TO THE SESSION

ON
 TO BE FACILITATED BY

MUHAMMAD MAHMOODUL
HAQUE

ASSISTANT GENERAL MANAGER

& FACULTY MEMBER

AGRANI BANK TRAINING

INSTITUTE,DHAKA
A request to you all, please.......
 Introductory Talk
 How many of you are with ACCOUNTING/
COMMERCE/ BUSINESS ADMINISTRATION
background?
 Who among you are working in bank’s
Accounts Division or Credit Desk?
 How many of you can read FINANCIAL
STATEMENTS?
 Introductory Talk
 We all can read the word MANGO:
 But how many of us can read MANGO?
 Do we all equally understand what a
MANGO is?
 How many of us really know the
composition and nutritional value of a
MANGO?
Introductory Talk
Introductory Talk
Introductory Talk
 Discussion Points
 Accounting Cycle and Final
Accounts
 Financial Statements
 Manufacturing Account
 Trading Account
 Profit And Loss Account
 Balance Sheet
 Journal

fi na is of

Le
s
st a nc ia l
ent

dg
a ly s

er
tem
An

ACCOUNTING
CYCLE

fin Pre c e
an pa an
cia ra al
l s tion l B
ta
te of ir a
m T
en
ts
 FINAL ACCOUNT
Final Accounts are
 accumulation of various accounts and
statements
 by which it is possible to determine
a) profit or loss after a certain period
and
b) financial position of business
organization at a specific date.
FINANCIAL STATEMENTS

CONVENTIONAL METHOD:

 Manufacturing account
 Trading account

 Profit & Loss account

 PL Appropriation account

 Balance Sheet
 FINANCIAL
STATESMENTS
MODERN METHOD :

 Income Statement
 Owner’s equity Statement

 Balance Sheet

 Cash flow statement

 MANUFACTURING
ACCOUNT
 It is prepared to identify the cost of
goods produced in a specific
accounting period,

 It is needed only for manufacturing

concerns
 PREPARATION OF
MANUFACTURING ACCOUNT
1. Manufacturing cost start in a
number of ways:
 cash payments,

 incurrence of liabilities,

 fixed assets depreciation, or

 the expiration of prepaid expenses.

2. These costs are recorded as either,

 direct materials,

 direct labor, or

 factory overhead costs.

 PREPARATION OF
MANUFACTURING ACCOUNT
4. As the resources are used up, the
company transfer their costs into the
Work in Process inventory account.

5. When production is completed, costs

assigned to finished units, are
transferred to Finished Goods
Inventory Account which is an element
of Trading Account at the debit side.
 PREPARATION OF MANUFACTURING
ACCOUNT

Manufacturing Classified Transferred Trading Account

Concerned
Material
Inventory
Account
Material are
purchased and Work in Finished
Factory
other Process Goods Trading
Payroll
manufacturing Inventory Inventory Account
Account
costs incurred Account Account

Factory
Overhead
Account

PROCESS DIAGRAM FOR COMPUTATIUON OF COST OF GOODS

 Cost of goods manufactured involved
following three steps:

First Step : Computation of cost of material

used.

Beginning Balance: Material Inventory Tk. 17,500

Plus Material Purchased Tk. 142,600
......................
Cost of Material available for used Tk. 160,100
Less Ending Balance: Materials Inventory Tk. 20,400
.......................
Cost of Materials used Tk. 139,700
===========
Second Step : Computation of total
manufacturing cost.

Cost of materials used Tk. 139,700

Plus direct labor cost Tk. 199,000
Plus factory overhead cost Tk. 156,200
-------------------
Total Manufacturing Cost Tk. 494.900
==================
Third Step : Computation of cost of goods
manufactured.

