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Kardan Institute of Higher Education

CHAPTER NO.03FINANCIAL STATEMENTS

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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

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

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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

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Balance Sheetas 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

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.

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Major Income Statement Items

Sales Sales returns Cost of goods sold Operating expenses:

– Selling and distribution expenses

– Administration expenses

Interest expenses Taxation

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XYZ COMPZNYIncome StatementFor the year ended Dec 31,2010

Sales $25,265.00Costs of Goods Sold -$19,891.00Gross Profit $5,374.00Selling & Distribution expenses ($1,761.00)Administrative expenses (1,613.00)Profit from Operations $2,360.00Interest ($100.00)Profit before tax $2,260.00Income Taxes ($785.00)Net Income $1,575.00

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Kardan Institute of Higher Education

Inventories for a Manufacturing Concern

A manufacturing business has three distinct inventory accounts:

1. 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

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Kardan Institute of Higher Education

Cost of Goods Sold

Merchandiser ManufacturerBeginning merchandise inventory

Plus purchases

Merchandise available for sale

Less ending merchandise inventory

Cost of good sold

Beginning finished goods inventory

Plus cost of goods manufactured

Finished goods available for sale

Less ending finished goods inventory

Cost of good sold

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XYZ COMPANYCOST 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

XYZ COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31,2010

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SALES 200,000

LESS: SALES RETURNS (5,000)

NET SALES 195000

COST OF GOODS SOLD (100,000)

GROSS PROFIT 95,000

LESS: OPERATING EXPENSES:

SELLING EXPENSES (25,000)

ADMIN EXPENSES (45000)

NET INCOME 25,000

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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 20,000 Factory Overhead 10,000   Inventories opening closing Raw Materials 10,000 20,000 Work in process 15000 10,000 Finished goods 5000 3000  Required :  Total Manufacturing cost Cost of goods manufactured Cost of goods sold

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 40,000 Factory overhead Cost 30,000   Inventories Opening Ending Raw Materials 10,000 15000 Work in process 20,000 10,000 Finished goods 30,000 20,000   Required : Total Manufacturing cost Cost of goods Manufactured Cost of goods sold statement

Exercises 03 The following data relates to the Moon Manufacturing for the year ended Dec 31, 2009   Inventories January 1 December 31 Raw Materials 40,000 20,000 Work in process 30,000 15000 Finished goods 30,000 10,000   Purchase of Raw Materials $ 60,000 Direct Labor cost 50,000 Factory overhead 30,000   Sales for the year 300,000 Sales return and allowance 20,000 Marketing expenses 10,000 Administrative expenses 15000 Income tax expense 5000   Required: Cost of goods sold statement Income statement

Exercises 04 The December 31, 19B trial balance of the Balkwell Company showed: Sales ……………………………… $ 9,000,500 Sales return and allowances …….. $ 25,200 Purchases (net) …………….. 2,400,000 Transportation in …………………….. 32,000 Direct Labor ……………………. 3,204,000 Factory overhead …………………….

1,885,600 Sales Salaries …………………. 2,00,000 Advertising expense ……………….. 1,55,000 Delivery expenses ……………………. 65,000 Inventories December 31, 19B December 31, 19A Finished goods $467,400 $ 620,000 Work in process 136,800 129,800 Materials 196,000 176,000   Required: Total Manufacturing cost Cost of goods manufactured Cost of goods sold Income statment

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 …………………………………………. 8,000 Materials …………………………………………………….. 8,000   Ending inventories: Finished goods …………………………………………… $ 10,200 Work in process …………………………………………. 15,000 Materials…………………………………………………….. 8,500   Required: Cost of goods sold statement Income statement