grand finale. financial statements rahul jain (striving for excellence) bcom (h), mba, fcs
TRANSCRIPT
Grand Finale
Financial Statements
RAHUL JAIN(Striving for excellence)BCOM (H), MBA, FCS
Learning Objective
To prepare Financial Statements
Diamond Rules• Credit The nature of an action to an account to indicate an increase
(liabilities, equity, and revenue) or decrease (assets, expenses, and dividends);
Remember the CLIC rule –Credit all Increase in Liabilities, Income and Capital
• Debit The nature of an action to an account to indicate an increase
(assets, expenses, and dividends) or decrease (liabilities, equity, and revenue);
Remember the DEAD rule- Debit All Increase in Expenses, Assets and Dividend
The Financial Statements are designed to measure different aspects The Financial Statements are designed to measure different aspects of the businessof the business
• The Balance SheetThe Balance Sheet Is a picture of the tree (fruit, branches, trunk & roots) at a certain point in time. It includes assets (inventory of goods and producing assets) and financing sources (equity, debt and reinvestments from net income) of the business.
• The Income StatementThe Income Statement Accounts for all activities involved in the operation of the business (growing and selling the fruit) over a period of time. It contains a list of all operating expenses and revenues of the business.
•
Usefulness of Income Statement
1. Evaluate the past performance of the enterprise.
2. Provide a basis for predicting future performance.
3. Help assess the risk or uncertainty of achieving future cash flows.
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Limitations of the Income Statement
1. Items that cannot be measured reliably are not reported in the income statement.
2. Income numbers are affected by the accounting methods employed.
3. Income measurement involves judgment.
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Direct Costs
• These are costs which are directly related to the manufacturing or operations of the organization. For example:– Wages, Royalty, Gas, Electricity, Packing – Carriage inwards, Water, Fuel– Custom duty (Import/Export duty)– Factory overheads – Job work charges
Income statement
Part-I -Trading Account
The trading account shows the income from sales and the direct costs of making those sales. It includes the balance of stocks at the start and end of the year. The net result is Gross Profit or Gross Loss
Trading A/cTrading A/c
ParticularsParticulars Dr.Dr. ParticularsParticulars Cr.Cr.
To Opening StockTo Opening Stock 65,59065,590 By salesBy sales 550,900550,900
To Purchases 466800To Purchases 466800
To Direct Cost + 50,310 To Direct Cost + 50,310
5,17,1105,17,110
By closing stock By closing stock 55,11055,110
To Gross profit c/dTo Gross profit c/d 32,31032,310
6,15,0106,15,010 6,15,0106,15,010
Income statement – Part IIProfit and Loss account
Show whether a business has made a PROFIT or LOSS over a financial year.
All the indirect expenses are deducted to arrive at Net Profit or Net Loss
The net result is Net Profit or Net Loss
Indirect Costs
• This will include following:– Salary, Interest– Trade expenses, Printing– Advertising, Depreciation– Bad debts– Discount, Insurance– General Expenses– Repairing, Travel Expenses
Profit & Loss A/cProfit & Loss A/c
To salariesTo salaries 11,01011,010 By gross profit b/dBy gross profit b/d 32,31032,310
To RentTo Rent 2,2502,250 By DiscountBy Discount 11,25011,250
To General expenseTo General expense 17,47017,470 By Commission receivedBy Commission received 27,99027,990
To Bad debtsTo Bad debts 11,89011,890 By Profit on consignment By Profit on consignment to A &co.to A &co.
19,08019,080
To AdvertisementTo Advertisement 7,5007,500
To int. on loanTo int. on loan 3,0003,000
To Net profit c/dTo Net profit c/d 37,51037,510
90,63090,630 90,63090,630
Assets Assets
•Current assets• Cash• Bills receivables• Accounts receivable• Inventory• Prepaid expenses• Other Current Assets
• Fixed Assets• Building• Land• Machinery
• Long term Investments
• Intangible assets
LiabilitiesLiabilities
•Current liabilities• Bills payable• Creditors• Expenses Outstanding
• Long-term liabilities• Loan• Bonds payables
EquityEquity
•Capital
• Retained earnings
Balance Sheet ClassificationsBalance Sheet Classifications
BALANCE SHEET AS ON 31ST DECEMBER 1995
LIABILITIES LIABILITIES AMOUNTAMOUNT ASSETSASSETS AMOUNTAMOUNT
CAPITAL 119990CAPITAL 119990
-Drawings 19170-Drawings 19170
+Net Profit 37510+Net Profit 37510
CREDITORSCREDITORS
BILLS PAYABLEBILLS PAYABLE
LOANLOAN
138330138330
195070195070
5409054090
7500075000
500000500000
BILLS BILLS RECEIVABLERECEIVABLE
DEBTORSDEBTORS
CASHCASH
BANKBANK
STOCKSTOCK
130140130140
261580261580
960960
5221052210
5511055110
500000500000