Total manufacturing cost Tk. 494,900

Plus beginning balance of
Work-in-Process Inventory Tk. 21,200
......................
Total costs of goods in process
during the period Tk. 516,100
Less Ending Balance of
Work-in-Process Inventory Tk. 23,500
.......................
Cost of goods manufactured Tk. 492,600
===========
 Name Of Manufacturing Concern
Manufacturing Account
Dr For the Year Ended on ... Cr
Particulars Taka Particulars Taka
Direct Expenses
Opening Inventory Closing Inventory
Raw Material xxxx Raw Material xxxx
Work-in-process xxxx Work-in-process xxxx
------- xxxx ------- xxxx
Raw material purchased xxxx Cost of production transferred to Trading xxxx
Less Purchase return xxxx Account
-------- xxxx
Freight xxxx
Carriage inward xxxx
Import duty xxxx
Dock charges xxxx
Clearing charges xxxx
VAT xxxx
Productive wages xxxx
Factory Expenses xxxx
Indirect Wages xxxx
Foreman's salary xxxx
Supervisors salary xxxx
Manager's salary & Commission xxxx
Power and Fuel xxxx
Manufacturing expenses xxxx
Repair and Maintenance xxxx
Depreciation : Factory Building xxxx
Depreciation : Plant & Machinery xxxx
Warehouse Expenses xxxx
Factory insurance xxxx
Royalty xxxx
Factory rent xxxx
xxxxxx xxxxxx
====== ======
 TRADING ACCOUNT
 It is prepared to calculate the gross
profit or gross loss during the related
accounting period.

 Trading account of manufacturing

concerns are prepared after
preparation of manufacturing
account.
 PREPARATION OF TRADING
ACCOUNT OF MANUFACTURING
CONCERNS
The debit side of the trading account
of manufacturing concern contains:
 opening inventory of finished goods,

 the cost of goods transferred from

manufacturing account and

 gross profit (where appropriate).
 PREPARATION OF TRADING
ACCOUNT OF MANUFACTURING
CONCERNS
The credit side contain:
 the sales revenue (less sales return
and allowances),
 closing inventory of finished goods
and
 gross loss (where appropriate)
 Name Of Manufacturing Concern
Trading Account
For the Year Ended on ...
Dr Cr

Particulars Taka Particulars Taka

Opening Inventory xxxx

Cost of production Sales xxxx
transferred xxxx
from manufacturing account Less Sales Return xxxx xxxx
--------- xxxx
Gross profit transferred to xxxx Closing Inventory
Profit & Loss Account Gross Loss transferred to xxxx
xxxxxx Profit & Loss Account xxxxxx
====== ======

•If the total of credit side is greater than total of debit side, the difference is
gross profit to be reported in the debit side.
•If the debit side's total becomes greater than credit side's total, difference
amount is gross loss to be reported in the credit side.
 PREPARATION OF THE TRADING
ACCOUNT OF MERCHANDISING
CONCERN
Merchandising concerns buy and sell the
goods that do not need further
processing.

The debit side of the trading account

of merchandising company contain
 opening inventory of merchandise,

 the purchases and

 all the purchase related expenses

 Name Of Business Concern
Trading Account
For the Year Ended on ...
Dr Cr
Particulars Taka Particulars Taka
Opening Inventory xxxx
Purchases xxxx Sales xxxx
Less purchase return xxxx Less Sales Return
------- xxxx xxxx xxxx
Wages --------- xxxx
Freight xxxx Closing Inventory xxxx
Special Packing Wages xxxx Gross profit transferred to
Import Duty xxxx Profit & Loss Account
Carriage Inward xxxx
Clearing Charges xxxx
Dock Charges xxxx
Gross Profit transferred to xxxx
Profit & Loss Account
xxxxxx
====== xxxxxx
======
 PROFIT AND LOSS
ACCOUNT
 It is prepared to determine the net profit or
loss earned by the concern in a specific
period.

 The credit balance of the account indicates

net profit and the debit balance of the
account indicate net loss.

