accounting Lecture 002

7/27/2019 accounting Lecture 002

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BAO6504Accounting for Management

Lecture 2

Financial Statements

Reference: Chapters 1 & 4


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FINANCIAL STATEMENTS

Income Statement

(Statement of Financial Performance)

Reports revenues less expenses for a particularperiod of time

Balance Sheet

(Statement of Financial Position)

Reports assets and claims to those assets at aparticular point in time


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FINANCIAL STATEMENTScontinued

Statement of Changes in Equity

Reports amount of profit for the period andthe changes in equity

Cash Flow Statement

Reports information regarding cashreceipts and cash payments for a particularperiod of time


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Income statement continuedWONG PTY LTD

Income Statement

for th e mon th ended 31 October 2010

Service revenues $10 600Expenses

Salaries expense $3 200Supplies expense 1 500Rent expense 900Insurance expense 50Interest expense 50Depreciation expense 40 5 740

Profit before tax 4 860Tax expense 2 000

Profit after tax $ 2 860


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MERCHANDISING

OPERATIONS Merchandising businesses buy and

resell inventory

Revenues are referred to as salesrevenue

Expenses are divided into two

categories: Cost of goods sold

Operating expenses


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MERCHANDISING

OPERATIONSProfit measurement process for a

merchandising business

Sales

revenue

Cost of

goods sold

Gross

profit

Operating

expenses

Profit

(loss)

Equals

Less

Less

Equals


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Cost of goods sold

Inventory, 1 July 2010 $ 36 000

Purchases $325 000

Less: Purchase ret. & allow. 17 200

Net purchases 307 800

Add: Freight-in 12 200

Cost of goods purchased 320 000

Cost of goods available for sale 356 000

Inventory, 30 June 2011 40 000

Cost of goods sold 316 000

Cost of goods sold


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Operating expenses

Selling expenses

cost of making the sale

e.g. advertising, delivery expenses

Administration expenses cost of operating activities of the general, accounting and

personnel offices

e.g. salaries, rent

Financial expenses

costs of financing the business e.g. interest expense, discounts allowed


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PW AUDIO SUPPLY LTDIncome Statement

for the year ended 30 June 2011

Operating revenue

Sales revenue

Gross sales revenue $480 000Less: Sales returns and allowances (20 000)

Net sales revenue 460 000Less: Cost of goods sold (316 000)

Gross profit 144 000

Other operating revenueRent revenue $15 000Interest revenue 9 000

168 000Operating expenses

... Continued on next slide


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Operating expensesSelling expenses

Sales salaries & commission expense $45 000Advertising expense 16 000Freight-out 8 000Rent expense store space 7 000Depn expense

store equipment 5 000 $81 000

Administration expensesOffice salaries expense 19 000Electricity expense 4 000Rent expense office space 10 000Depn expense office equipment 3 000Insurance expense 2 000 38 000

Financial expensesInterest expense 2 000Discount allowed 4 000 6 000 (125 000)

Profit before income tax 43 000Less: Income tax expense (12 900)Profit after tax $ 30 100


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Balance sheet

Reports assets and claims to thoseassets at a specific point in time

Based on the basic accounting equation

ASSETS = LIABILITIES + EQUITY


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Balance sheet continuedWONG PTY LTD

Balance Sheet

as at 31 Octo ber 2010

AssetsCash $15 200Accounts receivable 200Advertising supplies 1 000

Prepaid insurance 550Office equipment 4 960Total assets $21 910

Liabilities and equityLiabilities

Accounts payable $ 2 500Interest payable 50

Revenue received in advance 800Salaries payable 1 200Bank loan 5 000

Total liabilities $ 9 550Equity

Share capital 10 000Retained earnings 31/10/08 2 360

Total equity 12 360$21 910


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Statement of changes inequity

Reports amount ofprofit for period and otherchanges in equity such as adjustments toretained earnings for

Changes in accounting standards

Changes in accounting policies

Correction of errors

Gains recognised directly in equity

Retained earnings refers to accumulatedprofit which has not been distributed to

shareholders


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Statement of changes inequity continued

WONG PTY LTD

Statement o f Changes in Equ ity (extract)

as at 31 October 2010

Profit $ 2 860Retained earnings 1/10/10 0

Dividends (500)Retained earnings 31/10/10 $ 2 360


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The classified balance sheet

Minimum disclosures:

Assets

Cash assets

Trade and otherreceivables

Other financial assets

Inventories

Investments in property

Property, plant andequipment

Tax assets

Intangible assets

Liabilities

Trade and other payables

Financial liabilitiesTax liabilities

Provisions

Equity

Capital and reserves

Retained earnings oraccumulated losses


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The classified balance sheetcontinued

Current assets

Assets that are cash, held for the purpose

of being traded, or expected to beconverted to cash or used in the businesswithin one year

Non-current assetsAssets that are not expected to be sold or

consumed within one year


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The classified balance sheetcontinued

Current liabilities

Obligations that are to be paid within oneyear

Non-current liabilities

Obligations that are not classified as current

accounting Lecture 002

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Transcript of accounting Lecture 002