the financial


position, performance and cashflows of an enterprise to
help the users carry out an evaluation of the ability of the
enterprise to generate cash & cash equivalents and of the
timing and certainty of generation for necessary decision-
making
– (Ambrish Gupta)
Thus objective of financial statements is to provide information
about:
1.Financial position
2.Financial Performance (results of operation)
3.Cashflows and ability to generate cashflows
Information Reported on the 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

3. How much cash did Operating cash flows Statement


the company generate ± Investing cash flows of
and spend during ± Financing cash flows cash
the period? Increase or decrease in cash flows
Users of Financial Statements

1. Present and potential investors


2. Employees and their representative
groups
3. Lenders
4. Suppliers
5. Customers
6. Goverments and their agencies
7. Public
8. Management
Form and Content of Financial
Statements
Income Statement
(Trading, Profit and Loss Account)

The income statement, reports the company’s revenues,


expenses, and net income or net loss for the period.

10 Sales Costs and Expenses


Form and Content of Income
Statement
Income Statement
For the Year Ended 31/12/200x

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

The Income Statement can be divided into:

• Trading Account

• Profit and Loss Account


Trading Account

• Provides trading results or gross profit (gross margin)

• Only direct expenses are included and indirect expenses


(admin. Expenses, selling & distribution expenses,
financial expenses) are excluded

• Balance of Trading account is gross profit or gross loss


and is transferred to the profit and loss account.
Gross Profit
Gross profit = Sales – cost of goods sold
Cost of goods sold = Opening Stock + Net Purchases (i.e. Purchases –
Return outwards) + Direct Expenses - Closing Stock
Therefore,
Gross Profit = Sales – (Opening Stock + Net Purchases + Direct
Expenses - Closing Stock)

Gross Profit = Sales – Opening Stock - Net Purchases - Direct Expenses


+ Closing Stock

Opening Stock + Net Purchases + Direct Expenses + Gross Profit


= Sales + Closing Stock

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

 EBIT – Also known as Operating earnings. It measures


company’s earnings before deducting interest and taxes. It is the
remainder after all expenses have been deducted from revenue
The Accounting Terms- Income Statement

Interest Expense - the payments made on the company's


outstanding debt.

Income Tax Expense - the amount payable to


government.

Net Income (PAT) – the final profit after deducting all


expenses (including income taxes) from revenue.

•Often seen as the “bottom line”


Balance Sheet Statement
A balance sheet is a statement that shows the financial position
of a business entity at a given date, usually the last date of the
accounting period.

The Balance Sheet Statement shows the assets, liabilities


and equity of a business at a point in time
Balance Sheet Statement

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

Plant and Equipment

Also known as non-current or long-lived assets


Balance Sheet Statement

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.

2. Copyrights, Trademarks and Patents:


These refer to the economic benefits that a firm derives from
having the exclusive right to use a particular brand, creation,
symbol or a technology.
Balance Sheet Statement
Liabilities
There are two main types of liabilities

Long-Term Liabilities
Total Liabilities
Current (Short-Term) Liabilities

Long Term Liabilities - are debts to be repaid after one year

Short Term Liabilities - are debts to be repaid within one


year eg trade creditors, bank overdraft, tax payable, dividend
payable
Other Liabilities
Contingent Liability:

• Are not actual liabilities but become actual on the


occurrence of some events which are uncertain.

• Examples: Arrears of dividends on cumulative


preference shares, bills of exchange discounted.

• Not shown in the balance sheet BUT shown as


footnote at the bottom of balance sheet.
Balance Sheet Statement
Equity
Equity has two components

Contributed Capital
+ Equity
Retained Earnings

Contributed Capital is the money the owners have


injected into the business
Retained Earnings are the cumulative profits that
have not been paid as dividends to the owners. It
may be in the form of reserves and surplus.
32
Balance Sheet Statement
Provision
• Provision is the amount that is set aside out of profits of the
business for providing:
– Depreciation, renewals and decrease in the value of assets.
– A known liability, which cannot be determined.
• It is a charge against profits
• Is created by debiting the Profit and Loss account.
• Cannot be distributed as profits.
• Examples: Provision for depreciation, Provision for bad debts,
provision for discount on debtors, provision for tax, provision
for repairs and renewals.
33
Balance Sheet Statement
Reserves
• Are amounts set aside out of profits of the business for a
specific purpose or to meet any liability, contingency or
commitments.
• Is an appropriation of profits
• Can be distributed as profits, if required.
• Shown on the liability side of the Balance Sheet as a part
of Equity under the heading Reserves and Surplus.
• Include: General Reserves, Specific Reserves, Capital
Reserves, Revenue Reserves, Assets Reserves, Liability
Reserves, Sinking Fund Reserves
Balance Sheet Statement
Reserves
• General Reserves: Reserve which is set aside to meet any
future known contingency or emergency.
• Specific Reserves: created for some specific or definite purpose
i.e. reserve for repairs
• Capital Reserves: reserves made for the financial growth of
the business and made out capital profits including:
– Premium on issue of shares and debentures
– profit on redemption of shares
– profit on sale of fixed asset.
– Profit on revaluation of fixed asset.
Balance Sheet Statement
Reserves
• Revenue Reserves: Consists of undistributed profits made in
the ordinary course of the business. Made out of revenue profits.
These reserves are available for distribution as profit.

• Assets Reserves: These reserves are maintained for set off the
losses of the valuation of the assets.

• Liability Reserves: Made for current and future liabilities


whose amounts may not be certain eg Reserve for taxation.

• Sinking Fund Reserves: Are created for the redemption of the


debentures.
Grouping and Marshalling of the Balance
Sheet

• Assets and liabilities can be arranged in the Balance


Sheet into two ways:
1. In order of permanence
2. In order of liquidity
Balance sheet, as at ____________
Liabilities Rs. Assets Rs.
Fixed Liabilities: Fixed Assets:
Capital Building
Opening balance Machinery
Add: net profit(-net loss) Furniture & Fixtures
Capital introduced Motor Car
Less: Drawings
Intangible Assets
Long Term Liabilities: Goodwill
Loan from Bank Patents
Copyright
Current Liabilities and Licenses
Provisions:
Income received in advance Investments:
Sundry Creditor
Outstanding Expenses Current Assets:
Bill Payable Stock in Trade
Bank Overdraft Sundry debtors
Investments
Provisions: Bills Receivable
Provision for tax Cash at Bank
Proposed dividend Cash in Hand
Prepaid Expenses

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

• Adjustment entries are journal entries prepared at the end


of the reporting period to ensure revenues are recorded in
the period in which earned and expenses are recognized in
period incurred in which incurred.
Adjustment Entries
1. Prepaid expenses
2. Outstanding/Accrued expenses
3. Accrued Income/ income receivable (income earned but not
received)
4. Unearned Income or Income received in advance
5. Closing stock
6. Depreciation
7. Bad Debts
8. Provision for Bad and Doubtful Debts
9. Loss of Goods by Fire
10. Manager’s Commission

Das könnte Ihnen auch gefallen