 Profit and loss account is prepared after

preparation of trading account from which
gross profit is taken as one of the major
component in this account.
 PREPARATION OF PROFIT AND
LOSS ACCOUNT

Debit side of the account

 gross loss,

 operating expenses,

 general and administrative expenses,

 financial expenses and losses

 other non-operating expenses and

 net profit
PREPARATION OF PROFIT AND
LOSS ACCOUNT

Credit side of the account

 gross profit,

 other income and

 net loss
 Name Of Business Concern
Profit And Loss Account
For the Year Ended...
Particulars Taka Particulars Taka
Operating Expenses Gross profit transferred
Packing expenses xxxx from trading account xxxx
Warehouse Rent xxxx Rent received xxxx
Export duty xxxx Commission received xxxx
Carriage outward xxxx Discount received xxxx
Cost of price list xxxx Interest of bank deposit xxxx
Advertisement xxxx Interest on investment xxxx
TA of Sales person xxxx Profit on sale of assets xxxx
Commission xxxx Bad debts. Recovered xxxx
Salaries of salesman xxxx
Discount xxxx Net loss transferred to capital Account xxxx
Administrative Expenses
Office expenses xxxx
Office salaries xxxx
Office rent xxxx
Printing stationery xxxx
Telephone xxxx
General Expenses xxxx
Financial expenses and losses
Interest on overdraft xxxx
Interest on loan xxxx
Loss increased due to loss of xxxx
Investment xxxx
Loss on sale of asset xxxx
Repairing xxxx
Depreciation xxxx
Net profit transferred to capital
xxxxxx xxxxxx
====== ======
 BALANCE SHEET

 It is a list of balances of accounts that

fell in the categories of
assets,
liabilities, and
owner’s equity.

 It presents the financial position of a

company at a particular point of time.
 ASSETS
 The assets are of four categories;
 Current asset
 Investments
 Properties, Plants, and Equipments

 Intangible assets.
Some company uses a fifth category called
 Other Assets
 These categories are listed in the order of their
presumed liquidity (the ease with which an
asset can be converted into cash).
For example: current assets are said to be more
liquid then property, plant and equipment.
 Current Assets

Current assets are defined as cash or other

assets that are reasonably expected to be
realized in cash or sold during a normal
operating cycle of a business or within one
year if the operating cycle is shorter then
one year.
Items of current asset
Cash

 Temporary investments,
 Accounts and note receivable,
 Inventory
-------------------------------------------------------------------
 Prepaid expenses, such as rent and insurance paid for in
advance,
 Inventories of various supplies bought for use rather
than for sale.
They are an exception to the current asset defined above.
These kinds of property are current in the sense that, if
they had not been bought earlier, a current outlay of cash
would be needed to obtain them.

They are listed in the order of the ease of their

conversion into cash.
 In deciding whether or not an asset is current or
non-current, the idea of
"reasonable expectation"
is important.
For example, short-term investments.
As a need for cash arises, these securities will be
sold to meet this need. So they are current
assets.
Investments in securities not to sell within the
next year should be shown in the investments
category of a classified balance sheet.
 Investments

The investments category includes assets,

generally of a long-term nature,
that are not used in the normal operation of
a business and
that management does not plan to convert
to cash within the next year.
Items of investment category

 securities held for long-term investments,

 land held for future use,
 plant or equipment not used in the business, and
 special funds such as a fund to be used to pay
off a debt or buy a building.
 Also in this category are large permanent
investments in another company for the purpose
of controlling that company.
 Property, Plant, and Equipment
This category includes long-term assets that are used in
the continuing operation of the business.

They represent:
a) place to operate (land and buildings) and
b) equipment to produce, sell, deliver, and service its
goods.

They are often called

Operating Assets or Fixed Assets or Tangible Assets
or Long Lived Assets.
 Through depreciation, the cost of these
assets (except land) is spread over the
periods they benefit.

 Past depreciation is recorded by the

accumulated depreciation accounts.

 The exact order in which property, plant,

and equipment are listed is not the same
everywhere in practice.
 Intangible Assets
Intangible assets are long-term assets that have
no physical substance but have a value based
on rights or privileges that belongs to the
owner.
Examples are:
 patents,

 copyrights,

 goodwill franchise, and

 trademarks.

