PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CHAPTER 15 Profit accounts, worksheets and financial statements Learning outcome To know how to present the profit determining accounts, general journal closing entries, worksheets, revenue statements and balance sheets 15-1

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS Balance sheet Classification Cost of sales Closing entries Current assets Current liabilities Equity 15-2

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS cont. Gross profit or loss Net profit or loss Non-current assets Non-current liabilities Profit and loss account Revenue statement Trading account Worksheet 15-3

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd SOME DEFINITIONS Cost of sales –Direct cost of buying and preparing trading stock for sale Closing entries –General journal entries to close all Revenue and Expense accounts to Trading and Profit and loss 15-4

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd DEFINITIONS cont. Gross profit (loss) –Result of trading operations Net profit –Result of all operating activities in Profit and loss account 15-5

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd FINANCIAL STATEMENTS Revenue statement –All revenue, expense and inventories to obtain gross and net profits or losses Balance sheet ─A statement of assets and liabilities to be reconciled with the equity of the owner 15-6

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd TRADING ACCOUNT Contains all revenue and expenses relating to getting goods ready for sale Records opening and closing inventories amounts for the period Calculates gross profit 15-7

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd TRADING ACCOUNT cont. 15-8

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd PROFIT AND LOSS ACCOUNT Profit and loss account shows: –gross profit from trading –other revenues –expenses of operating the business during current period Calculates net profit or loss for period 15-9

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd PROFIT AND LOSS ACCOUNT cont. Profits or losses belong to the owner of the business and are transferred by closing entry to Equity on the balance sheet 15-10

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd PROFIT AND LOSS ACCOUNT cont

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd INCOME STATEMENT Contents of the Revenue Statement 15-12

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd DRAWINGS Drawings is a separate account in the Equity account Records amounts taken from the business by owner Drawings is closed to Equity at end of year Drawings are not a business expense and are recorded in the Equity section of the ledger accounts 15-13

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFIED BALANCE SHEET AASB 101 Report showing current assets, non- current assets, current liabilities, non- current liabilities and equity 15-14

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFIED REVENUE STATEMENT AASB 101 Report showing details of revenue, expenses, cost of goods sold, gross profit and net profit 15-15

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd COLUMNAR WORKSHEETS Columnar worksheets contain balances of general ledger accounts and are used to facilitate preparation of classified accounts Balance day adjustments are entered in the ‘Adjustments’ column, and all trial balance figures and adjustment changes are transferred to the ‘Adjusted Trial Balance’ 15-16

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd COLUMNAR WORKSHEETS cont. Closing inventory figure is entered in both the debit and credit columns of the ‘Adjustments’ Worksheet ‘Adjusted Trial Balance’ columns contain the amounts to be entered in the financial statements 15-17

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF OPERATING EXPENSES Selling expenses –Advertising for sales –Salespersons’ salaries –Shop rent –Shop telephone –Freight outwards –Sales commissions paid –Sales vehicles expenses –Depreciation of sales vehicles, shop fittings, etc

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF OPERATING EXPENSES cont. Administrative expenses –Advertising for staff –Administrative staff salaries –Depreciation of assets and motor vehicles –Office expenses –Stationery –Office telephones –Travel expenses –Light and power –Insurance –Rates, rent, taxes –Cleaning 15-19

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF OPERATING EXPENSES cont. Financial expenses –Discount allowed –Interest on mortgage and loans –Bank charges –Interest on overdraft –Bad debts –Doubtful debts 15-20

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd OPERATING REVENUE Rent revenue Discount revenue Commission revenue Interest revenue 15-21

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF THE BALANCE SHEET Current assets –Cash at bank and cash on hand –Inventories –Debtors control less provision for doubtful debts –Petty cash advance –Prepaid expenses –Accrued revenue 15-22

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF THE BALANCE SHEET cont. Non-current assets –Plant and machinery –Land and buildings –Motor vehicles –Long-term investments –Patents –Office furniture and fittings –Computers and equipment –Accumulated depreciation deducted from the relevant asset to show amount left to depreciate 15-23

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF THE BALANCE SHEET cont. Current liabilities –Short-term loans –Bank overdraft –Creditors control –GST liability –Accrued expenses –Revenue in advance 15-24

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF THE BALANCE SHEET cont. Non-current liabilities –Loans secured by mortgage –Long-term loans 15-25

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CLASSIFICATION OF THE BALANCE SHEET cont. Equity –Capital—amount business owes owner –Drawings— owner’s withdrawals from the business –Net profit or loss—amount transferred from business operations for the year 15-26

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd BALANCE SHEET RECONCILIATION Current assets + Non-current assets = Total assets Less Current liabilities Less Non-current liabilities = Net assets To be reconciled with the Equity account of the owner 15-27