1. Kardan Institute of Higher Education
CHAPTER NO.03
FINANCIAL STATEMENTS
Kardan Institute of Higher Education
Sayeed Najeeb ProGen training 15 Sep hours

2. Financial Statement Analysis
October 2000
Financial Statements
Financial statements are those statements which are prepared to know the financial position and performance of an entity. These are the major financial statements:
Balance Sheet
Income Statement
 Balance Sheet
Statement of financial position at specific point in time 
Income Statement
Summarizes revenues and expenses over an accounting period
Statement of Cash Flows
Amount of cash generated during period is not what is shown on balance sheet
Tells you what happened to cash generated during specified period
Categories in Statement of Cash Flows
(a) Operating activities
(b) Investing activities
(c) Financing activities
Statement of Retained Earnings
Reports how much of earnings retained in business rather than paid out in dividends over the life of the firm
  Retained earnings is claim against assets
(a) Earnings retained to expand business
(b) Do not represent cash
C.J. Brown, M.M. Dutton and T.A. Rietz

3. What is a Balance Sheet
It is a statement which is prepared to know the financial position of an organization at a specific date.
In other words it gives information about assets, liabilities and capital of an entity at a specific date

4. Major Balance Sheet Items
Financial Statement Analysis
October 2000
Major Balance Sheet Items
Assets
Current assets:
Cash & securities
Receivables
Inventories
Fixed assets:
Tangible assets
Intangible assets
Liabilities and Equity
Current liabilities:
Payables
Short-term debt
Long-term liabilities
Shareholders' equity
Balance Sheet
Statement of financial position at specific point in time 
Shows assets owned by the firm and sources of the money used to purchase those assets.
Liquidity Order
Assets: length of time typically to convert to cash
Liabilities: how soon must be paid
Characteristics
Cash versus other assets
Only cash represents actual money
Noncash assets should produce cash in time
  Liabilities versus stockholders’ equity
Both claims against assets
  Breakdown of common equity accounts
Common stock
Retained earnings
Impacted by
Inventory accounting
Depreciation methods
Position at one point in time
C.J. Brown, M.M. Dutton and T.A. Rietz

5. Balance Sheet as on ______
Financial Statement Analysis
October 2000
Balance Sheet as on ______
Assets:
Current Assets: $7,681.00
Non-Current Assets: $3,790.00
Total Assets: $11,471.00
Liabilities:
Current Liabilities: $5,192.00
LT Debt & Other LT Liab.: $971.00
Equity: $5,308.00
Total Liab. and Equity: $11,471.00
Dell’s Balance Sheet: Assets the firm owns total more that $11 billion** , more short-term assets than long-term assets like plant and equipment.
Those assets were purchased with money that came mainly from equity and short-term borrowing. Relatively little long-term debt.
C.J. Brown, M.M. Dutton and T.A. Rietz

6. What is income statement
It is a statement which is prepared to know about the financial performance of a an entity for a specific period.
It is prepared to compare revenues against expenses to know the profitability of an organization.

7. Major Income Statement Items
Financial Statement Analysis
October 2000
Major Income Statement Items
Sales
Sales returns
Cost of goods sold
Operating expenses:
Selling and distribution expenses
Administration expenses
Interest expenses
Taxation
Income Statement
1. Summarizes revenues and expenses over an accounting period
2. Information includes
(a) Net income available to common stockholders
  (b) Earnings per Share – “bottom line”
  (c) Usually compared to budget
3. The income statement serves as the basis for determining cashflows.
C.J. Brown, M.M. Dutton and T.A. Rietz

8. XYZ COMPZNY Income Statement For the year ended Dec 31,2010
Financial Statement Analysis
October 2000
XYZ COMPZNY Income Statement For the year ended Dec 31,2010
Sales $25,265.00
Costs of Goods Sold -$19,891.00
Gross Profit $5,374.00
Selling & Distribution expenses ($1,761.00)
Administrative expenses (1,613.00)
Profit from Operations $2,360.00
Interest ($100.00)
Profit before tax $2,260.00
Income Taxes ($785.00)
Net Income $1,575.00
Dell had more than $25 billion sales during the period.
A large part of revenues went to pay for the raw materials that went into production.
Depreciation reflects expenditure on a long-term asset which firm must expense over several years for tax purposes. It does not reflect an actual expenditure during this particular accounting period.
C.J. Brown, M.M. Dutton and T.A. Rietz

