Bdc 101 04

BDC 101

SCHOOL OF ACCOUNTSFACULTY OF BUSINESS AND MANAGEMENT

PREPARED BY:NORAL HIDAYAH ALWI

CHAPTER 4

FINANCIAL ACCOUNTING I

CLASSIFIED FINANCIAL STATEMENTS

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CHAPTER 4: CLASSIFIED FINANCIAL STATEMENTS

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Learning Objectives :

(i) Identify the components in Financial Statement

a. Income Statementb. Balance Sheet

(ii) Classify the accounting entries in an Income Statement

(iii) Explain Drawings

(iv) Integrate Expenses, Revenue and Drawings in the Accounting equation

(v) Explain the format of the Financial Statements

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The Accounting System: The Flow Of Information

1. People make decisions

2. Business transactions occur

3. Businesses prepare reports to show the results of their operations

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1.0 Introduction of Financial Statement

Two (2) principal questions that the owner of a biz asks periodically are:

1. What is my net income?2. What is my equity?

1. The INCOME STATEMENT2. The BALANCE SHEET

This information is provided by:

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2.0 FINANCIAL STATEMENT

FS is a statement that produced at the end of accounting periods, such as Trading and Profit & Loss Account and the Balance Sheet

Objectives:Provide info about the business that is useful

to a wide range of users in making economic decisions

FS act as a summary of all transactions happens in business

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2.1 FINANCIAL STATEMENT

Financial Statement

Income Statement

Trading Account

Gross Profit/Loss

Profit & Loss Account

Net Profit/Loss

Balance Sheet

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2.2 INCOME STATEMENT

Is a part of financial statement used to show the financial performance of a business;

The income statement reports the company’s revenues, expenses, and NET INCOME or NET LOSS for the period;

Is prepared after all adjusting entries are made in general journal, all journal entries have been posted to ledgers and adjusted in Trial Balance.

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2.2 INCOME STATEMENT

Income Statement

Trading Account

Gross Profit/Loss

Profit & Loss Account

Net Profit/Loss

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ii. Profit & Loss Account› 2nd part of Income

Statement› Gross Profit/Loss

+ Other Income – expenses = Net Profit/Loss

› It includes any expenses and income that indirectly occur while production

› Net Profit/Loss will be post to Balance Sheet

2.2.1 INCOME STATEMENT

i. Trading Account› 1st part of Income

Statement› Net Sales – COGS =

Gross Profit/Loss› It includes any

expenses and purchase that directly occur

› Gross Profit/Loss will be send to Profit & Loss Account

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COGS (Cost of Good Sold)

COGS appears in the Income Statement as a deduction from Net Sales to determine the Gross Profit.

It is the difference between what was available for sale and what is left at the end of the year.

Refer to example A

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Example A

RM RM RM

Sales 45,000

less: Return Inward 5,000

Net Sales 40,000

Cost of Good Sold

Inventory, Jan 1 10,000

Purchases 25,000

less:Purchase Returns 600

Net Purchases 24,400

add:Carriage Inward 1,000 25,400

35,400

less:Inventory, Dec 31 12,000

Total COGS 23,400

GROSS PROFIT 16,600

In the Income

Statement ,

the Cost of

Goods Sold

section might

appear as:

Income Statement for the year ended… (partial)

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REVENUES are: Increases in owners equity from delivering goods or services to

customers or clients EXPENSES are:

Decreases in owners equity that result from operationsExpenses include

Cost of goods sold (cost of sales) -The cost of the goods that a company sold to its customers

Operating expenses - The costs of operating the business

Advertising - The cost to promote the company’s productsDepreciation - The expense of using company-owned

buildings, equipment, and furnitureOther operating expenses - The costs of salaries, utilities,

rent, and suppliesInterest expense - The cost of borrowed money

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2.3 BALANCE SHEET

The BALANCE SHEET (statement of financial position) reports the company’s assets, liabilities, and owners’ equity

All assets listed on left side, while liabilities and owner’s equity on right side

Importance of Balance Sheet:To show the financial status on a particular date To show the financial liquidity of a business in

terms of the ability to pay debt in short term.CA > CL, business able to pay its debt