These assets are recorded at cost, which is

spread over the expected life of the right or
privilege.
 LIABILITIES

Liabilities are divided into two categories:

 Current liabilities
 Long-term liabilities.
 Current liabilities

These are obligations due within the normal

operating cycle of the business or within a
year, whichever is longer.
They are generally paid with firm's current
assets or by incurring new short-term
liabilities.
Items of Current liabilities

 notes payable,
 accounts payable,

 taxes payable,

 wages payable, and

 customer advances (unearned

revenues)
 Long-term liabilities

Debts of a business that fall due more than

one year ahead or beyond the normal
operating cycle, or that are to be paid out
of non current assets are long-term
liabilities.
Items of Long-term liabilities :

 mortgages payable,
 long term notes,

 bonds payable,

 employee pension obligations,

 long term lease liabilities

 Owner’s equity

The terms Owner’s Equity, Proprietorship,

Capital, and Net Worth are used inter
changeably.

They all stand for the owner’s interest in the

company.
 Unlike assets and liabilities,
owner’s equity section of the balance sheet
will be different depending on the form of
business organization viz.
a sole proprietorship,
a partnership, or
private or public limited company.
 We have shown the owner’s equity of a
sole proprietorship
in the balance sheet of
Shafer Auto Parts Company
in the next slide.
 
 Shafer Auto Parts Company
BALANCE SHEET as on December 31, 20_ _
Assets Taka Liabilities Taka
Current assets Current Liabilities
Cash 10,360 Notes Payable 15,000
Short term investment 2,000 Account Payable 25,683
Notes receivable 8,000 Salaries Payable 2,000
Accounts receivable 35,300
Merchandise inventory 60,400 Total current liabilities 42,683
Prepaid insurance 6,600
Store supplies 1,060 Long Term Liabilities
Office supplies 636
Total current assets 1,24,356 Mortgage Payable 17,800
Investments 5,000 Total Liabilities 60,483
Land held for future use 4,500
Property, Plant, and equipment Owner's Equity
Land
Building 20,650 Fred Shafer's Capital 98,433
Accumulated Depreciation (8,640)
Delivery Equipment 18,400
Accumulated Depreciation (9,450)
Office equipment 8,600
Accumulated Depreciation (5,000)
Total Property, Plant, and
equipment 29,060
Intangible Assets-Trade Mark 500 TOTAL LIABILITIES AND
TOTAL ASSETS 1,58,916 OWNERS EQUITIES 1,58916
The owner’s equity section of the balance sheet for a
partnership is called Partner’s Equity and is much
like that of the sole proprietorship.

It might appear as follows:

 
Partner’s Equity
 
A.J.Martin, Capital 21,666.00
R.C.Moore, Capital 35,724.00
Total Partner’s Equity 57,390.00
Companies are by law separate and legal
entities.

The owner’s are the STOCKHOLDERS.

The owner’s equity section of a balance sheet for

a company is called Stockholders Equity and
has two parts:

 contributed or paid-in capital and

 earned capital or retained earnings.

This might appear as follows:  
Stockholder’s Equity 
Common stock
TK 10 per value 5000 shares Tk.
50,000.00
(authorized, issued and outstanding)
Paid in capital in excess of
par value Tk. 10,000.00
________
Total contributed capital Tk. 60,000.00
Retained Earnings Tk. 37,500.00
________
 As, owner’s equity accounts show the sources of
and claims on assets, of course, these claims are
not on any particular asset but rather on the assets
as a whole.
 Contributed or paid-in capital account reveal the
accounts of assets invested by stockholders
themselves.
 Generally, contributed capital is shown on
company balance sheets by two amounts:
1. The face or par value of issued stock, and
2. Amounts paid in or contributed capital of the face
or par value per share.
In the above illustration stockholders invested
amounts equal to par value of the outstanding
stock (5,000 x Tk.10) plus Tk. 10,000.00 more.
 The Retained Earnings account is sometimes
called Earned Capital because it represents the
stockholder’s claim to the assets earned during
profitable operations and plowed back into or
reinvested in company’s operations.
 Distribution of assets to shareholders, called
dividends, reduce the Retained Earnings
account balance just as withdrawals of assets by
the owner of a business lower his or her capital
account balance.
 Thus the Retain Earnings account balance, in its
simplest form, represents the earnings of the
corporation less dividends paid to stockholder
over the life of the business.