financial statements

introduction

INTRODUCTION .

Financial statements
interim financial statements & annual
↳
companies prepare
financial statements .

Obligation countries
→
in some

record of
→
Financial statements are the
financial active tie
of a business .
3
key financial statements
◦
balance sheet → financial position
↳ what & owes +
company owns
equity
_

•
income statement -

summarize results of
firms operation .

→
total revenue & expenses
→
different m e a s u re s of
accounting profit -

◦ statement of cash flows → inflows & outflows

Balance sheet
=

Assets Liabilities
Equities
↳
tangible → debt → difference bw what it ow n s & owes .

→
intangible
current C1 year) contributed
capital
→

payable ' was "

•
Acc
current CI
°

year)
→ investments by stockholder
•
cash a c c re c i ev
Payable
, .

noncur rent liabilities

→
retained earnings
inven tories

current loans accumulation

of undistributed profit
°
→ non • .

fined assets
 Income statement
→ statement of Profit & Loss / Operation .

starts
listing firms
→ →
w revenue expenses
result -

net income / loss

•
Revenues •
Enpenses •
Profit & Loss

cashflow statement
→ cash inflow & outflow

Operating Investing Financing

generating by cashflow due cash the
generated
→ ◦
to ◦
in course

ordinary of its mix out of financing

course
altering the firm .

operations .
of fixed assets _

consists of changes balance

primarily sheet account
•
in -

balance of two
sheet
periods
•

• latest income statement -

MANUFACTURING ACCOUNT

equivalence of purchases that has

used to calculate in a
→
company
factory and produce goods
↳ cost of produced items .

firms
→
Manufacturing prepare
◦
Manufacturing Account

Trading Account
•

o Profit & Loss Account .

◦ Balance sheet -

Types of tnnenlory
◦
Raw materials

0 Work in
Progress
◦ Finished Goods .
 Types of tsroductioneostr
"
↓
↓
Prime cost / Direct cost Overhead costs / Indirect costs

◦ Direct materials ◦ Indirect material

◦
Direct Labour ◦ Indirect Labour

Indirect
◦ Direct
expenses
◦
Enpenses

DIRECT MATERIALS

↳ cost of material used

of materials &
→
purchase price r aw
aquisition costs

related to
purchase →
carriage charges .

DIRECT LABOUR

people directly
manufacturing
involved
→
payment to in

→ factory wages , production wages ,

manufacturing wages
DIRECT EXPENSES
to unit of production
expenses paid
→ each ace

:
royalties hire purchase of special materials
eg
_

INDIRECT MATERIALS

→ Lubricants ,
loose tools

INDIRECT LABOUR

→
wages ,
salary bonus commission
, ,

forewent , supervisors -

INDIRECT EXPENSES

rent
depreciation & maintenance
→
insurance
, ,
, repair ,

factory power , internal transport

Fined Enpense & Variable ttcpenses _

↳ constant level of activity

expense despite

changes ace to level of activity .

-
Total cost of Production = Prime cost +
Factory overhead .

↓
↓
Opening stock of Direct Material Indirect
←
Expenses
r aw materials +

+ Direct Labour

purchase of r aw +

materials Direct Expense

t

carriage inwards
-

retur n outwards

stock
Closing .

Manufacturing
of
Account → shows production cost / transfer price

goods
completed .

→ direct material , labour .

expense ,
factory overhead
,
work in
progress
factory profit -
 administration
manufacturing &
→
some expenses .

vehicle
eg
: rent ,
electricity ,
insurance ,
depreciation on
premises , motor

→ allocated to

&
factory and office → debited to
manufacturing
PIL Ale
respectively
account .

◦ stock of r aw materials ,
WIP & Finished Goods → valued at cost

◦ stock of manufactured
goods → at
production cost / transfer price

lost of goods cellanufadthred Statement

Material used ( ) material

beginning
material
= +
purchases
-

material
inventory lending )

Manufactured
cost of Goods =
Materials used
factory labour
+ +

manufacturing overhead )
progress beginning
+ work in [ -

ending )
work in (
process

worker
brogues

Profit
cettanufacturing
Market Value Of Goods Produced -

Manufacturing cost

OR

of
Applying fined markup
manufacturing goods produced
on cost .
TRADING ACCOUNT

↳ Account which contains in a summarized form , all the transactions

the commodities which he
occurring throughout trading period , in in

deals and which the result

gives gross trading
-

to
prepared determine
profit /
loss
→
gross gross
-

→ all income & expenditure incurred or vecieved

→ shows sales & direct cost of sales .

gross profit .

Items of Trading atccount

Debit

Value of of
stock
goods
•

opening
net purchase less returns
purchase
◦
→ .

0 direct
expenses
.

Credit .

◦
Net sales

Closing
◦ stock .
 etccount Items
Trading
Return
sales , purchases ,
sales Return ,
Purchase ,

Carriage
Inward stock stock
,

Closing ,
opening
.

eetccount
cetduantages of Trading
profit to of profit of
◦

ascertain cost Goods sold

◦

gross
→
on .

trader stock
◦
help compare
→
opening
&
closing
of
compare figures sales
•

prev years
w .

• If gross profit less than expected →

enquiry into the matter -

Profit & Loss cetccount

completed after Account

trading
→ .

→ Net Profit → after

expense and overheads .

profit from Account

trading
starts with
gross
.

↳ addditional & indirect

reve n u e expenses .
 income statement

↳ summarize result of firms operation → statement of

operation
.

prepared for different

→
time period
→ describe profit / loss → statement of Profit & Loss -

Itis of a firm 's revenue and over a

summary expenses
→ a

specified period net / loss for the

period
ending
,
w income .