CA < CL, business not able to pay its debt

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CURRENT ASSETS areThose assets which the company expects to

convert to cash, sell, or consume during the next 12 months or within the business's normal operating cycle if longer than a year

Current assets includeCashAccounts receivableMerchandise inventoryPrepaid expenses

2.3.1 COMPONENTS OF BALANCE SHEET - ASSETS

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LONG-TERM ASSETS (FIXED ASSETS) areThose assets which the company expects to

hold longer than the next 12 months or the business’s normal operating cycle if longer than one year

Long-term assets includePropertyEquipment


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INTANGIBLE ASSETS areThose with no physical form

TrademarksPatents

Other assets areThose with small values which do not fall within

any other standard asset category


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CURRENT LIABILITIES areDebts payable within one year or within

the business’s normal operating cycle if longer than a year.

Current liabilities includeNotes payable, short termAccounts payableAccrued expenses payableIncome taxes payable

2.3.2 COMPONENTS OF BALANCE SHEET - LIABILITIES

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1-18

LONG-TERM LIABILITIES areDebts not payable within one year or within the

business’s normal operating cycle if longer than a year

Long-term liabilities includeNotes payable, long termBonds payable

2.3.2 COMPONENTS OF BALANCE SHEET - LIABILITIES

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OWNERS’ EQUITYRepresents the shareholders’ ownership of the

assets of the business

Owners’ equity of a corporation consists ofCommon stockRetained earnings

2.3.3 COMPONENTS OF BALANCE SHEET – OWNERS’ EQUITY

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2.4 DRAWINGS

Drawings are any cash or goods of stock taken out from business for owner’s personal use that cannot be concluded as

business expenses.

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2.5 Expenses, revenue and drawings in accounting equation

Accounting equation is the basic for this whole accounting.

To summaries this diagram, profit belongs to the owners. Revenues increase profits, so they increase capital, and that makes them credits. Expenses decrease profits, so they reduce capital, and that makes them debits. The treatment of the expenses is the same as assets.

ASSET = CAPITAL + LIABILITY + REVENUE – EXPENSES -DRAWINGS

DEBIT CREDIT

Assets Capital

Expenses Liability

Drawings Revenue

Losses Profit

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TOPICTrial Balance as at 31 December 20X4

Debit Credit

Sales (IS) and Purchases(IS)Stock 31 December 20X3 (IS)Carriage Outwards (IS)Carriage Inwards(IS)Returns (IS)Salaries (IS)Motor Expenses (IS)Rent (IS)Sundry Expenses (IS)Motor Vehicles (BS)Fixtures and Fittings (BS)Debtors and Creditors (BS)Bank (BS)Cash (BS)Drawings (BS)Capital (BS)

Stock at 31 Dec 20X4 was RM11290

RM108680

94101115840

490041800

9126800318

14400912

232004100240

29440

247067

RM210420

3720

14100

18827247067

3.0 CLASSROOM ACTIVITY 1

Prepare a Financial Statement

from the Trial Balance provided:

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Trial Balance as at 31 March 20X9

Debit Credit

Sales and PurchasesStock 31 December 20X8Carriage OutwardsCarriage InwardsReturnsSalariesFixtures RepairStationeryCommissionInsuranceSundry ExpensesBuildingsDebtors and CreditorsFixturesBankDrawings Capital

Stock at 31 March 20X9 was RM58440

RM1413005280013505840276

634003800714

19301830208

125000459001106

3142037320

514194

RM276400

2408

24870

210516514194

Prepare a Financial Statement

from the Trial Balance provided:

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Accounts PayableRM11,400 Admission Income

34,200 Capital, Jan 1,2009

16,000 Cash 7,500 Drawing 5,400 Equipment

18,500 Film Rental Expense

6,000 Miscellaneous Expense 4,000 Notes Payable 1,000 Rent Expense

10,000 Salaries Expense

7,000 Supplies 4,200

List are the account balances as of Dec 31,2009, of Mr.R.Gregg, owner of a movie theater. Prepare:

(a) An Income Statement

(b) Statement Of Owners’ Equity

(c) Balance Sheet

Economy & Finance

Bdc 101 04