Financial Statement

Final Account
 “Final trial balance” at the end of an accounting

period from which the financial statements are
derived.
 Prepared at the end of the given year or period,
to see the profit and loss position as well as the
financial position.
 Primary financial statements are the income
statement, balance sheet, and statement of
cash flows.
INCOME STATEMENT
 A financial report showing a company’s
performance over a period of time by
subtracting expenses from revenue to
obtain net income.
 Sometimes known as a Profit and Loss

Statement (P & L) or Earning Report
SG&A Expense (Selling, General & Administrative)
Depreciation -a reduction in the value of an asset with the passage of time, due in particular to wear and tear.
A tax shelter is any legal strategy you employ to reduce the amount of income taxes you owe.
MULTI-STEP INCOME STATEMENT
1 GROSS REVENUE
2 LESS COST OF GOODS SOLD
3 GROSS PROFIT OR GROSS MARGIN
4 LESS S, G, & A EXPENSES (NOT DIRECTLY RELATED TO PRODUCING
GOODS FOR SALE SUCH AS UTILITIES, WAGES, SALES COMMISIONS,
OFFICE RENT, LEGAL AND ACCOUNTING FEES)
5 LESS DEPRECIATION
6 OPERATING PROFIT (EBIT)
7 LESS INTEREST EXPENSES (FOR DEBT THE COMPANY OWES)
8 EBT (EARNINGS BEFORE TAXES)
9 LESS TAXES
10 EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
11 LESS DRAWING OR DIVIDENDS
12 NET INCOME (PROFIT) → RETAINED EARNINGS (OWNERS’ EQUITY)
SELLING EXPENSES
Selling expenses are part of the operating expenses (along
with administrative expenses). Selling expenses include
sales commissions, advertising, promotional materials
distributed, rent of the sales showroom, rent of the sales
offices, salaries and fringe benefits of sales personnel,
utilities and telephone usage in the sales department, etc.
Under the accrual basis of accounting, selling expenses

appear on the income statement in the period in which they
occurred (not the period in which they were paid).
GENERAL AND ADMINISTRATIVE EXPENSE is the set of expenses required to
administer a business, and which are not related to the construction or sale of goods or
services. This information is needed to determine the fixed cost structure of a business.
Examples of general and administrative expenses are:
Accounting staff wages and benefits

Building rent
Consulting expenses
Corporate management wages and benefits (such as for the chief executive officer and
support staff)
Depreciation on office equipment
Insurance
Legal staff wages and benefits
Office supplies
Outside audit fees
Subscriptions
Utilities
Another way of describing general and administrative expenses is any expense that will
still be incurred, even in the absence of any sales or selling activity.
GENERAL EXPENSES are the costs a business incurs as part
of its daily operations, separate from selling and administration
expenses. Together, general, selling and administration (SG&A)
expenses make up a company’s operating expenses.
Examples of general expenses include rent, utilities, postage, supplies

and computer equipment.
General expenses are categorized as indirect expenses on a company’s

income statement because they do not contribute directly to the making
of a product or delivery of a service. They are fixed costs because they
tend to remain stable even when production volumes change.
What are 'Administrative Expenses'
Administrative expenses are the expenses that an organization incurs not
directly tied to a specific function such as manufacturing, production or sales.
These expenses are related to the organization as a whole as opposed to an
individual department. Salaries of senior executives and costs of general
services such as accounting are examples of administrative expenses.
Examples of Administrative Expenses

Wages and benefits to certain employees, such as the accounting department,
are considered administrative expenses. All executive compensation is
considered an administrative expense as well. Building rent, insurance,
subscriptions, utilities, and office supplies may be classified as either a general
expense or an administrative expense. Depending on the asset being
depreciated, depreciation expense may be classified as a general,
administrative or selling expense. Organizations may choose to include
consulting fees and legal fees as an administrative expense as well. Research
and development are not considered administrative expenses.
Operating Expenses
Operating expenses are the costs a business incurs as part of its regular business
activities, not including the cost of goods sold. These costs include administrative
expenses such as office supplies and salaries for administrative personnel. Commissions
and advertising are examples of sales expenses. You also have general operating expenses
such as rent and utilities. Costs of some specialized services, such as hiring consultants or
accountants, are also considered operating expenses.
Non-Operating Expenses
Some business expenditures are incurred for reasons that don’t involve normal business
operations. One example of a non-operating expense is interest on borrowed money. Non-
operating expenses also include one-time or unusual costs. The expenditure required for a
business reorganization as the result of a bankruptcy, or to pay expenses due to a lawsuit,
are common examples of non-operating expenses. Charges for obsolescence of equipment
or currency exchange are also non-operating expenses.
Non-operating revenue would include such items as dividend income, profits (and losses)
from investments, gains (and losses) incurred due to foreign exchange, asset write-downs,
and other non-operating revenues and expenses.
As an example, for a hospital, in addition to finance-related revenue, non-operating revenue
may include parking fees, revenue from the gift shop, cafeteria sales, or rental income.
EBIT – earnings before interest and taxes
SGA
EBIT
MORE ON
INCOME STATEMENT
MULTI-STEP INCOME STATEMENT
1 GROSS REVENUE
2 LESS COST OF GOODS SOLD
3 GROSS PROFIT OR GROSS MARGIN
4 LESS S, G, & A EXPENSES (NOT DIRECTLY RELATED TO PRODUCING
GOODS FOR SALE SUCH AS UTILITIES, WAGES, SALES COMMISIONS,
OFFICE RENT, LEGAL AND ACCOUNTING FEES)
5 LESS DEPRECIATION
6 OPERATING PROFIT (EBIT)
7 LESS INTEREST EXPENSES (FOR DEBT THE COMPANY OWES)
8 EBT (EARNINGS BEFORE TAXES)
9 LESS TAXES
10 EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
11 LESS DRAWING OR DIVIDENDS
12 NET INCOME (PROFIT) → RETAINED EARNINGS (OWNERS’ EQUITY)
(40 points)
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Final Account

 “Final trial balance” at the end of an accounting

 Sometimes known as a Profit and Loss

Under the accrual basis of accounting, selling expenses

Accounting staff wages and benefits

Examples of general expenses include rent, utilities, postage, supplies

General expenses are categorized as indirect expenses on a company’s

Examples of Administrative Expenses

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