Revenues =
Expenditure + Net income → ace
profit left after

expenses from
all
.

Revenue Loss
Enpenditure
+ = -

revenue .

•
depict revenue and
expenses
→

designated period of time

d
↓
cash inflow cash outflow .

Need for Income statement

◦ Financial Report necessary for company

to record all of 't's
business .

balance sheet necessary all

In principle operations
° →

only
-

summarized
earnings changes
in retained .

detailed items → income statements .

 hellenic
◦
Cost of Goods sold
◦
Inflows of asset

constitute entity major central

operations
◦

ongoing
or -

nature of business
depends type activity
•
on
. .

◦
Usually explained as sales figure → first item
rep
.

Lysenko
•
outflows
of assets that of
using up ◦ curved during the
◦

process
1
delivering goods rendering services .

◦
many categories in PIL AIC like admin expense ,
depreciation ,
interest
provision
,

taxes etc to
income →
required create asset enhancement .
_

Principle
Matching
Income statement based
Accounting
is on →

Principle . Revenues and Expenses corresponding to a

specific
period of time .

REVENUE
-

cost of hoods sold

GROSS PROFIT

-
Indirect
Operating Expense
OPERATING INCOME OR GB IT

- Interest Expense
INI COME BEFORE TAX OR EBT

- Income tan

NET INCOME

-
Dividends on common & Preferred stock
RETAINED EARNINGS
 Income Statement
Treating

Income statement & of current

revenues
year
→

expense

Depreciation →
Accounting Expense

Purchase Price
Scrap Value
-
=

# of useful life

fined asset recorded → as current value

↳
1st year Purchased Price Value
-
Accumulated Depreciation →

2nd year
→
Value - Acc .

Depreciation = Value 2

At the end of useful of life at

:
years value value
scrap
→

→ will not go lower -

 keohane sheet

→ describes where a
enterprise stands at a
specific date

→
list quantifiable resource

→
represent a report form & account form

1.
-

f
otssets
possible future benefits obtained controlled
by
→
economist or

the enterprise as a result of past transaction .

3 Characteristics

◦
embody probable future benefit → direct / indirect net cash inflow
◦
ow n e r can obtain the benefit & control others access to it

◦
transaction to enterprise right to control the benefit he has
giving
rise

already occurred

→ current Asset →
expected to be cashed in near future

liquid cash /
→ →
near cash

→
satisfy obligations as the become due
listed of
liquidity
→ in order .

few actually hold ↳

✓ companies cash & cash
cash in convention sense
equivalents
firms often ↓
bearing /
invest in interest

accounts 1 treasuries → earn retur n

Marketable securities →
stocks cash / bonds

considered e. A
inanagement
I
them
invests in when eiecess cash is
available
and dis invested when cash is heeded .

→
if intent to retain for
longer period of time
↳ not c u r re n t assets

of cash
→
secondary sources

→
used within a
year
↳ accounts recievable → credit sales transactions that have not

yet been collected .

→ recorded based on it 's due date .

merchandise
↳ ,

inventory →

company investment in asset held

for future info

resale ,
sold in near .
1-
disclosing
about
accounting policy employed in accounting for
inventories .

→ detailed info ab dollar amount of inventories

 3 basis
approach to valuing
inventory
• FIFO [ First in First Out ]

/
-

LIFO
◦
[ Last in First Out ]
cost
weighted
Average
°

was based on cost of material bought earliest in the

period
of inventory based on material BOUGHT latest
valued
cost →
inventory

|
close to current

cost
replacement
.

→ Coas based on cost of material bought latest

Inventory cost based on material bought earliest → finished goods valued

close to current
production ,

cost

→
Inventory & Cost of Good fold a re based on

average
cost

of bought during
materials the period .

Noncurrent Assets
Tangible property plant equipment
→ →

Intangible
'

→ s Goodwill , Patent
↳ valued
present
Fined Asset → at value .

calculated as invoice value -

cost { depreciation }
d
Accumulated Depreciation →
identified Is
expense
.
→ .

↳ ↳ subtracted from Asset

ordinarily increase in amount -

Depreciation methods line ( loss consider

valuing
•
straight →

)
same

• Accelerated → asset lose more

value in earlier

and lesser
years
.

with of
converting
There can be securities no intent to cash in n e a r

future → other than current asset

?⃝
 Intangible Assets
acquired from external asset
↳ → →

or else not valued in

party
balance sheet -

↳ amunortized over the to

year
→ man

↳
straight line ammorltization

practices
common
-

d- firm other
acquisition
byproducts purchasing
'

→ .

identifiable
Goodwill →
captures intangibles that a re not specifically
→ diff bw market value & book value of the firm .

dopily & Liabilities

↳ 3 characteristic

embody present duty responsibility

that
◦
or is

expected to be settle
by probable future transfer
of asset

obligates enterprise
◦ an

transaction obligating the enterprise has

already
◦

occurred .

Current Liabilities to be satisfied of

enpected with theme
→

current assets due a

year
.
→

situations where such short term obligations are not classified as current Ii -

satisfied
since
they a re not
using
current assets
^

debt obligation long

liability
term
eg
= in

example accused
→ accounts
payable expense
-

→ Non current Liabilities →

long term
financing of the enterprise
→
Due m o re than
year
in

>
eg
:
long term debts , bank loan w
maturity year

→ Shareholders Equity Residual Interest the

enterprise after deducting
→
in

liabilities from assets .

→ Asset -
Total Liabilities

Preference Share Common Shares Retained

Earning
'

, ,

↳ Final element

of shareholders
Equity