Financial Statements: BAO6504 Accounting For Management

BAO6504 Accounting for Management
Lecture 2
Financial Statements
Reference: Chapters 1 & 4
FINANCIAL STATEMENTS
Income Statement (Statement of Financial Performance)
Reports revenues less expenses for a particular period of time
Balance Sheet (Statement of Financial Position)
Reports assets and claims to those assets at a particular point in time

2
FINANCIAL STATEMENTS
continued
Statement of Changes in Equity
Reports amount of profit for the period and the changes in equity
Cash Flow Statement
Reports information regarding cash receipts and cash payments for a particular period of time
3
Income statement
Purpose is to report success or failure of the entitys operations for a period of time
Managers are interested in the bottom line because they allocate resources based on their beliefs about an entitys future performance
4
Income statement continued

WONG PTY LTD Income Statement for the month ended 31 October 2010 Service revenues $10 600 Expenses Salaries expense $3 200 Supplies expense 1 500 Rent expense 900 Insurance expense 50 Interest expense 50 Depreciation expense 40 5 740 Profit before tax 4 860 Tax expense 2 000 Profit after tax $ 2 860
5
MERCHANDISING OPERATIONS
Merchandising businesses buy and resell inventory Revenues are referred to as sales revenue Expenses are divided into two categories:
Cost of goods sold Operating expenses

7
MERCHANDISING OPERATIONS
Profit measurement process for a merchandising business
Sales revenue Less
Equals Cost of goods sold
Gross profit
Less
Operating Equals expenses
Profit (loss)
8
Cost of goods sold

Cost of goods sold Inventory, 1 July 2010 Purchases Less: Purchase ret. & allow. Net purchases Add: Freight-in Cost of goods purchased Cost of goods available for sale Inventory, 30 June 2011 Cost of goods sold $ 36 000 $325 000 17 200 307 800 12 200 320 000 356 000 40 000 316 000
Operating expenses
Selling expenses

cost of making the sale e.g. advertising, delivery expenses cost of operating activities of the general, accounting and personnel offices e.g. salaries, rent costs of financing the business e.g. interest expense, discounts allowed
Administration expenses
Financial expenses

10
PW AUDIO SUPPLY LTD Income Statement for the year ended 30 June 2011
Operating revenue Sales revenue Gross sales revenue Less: Sales returns and allowances Net sales revenue Less: Cost of goods sold Gross profit Other operating revenue Rent revenue Interest revenue Operating expenses
$480 000 (20 000) 460 000 (316 000) 144 000 $15 000 9 000 168 000 ... Continued on next slide
11
Operating expenses Selling expenses Sales salaries & commission expense Advertising expense Freight-out Rent expense store space Depn expense store equipment Administration expenses Office salaries expense Electricity expense Rent expense office space Depn expense office equipment Insurance expense Financial expenses Interest expense Discount allowed Profit before income tax Less: Income tax expense Profit after tax
$45 000 16 000 8 000 7 000 5 000 19 000 4 000 10 000 3 000 2 000 2 000 4 000
$81 000
38 000
6 000 (125 000) 43 000 (12 900) $ 30 100
12
13
Balance sheet
Reports assets and claims to those assets at a specific point in time Based on the basic accounting equation
ASSETS = LIABILITIES + EQUITY
14
Balance sheet continued

WONG PTY LTD Balance Sheet as at 31 October 2010 Assets Cash Accounts receivable Advertising supplies Prepaid insurance Office equipment Total assets Liabilities and equity Liabilities Accounts payable Interest payable Revenue received in advance Salaries payable Bank loan Total liabilities Equity Share capital Retained earnings 31/10/08 Total equity $ 2 500 50 800 1 200 5 000 $ 9 550 10 000 2 360 $15 200 200 1 000 550 4 960 $21 910
12 360 $21 910
15
Statement of changes in equity
Reports amount of profit for period and other changes in equity such as adjustments to retained earnings for

Changes in accounting standards Changes in accounting policies Correction of errors Gains recognised directly in equity
Retained earnings refers to accumulated profit which has not been distributed to shareholders
16
Statement of changes in equity continued

WONG PTY LTD Statement of Changes in Equity (extract) as at 31 October 2010 Profit Retained earnings 1/10/10 Dividends Retained earnings 31/10/10 $ 2 860 0 (500) $ 2 360
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The classified balance sheet
Minimum disclosures:
Assets Cash assets Trade and other receivables Other financial assets Inventories Investments in property Property, plant and equipment Tax assets Intangible assets Liabilities Trade and other payables Financial liabilities Tax liabilities Provisions
Equity Capital and reserves Retained earnings or accumulated losses

18

continued
Current assets
Assets that are cash, held for the purpose of being traded, or expected to be converted to cash or used in the business within one year Assets that are not expected to be sold or consumed within one year
19
Non-current assets

continued
Current liabilities
Obligations that are to be paid within one year

Obligations that are not classified as current
Non-current liabilities
20

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BAO6504 Accounting for Management

Income Statement (Statement of Financial Performance)

Reports revenues less expenses for a particular period of time

Balance Sheet (Statement of Financial Position)

Reports assets and claims to those assets at a particular point in time

Statement of Changes in Equity

Cash Flow Statement

Income statement continued

Cost of goods sold Operating expenses

Equals Cost of goods sold

Operating Equals expenses

Cost of goods sold

Balance sheet continued

12 360 $21 910

Statement of changes in equity

Statement of changes in equity continued

The classified balance sheet

Equity Capital and reserves Retained earnings or accumulated losses

The classified balance sheet

The classified balance sheet

Obligations that are to be paid within one year

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