Grand Finale

Financial Statements RAHUL JAIN (Striving for excellence) BCOM (H), MBA, FCS

Learning Objective To prepare Financial Statements

The Financial Statements are designed to measure different aspects of the business The Balance Sheet The 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 Statement The 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.

5 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.

6 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.

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

Name of Reporting Entity Income Statement For the Year Ended December 31, 2007

Name of Reporting Entity Income Statement For the Year Ended December 31, 2007 Salesxxxx Less Cost of goods soldxxxx Gross profitxxxx

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

Name of Reporting Entity Income Statement For the Year Ended December 31, 2007 Salesxxxx Cost of goods soldxxxx Gross profitxxxx Less Other Operating expenses: Selling expensesxxxx Administrative expensesxxxxxxxx Income from operationsxxxx

Indirect Costs This will include following: –Salary, Interest –Trade expenses, Printing –Advertising, Depreciation –Bad debts –Discount, Insurance –General Expenses –Repairing, Travel Expenses

Name of Reporting Entity Income Statement For the Year Ended December 31, 2007 Salesxxxx Cost of goods soldxxxx Gross profitxxxx Operating expenses: Selling expensesxxxx Administrative expensesxxxxxxxx Income from operationsxxxx Add Other revenues and gainsxxxx Less Other expenses and losses (xxxx)xxxx

Name of Reporting Entity Income Statement For the Year Ended December 31, 2007 Salesxxxx Cost of goods soldxxxx Gross profitxxxx Operating expenses: Selling expensesxxxx Administrative expensesxxxxxxxx Income from operationsxxxx Other revenues and gainsxxxx Other expenses and losses (xxxx)xxxx Income before income taxesxxxx

Name of Reporting Entity Income Statement For the Year Ended December 31, 2007 Salesxxxx Less Cost of goods soldxxxx Gross profitxxxx Less Operating expenses: Selling expensesxxxx Administrative expensesxxxxxxxx Income from operationsxxxx Add Other revenues and gainsxxxx Less Other expenses and losses (xxxx)xxxx Income before income taxesxxxx Less Income taxesxxxx Income after taxes (Net Income)xxxx

BALANCE SHEET AS ON 31 ST DECEMBER 1995 LIABILITIESAMOUNTASSETSAMOUNT CAPITAL Drawings Net Profit CREDITORS BILLS PAYABLE LOAN BILLS RECEIVABLE DEBTORSCASH Fixed Assets STOCK

Submission Individual- Assignment Q. Make a 1 page summary of the key learnings from the class. Q.Page onwards Q2 to Q6 From Book- Accounting for Management