9. Kardan Institute of Higher Education
Inventories for a Manufacturing Concern
A manufacturing business has three distinct inventory accounts:
Raw Material Inventory:
This inventory account (sometimes called Materials and supplies or stores) reflects the cost of raw materials and factory supplies that will be consumed in the manufacturing process.
2. Work in Process Inventory:
This account reflects the cost of raw materials, direct labor, and factory overhead on goods on which manufacturing has begun but has not been completed at the end of the specific period
3. Finish Goods Inventory:
The Finished Goods Inventory account reflects the cost for goods that have been completed and are ready for sale
Kardan Institute of Higher Education
Sayeed Najeeb ProGen training 15 Sep hours

10. Kardan Institute of Higher Education
Cost of Goods Sold
Merchandiser
Manufacturer
Beginning finished goods inventory
Plus cost of goods manufactured
Finished goods available for sale
Less ending finished goods inventory
Cost of good sold
Beginning merchandise inventory
Plus purchases
Merchandise available for sale
Less ending merchandise inventory
Cost of good sold
Kardan Institute of Higher Education
Sayeed Najeeb ProGen training 15 Sep hours

11. COST OF GOODS SOLD STATEMENT FOR THE YEAR ENDED DECEMBER, 2012
XYZ COMPANY
COST OF GOODS SOLD STATEMENT
FOR THE YEAR ENDED DECEMBER, 2012 $
Direct Materials used:
Beginning Raw Materials
10,000
Purchases
200,000
Purchases Returns
(3,000)
Freight in
4,000
Cost of Materials Available for Use
211,000
Ending Raw Materials
(12,000)
Direct Materials used
410,000
Direct Labour Cost
250,000
Factory overhed
150,000
Total Factory Cost
810,000
Add: Beginning Work in Process
25,000
Total Work Put in to Process
835,000
Less: Ending Work in Process
(28,000)
Cost of Goods Manufactured
863,000
Add: Beginning Finished Goods
26,000
Cost of goods available for Sale
889,000
Less: Ending Finished Goods
(34,000)
Cost of Goods Sold
855,000

12. XYZ COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31,2010 $ SALES 200,000 LESS: SALES RETURNS (5,000) NET SALES COST OF GOODS SOLD (100,000) GROSS PROFIT 95,000 LESS: OPERATING EXPENSES: SELLING EXPENSES (25,000) ADMIN EXPENSES (45000) NET INCOME 25,000

13. Exercises 01
The following data is taken from the books of Toyota Manufacturing for the year ended Dec 31, 2005
 Purchase of raw materials $50,000
Direct Labor cost ,000
Factory Overhead ,000
  Inventories
opening closing
Raw Materials , ,000
Work in process ,000
Finished goods
 Required :
 Total Manufacturing cost
Cost of goods manufactured
Cost of goods sold

14. Exercises 02
The following data is taken from the books of Habib Gulzar beverages limited for the year ended Dec 31, 2010
Purchase of Raw Materials $50,000
Direct Labor Cost ,000
Factory overhead Cost ,000
Inventories
Opening Ending
Raw Materials ,
Work in process , ,000
Finished goods , ,000
Required :
Total Manufacturing cost
Cost of goods Manufactured
Cost of goods sold statement

15. Exercises 03
The following data relates to the Moon Manufacturing for the year ended Dec 31, 2009
Inventories
January December 31
Raw Materials , ,000
Work in process ,
Finished goods , ,000
Purchase of Raw Materials $ 60,000
Direct Labor cost ,000
Factory overhead ,000
Sales for the year ,000
Sales return and allowance ,000
Marketing expenses ,000
Administrative expenses
Income tax expense
Required:
Cost of goods sold statement
Income statement

16. Exercises 04
The December 31, 19B trial balance of the Balkwell Company showed:
Sales ……………………………… $ 9,000, Sales return and allowances …….. $ 25,200
Purchases (net) …………… ,400, Transportation in …………………… ,000
Direct Labor ……………………. 3,204, Factory overhead ……………………. 1,885,600
Sales Salaries ………………… ,00, Advertising expense ……………… ,55,000
Delivery expenses …………………… ,000
Inventories
December 31, 19B December 31, 19A
Finished goods $467, $ 620,000
Work in process , ,800
Materials , ,000
Required:
Total Manufacturing cost
Cost of goods manufactured
Cost of goods sold
Income statment

17. Exercises 05 Cost of goods sold statement, income statement
The accounting department of the Ruthven Company provided the following data for May ;
Sales $72,000; marketing expenses 5 %, administrative expenses 1 %, other expenses 5 % of all sales ; purchases $ 36,000; factory overhead 2/3 of direct labor; direct labor $ 15,000.
Beginning inventories:
Finished goods ………………………………………………… $ 7,000
Work in process ………………………………………… ,000
Materials …………………………………………………… ,000
Ending inventories:
Finished goods …………………………………………… $ 10,200
Work in process ………………………………………… ,000
Materials…………………………………………………… ,500
Required:
Cost of goods sold statement
Income statement