Cost & Management Accounting Financial Statements Lecture-3 Mian Ahmad Farhan (ACA)

Learning Objective Concept of financial statement Types of financial statement Financial statements prepared by costing department

Financial Statement According to IASB framework: “Financial statements exhibit its users the financial position, financial performance, and cash inflow and outflow analysis of an entity.”

Components of Financial Statements Balance Sheet - statement of financial position at a given point in time. Income Statement - incomes minus expenses for a given time period ending at a specified date. Statement of changes in Equity - also known as Statement of Retained Earnings or Equity Statement. Cash Flows Statement - summarizes inflows and outflows of cash and cash equivalents for a given time period ending at a specified date. Notes - includes: accounting policies, disclosures and other explanatory information.

Forms Of Business Entities Manufacturing Entities Manufacturing entities purchase materials and components and convert them into finished goods. Trading Entities Trading entities purchase and then sell tangible products without changing their basic form. Servicing Entities Servicing entities provide services or intangible products to their customers.

Inventory It is the cost held in material & supplies, work in process and finished goods that will provide economic benefits in future, it is also known as stock. Inventory Manufacturing Material & supplies Inventory Work In Process Inventory Finish Goods Inventory Trading Purchased Goods Inventory Services Work In Process Inventory Material & supplies inventory: Direct material inventory, Indirect material inventory (Factory supplies inventory), Shipping supplies inventory, Office supplies inventory Store Work in process inventory -The inventory of partial/semi finished goods. Work shop Finished goods inventory-The goods which have been completed but not yet sold Godown/ Warehouse Showroom/ Godown Workplace/ Office

Entity Name Cost Of Goods Sold statement For the year ended_______ Direct Material Consumed Opening inventory *** + Net Purchases *** = Material available for use *** - Closing inventory (***) = Material used *** Add Direct labor Prime cost Add FOH Total factory cost Add Opening Work in process Cost of good to be manufactured Less Closing Work in process Cost of good manufactured Add Opening finish goods Cost of good to be sold Less closing finish goods Cost of good to sold

Elements Of Cost Of Goods Sold Statement Six Elements Cost Material & Supplies Labor FOH Inventories Material & Supplies Work in process Finish goods

Material Consumed Direct material opening inventory Add Net purchases Material available for use Less raw material closing stock Direct Material consumed Net purchases = Purchases + All receiving &handling expenses – Returns – Discounts and allowances 50,000 30,000 80,000 20,000 60,000

Prime Cost Direct material Consumed Add Direct labor Prime Cost 60,000 50,000 1,10,000

Total Factory Cost Prime cost 1,10,000 Add Factory Overhead All factory expenses except Direct Material, Direct Labor & other direct production expenses. Indirect material Indirect labor Electricity bill Rent of factory Depreciation of plant &machinery10000 Total Factory cost 2,20,000