1
Income Statement (US GAAP)
Year Ending: December 2021
Item
Net Sales
Cost of Sales & Operations
Gross Profit
Operating Expenses
Salary and Wages
Advertising
Vehicle Expenses
Depreciation
Employee benefit’s program
Insurance
Legal and Professional
Mortgage interest
Office expenses
Pension and profit-sharing plan
Rent on machinery and equipment
Rent on other business property
Repairs
Travel
Utilities
Others
Total Operating Expenses
Annual Amounts ($)
398000
310000
88000
13120
640
960
1280
2800
2240
1920
3840
5440
8000
6400
5200
5760
6400
320
64320
Non-Operating Expenses
Interest paid
Taxes paid
Total Non-Operating Expenses
1280
4160
5440
Net Income
18240
(Averkamp, 2022a)
See notes to the financial statements
Remarks
2
Balance Sheet (US GAAP)
Year Ending: _December 2021
Assets
Cash Assets
Petty Cash
Accounts Receivable
Inventory Value
Amount
($)
12800
39500
31000
Liabilities
Amount ($)
20900
3100
1300
5000
Prepaid Expenses
1500
Accounts Payable
Taxes Payable (State)
Taxes Payable (Federal)
Short Term Loans
Payable
Taxes (Property)
Salaries Payable
Current Assets
84800
Current Liabilities
39500
Investments
Land
Land Improvements
Buildings
Vehicles
Equipment
Accumulated Depreciation
Long Term Assets
3600
Deferred Income Taxes
Notes Payable
-
Long Term Liabilities
45000
Intangible Assets
Miscellaneous Assets
2000
-
-
Total Liabilities
Owner’s Equity
Total Liabilities &
Owner’s Equity
84500
40300
124800
Total Assets
5500
6500
18000
9000
11000
(5600)
38000
124800
(Averkamp, 2022b)
See notes to the financial statements
700
8500
25000
20000
3
Balance Sheet (IFRS)
Year Ending: December 2021
Assets
Amount
($)
Liabilities
Amount ($)
Investments
Land
Land Improvements
Buildings
Vehicles
Equipment
Accumulated Depreciation
Long Term Assets
3600
Deferred Income Taxes
Notes Payable
Long Term Liabilities
25000
20000
Cash Assets
Petty Cash
Accounts Receivable
Inventory Value
12800
39500
31000
20900
3100
1300
5000
Prepaid Expenses
1500
Current Assets
84800
Accounts Payable
Taxes Payable (State)
Taxes Payable (Federal)
Short Term Loans
Payable
Taxes (Property)
Salaries Payable
Current Liabilities
Intangible Assets
Miscellaneous Assets
2000
Total Liabilities
84500
Owner’s Equity
Total Liabilities &
Owner’s Equity
40300
124800
Total Assets
5500
6500
18000
9000
11000
(5600)
38000
124800
(Averkamp, 2022b)
See notes to the financial statements
45000
700
8500
39500
4
PERSONAL MEMO
To: Timi Okinwei
From: Damiete Ebenibo
Date: 20/July/2022
Subject: Information on the Income Statement, Balance Sheet, and differences between
US GAAP and IFRS standards with explanations.
I write this memo in response to our earlier phone call in which you expressed confusion
on the subject matter stated above. I desire to offer clarifications on several items you
mentioned that are of importance in having proper financial recording and accounting for
your businesses in the United States and Mexico. The example financial statements are based
on a 1-year-old business private business for better understanding.
Firstly, the income statement is on the first page of this document. It reads from top to
bottom starting with the net sales which is subtracted from the cost of goods sold to give you
the gross revenue. This gross revenue is then subtracted from the Operating expenses (strictly
business activities related) and the non-operating (not strictly business activities related)
expenses to arrive at the “bottom line” value of $18,240. This is the net income and
represents the actual profit (or sometimes loss) the business has made for the year.
Secondly, the balance sheet in US GAAP format is presented on the second page of this
document. It reads top to bottom but has 2 distinct columns that must be equal based on the
accounting equation. The left column contains the current (1 year or less), non-current
(greater than1 year old) and miscellaneous assets. They are added up from top to bottom to
give the total assets monetary value. The right column has current, non-current liabilities, and
owner’s equity (your personal funds) which are also added up from top to bottom. The
balance sheet represents the fixed financial position of the business at a point in time based
on a monetary assessment of all its holdings (assets) and all its obligations (liabilities).
Key differences between the US GAAP and IFRS standards include the following: the
format of the balance sheet, inventory value re-evaluation, and the fixed assets revaluation
and depreciation. These will reflect in reporting your US and Mexico locations.
Lastly, in preparing the balance sheet in any of the two standards, it is important to note
the following differences as demonstrated by the balance sheets (US GAAP and IFRS
format) shown on the third and fourth pages of this document.



US GAAP lists assets in decreasing order of liquidity (i.e., current assets before noncurrent/long term assets), while IFRS reports assets in increasing order of liquidity
(i.e., non-current/long term assets before current assets).
Inventory value can increase in the IFRS balance sheet depending on if the market
value increases because of improved economic conditions. However, the inventory
value of the US GAAP balance sheet ($31,000) can not increase regardless of
economic conditions.
Any separate component of a fixed asset (building, equipment) with a different useful
life is required to be depreciated separately under IFRS. US GAAP allows for such
component depreciation but does not require it.
5
References
Averkamp, H. (2022a). Balance Sheet Example | AccountingCoach. AccountingCoach.Com.
Retrieved July 18, 2022, from https://www.accountingcoach.com/balance-sheetnew/explanation/2
Averkamp, H. (2022b). Income Statement (Explanation). AccountingCoach.
AccountingCoach.Com. Retrieved July 18, 2022, from
https://www.accountingcoach.com/income-statement/explanation/3