FSs For Companies
FSs For Companies
FSs For Companies
Accounting
Accounting is an information system that identifies, records, and communicates the economic events of
an organization to interested users.
Financial Statements
Financial Statements (FS) are the output of accounting system. Accounting communicates the financial
information to the interested users through FS. FSs provide information about an entity’s:
(a) Assets,
(b) Liabilities
(c) Equity
(d) Income and Expenses, including gains and losses
(e) Cash Flows
(f) Others
Components of Financial Statements (FSs)
After transactions are identified, recorded and summarized, a set of FSs are prepared from the
summarized accounting data. A complete set of FSs comprises:
(a) A Balance Sheet
(b) An Income Statement
(c) A Statement of Changes in Equity showing
(d) A Cash Flow Statement and
(e) Notes, comprising a summary of significant accounting policies and other explanatory notes.
Some Definitions
Assets: Capital: Owner’s equity
i) Current Assets Cost
ii) Fixed Assets
Liabilities:
Expense
i) Current Liabilities Revenue
ii) Long-term Liabilities Net Profit or Loss
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Income Statement or Comprehensive Income Statement
An Income Statement presents the revenues and expenses and resulting net income or net loss for a
specific period of time. The Income Statement is sometimes referred to as the Statement of
Operations, Earnings Statement or profit and Loss Statement.
Multiple-Step Income Statement
ABC Co. Ltd.
Income Statement (Multiple Steps)
For the year ended December 31, 200X
Sales ****
Less: Cost of Goods Sold ****
Gross Profit ****
Operating Expenses
Administrative Expenses ****
Selling and General Expenses ****
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COST OF GOODS SOLD (FOR MANUFACTURING CONCERN)
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Current Practice: Balance Sheet (Liquidity Order)
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Current Practice: Balance Sheet (Working Capital Approach)
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Current Practice: Balance Sheet (Vertical Format)
ABC Co. Ltd.
Balance Sheet (Classified)
December 31, 200X
Assets
Noncurrent Assets
Land & Building xxx
Plant and Machinery xxx
Furniture and Fixture xxx
Intangible Assets (Net) xxx
Total Non-Current Assets xxx
Current Assets
Cash xxx
Accounts Receivable xxx
Inventory xxx
Prepaid Expenses xxx
Total Current Assets xxx
Current Liabilities
Accounts Payable xxx
Notes Payable xxx
Accrued Expenses xxx
Total Current Liabilities xxx
Net Current Assets xxx
Net Assets xxx
Financed By
Shareholders’ Equity
Share Capital xxx
Share Premium xxx
Revaluation Surplus xxx
Total Equity xxx
Non-Current Liabilities
Long-Term Notes Payable xxx
Long-Term Bank Loan xxx
Debenture xxx
Total Non-Current Liabilities xxx
Total Liabilities and Equity xxx
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Exercise on FSs for Service Concern
The following trial balance and additional data are for South Sea Tours Company:
Debit Credit
Cash 109,050
Accounts receivable 133,750
Prepaid insurance 4,350
Prepaid advertising 18,000
Notes receivable 11,250
Land 90,000
Buildings 165,000
Accumulated depreciation-Buildings 49,500
Office equipment 83400
Accumulated depreciation-Office equipment 16,680
Accounts payable 56,850
Notes payable 75,000
Capital stock 240,000
Retained earnings 47,820
Dividends 30,000
Service revenue 368,350
Salaries expense 96,000
Travel expense 111,000
Interest revenue 600
Interest expense 3,000
Total 854,800 854,800
The company consistently followed the policy of initially debiting all prepaid items to asset
accounts
Additional Data:
(i) The buildings have an expected life of 50 years with no salvage value
(ii) The office equipment has an expected life of 10 years with no salvage value
(iii) Accrued interest on notes receivable is Tk. 450
(iv) Accrued interest on notes payable is Tk. 1000
(v) Accrued salaries are Tk. 2100
(vi) Expired prepaid insurance is Tk. 3750
(vii) Expired prepaid advertising is Tk. 16500
Required:
(a) Prepare a multiple steps income statement
(b) Prepare a statement of retained earnings
(c) Prepare a classified balance sheet as at December 31st 2015.
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Solution
Req. (a):
South Sea Tours Company
Income Statement
For the year ended of 31 December, 2015
Particulars Tk. Tk. Tk.
Service Revenue 368,350
Less: Operating Expenses:
Salaries Expense 96,000
Add: Accrued 2,100 98,100
Travel Expense 111,000
Insurance expense 3,750
Advertisement expense 16,500
Depreciation expense: Building 3,300 0
Equipment 8,340 11,640
Total operating expense 240,990
Operating Income 127,360
Add: Non-Operating Income:
Interest Revenue 600
(+) Accrued interest on notes receivable 450
1050
Less: Non-Operating Expenses
Interest Expense 3,000
(+) Accrued interest on notes payable 1,000
(4,000)
Req. (b):
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Req. (c):
South Sea Tours Company
Balance Sheet
As on 31 December, 2015
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