CHAPTER NO.03
FINANCIAL STATEMENTS
Kardan
Institute of
Higher
Education
1
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
2
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
3
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
4
Balance Sheet
as on ______
 Assets:
– Current Assets:
– Non-Current Assets:
– Total Assets:
$7,681.00
$3,790.00
$11,471.00
 Liabilities:
– Current Liabilities:
– LT Debt & Other LT Liab.:
– Equity:
– Total Liab. and Equity:
$5,192.00
$971.00
$5,308.00
$11,471.00
5
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.
6
Major Income Statement Items
 Sales
 Sales returns
 Cost of goods sold
 Operating expenses:
– Selling and distribution expenses
– Administration expenses
 Interest expenses
 Taxation
7
XYZ COMPZNY
Income Statement
For the year ended Dec 31,2010
Sales
Costs of Goods Sold
Gross Profit
Selling & Distribution expenses
Administrative expenses
Profit from Operations
Interest
Profit before tax
Income Taxes
Net Income
$25,265.00
-$19,891.00
$5,374.00
($1,761.00)
(1,613.00)
$2,360.00
($100.00)
$2,260.00
($785.00)
$1,575.00
8
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.
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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
9
Cost of Goods Sold
Merchandiser
Manufacturer
Beginning merchandise inventory
Beginning finished goods inventory
Plus purchases
Plus cost of goods manufactured
Merchandise available for sale
Finished goods available for sale
Less ending merchandise inventory
Less ending finished goods inventory
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Cost of good sold
Cost of good sold
10
XYZ COMPANY
COST OF GOODS SOLD STATEMENT
FOR THE YEAR ENDED DECEMBER, 2012
$
Direct Materials used:
Beginning Raw Materials
Purchases
Purchases Returns
Freight in
Cost of Materials Available for Use
Ending Raw Materials
Direct Materials used
Direct Labour Cost
Factory overhed
Total Factory Cost
Add: Beginning Work in Process
Total Work Put in to Process
Less: Ending Work in Process
Cost of Goods Manufactured
Add: Beginning Finished Goods
Cost of goods available for Sale
Less: Ending Finished Goods
Cost of Goods Sold
10,000
200,000
(3,000)
4,000
211,000
(12,000)
410,000
250,000
150,000
810,000
25,000
835,000
(28,000)
863,000
26,000
889,000
(34,000)
855,000
11
XYZ COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31,2010
$
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
12
Exercises 01
 The following data is taken from the books of Toyota Manufacturing for the
year ended Dec 31, 2005
 Purchase of raw materials
 Direct Labor cost
 Factory Overhead


 Raw Materials
 Work in process
 Finished goods

Required :
 Total Manufacturing cost
 Cost of goods manufactured
 Cost of goods sold
$50,000
20,000
10,000
Inventories
opening
10,000
15000
5000
closing
20,000
10,000
3000
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
 Direct Labor Cost
 Factory overhead Cost
$50,000
40,000
30,000



 Raw Materials
 Work in process
 Finished goods

 Required :
 Total Manufacturing cost
 Cost of goods Manufactured
 Cost of goods sold statement
Inventories
Opening
10,000
20,000
30,000
Ending
15000
10,000
20,000
Exercises 03

The following data relates to the Moon Manufacturing for the year ended Dec 31, 2009






Raw Materials
Work in process
Finished goods
Inventories
January 1
40,000
30,000
30,000
December 31
20,000
15000
10,000




Purchase of Raw Materials
Direct Labor cost
Factory overhead
$ 60,000
50,000
30,000






Sales for the year
Sales return and allowance
Marketing expenses
Administrative expenses
Income tax expense




Required:
Cost of goods sold statement
Income statement
300,000
20,000
10,000
15000
5000
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 ……………………………………………
Work in process ………………………………………….
Materials……………………………………………………..




Required:
Cost of goods sold statement
Income statement
$ 10,200
15,000
8,500