lecture 4 201415 income statement & statement of financial position post lecture
TRANSCRIPT
Income Statement Statement of Financial PositionWeek commencing 20 October 2014Atrill & McLaney Chapters 2 p31 – 47 and Chapter 3 p67 – 77
Dhru Shah
Session learning outcomes
By the end of the this lecture, you should be able to:
1.Distinguish between financial and management accounting2.Identify the links between the two3.The objectives of the main financial statements4.Worked examples of Income Statement & Statement of Financial Position (Erin Gobragh 2)
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ACCOUNTING
FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTINGFor External Users Management
Three Financial StatementsIncome Statement Budgets/ Forecasts,(previously Profit and Loss Account) Monthly reports Statement of Financial Position (actual £ vs budget)
(previously Balance Sheet) Statement of Cash Flow
What do the Financial Statements show?
When making decisions about a business, we need to know:-
1. How much wealth was generated during the time period?Income Statement
2. What is the value (wealth) of the business at the end of the time period?
Statement of Financial Position3. What were the cash movements during the time period?
Cash flow statement
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Income Statement
Measures how much profit (wealth) has been generated during the time period
Income Less Expenses = Profite.g. Sales e.g. purchases, wages,Revenue rent. Can be both cash
and non–cash expenses
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Sales...£££Also called Revenue/ turnover/ income...
• Comprises all sales from trading made during the time period (regardless of whether or not all cash due has been received)
(The cash budget only shows cash actually received. It also includes other cash receipts such as money from loans or share capital – this is NOT income.)
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Erin Gobragh
You may want to refer to your calculations last week….
(see page 26 of the yellow Study Guide)
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Erin GobraghYou can work out the sales figure....
6.00
Sales Units Price ($) Sales Value
Jan 6,000 6.00 36,000
Feb 8,000 6.00 48,000
Mar 9,000 6.00 54,000
Apr 10,000 6.00 60,000
May 11,000 6.00 66,000
Jun 11,000 6.00 66,000
Total 55,000 330,000
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Erin Gobragh
• ...Or you can lift this sales figure straight from your cash budget calculations from last week!
• You may do this for your formal assignment.
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Erin GobraghBudgeted Income Statement for the 6 months to 30 June 2015
Sales Revenue 330,000Less Cost of Goods Sold:Opening Inventories
add Purchases
Less Closing Inventories
Gross Profit
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PurchasesYou can work this out...
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Purchases Units Price ($)Purchases
Value
Jan 10000 3.50 35000
Feb 8000 3.50 28000
Mar 9000 3.50 31500
Apr 11000 3.50 38500
May 8000 3.50 28000
Jun 12000 3.50 42000
Total 58000 203000
Purchases
• Or you can lift the Purchases from your cash budget calculations• You may do this for your assignment!
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Closing Inventory
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• This can be worked out from your calculations last week• Add all your total units purchased = 58,000• Take away total units sold = 55,000• Multiply by the cost price = 3,000*3.5. This = £10,500.
Erin GobraghBudgeted Income Statement for the 6 months to 30 June 2014
Sales Revenue 330,000
Less Cost of Goods Sold:Opening Inventories 0
add Purchases 203,000203,000
Less Closing Inventories (10,500) 192,500
Gross Profit 137,500
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Erin Gobragh:The rest of the Income Statement
Gross Profit 137500
less Expenses:WagesGeneral Expenses
Rent
Depreciation
Motor Van
Equipment
Net Profit
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Other expenses
• All other expenses are deducted from the Gross Profit• For example:
– rent– insurance– salaries– depreciation
• Some expenses are cash-based. In simple cases, these can be lifted from your cash budget (but ensure it applies to the time period)
• Others are not cash-based, for example Depreciation (the loss in value of a non-current asset in the time period).
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Expenses...in a simple case, can usually be lifted from the cash budget
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Erin Gobragh…The rest of the Income Statement
Gross Profit 137500
less Expenses:
Wages 30,240
General Expenses 5,700
Rent 3,500
Depreciation:
Net Profit
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4 ees x 140hrs x 6months x$9
950 x 6
7000/2
Machine purchase: cash payments vs expenses
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Expenses relate to a time period regardless of whether or not they are actually paid in that time period.
When a machine is purchased, the full cash payment is recorded in the cash budget at the point when payment is made.
However this full cost is NOT recorded as an expense in that time period.
Instead the payment is spread over the life of the asset i.e. It depreciates. This amount is written off each year an expense in the Income Statement.
Income Statement: Cash Budget:
Erin Gobragh
For the non-current assets bought:• The van purchased for $14,000 loses $2000 in value• The storage equipment bought for $8000 loses
$1000 in value.
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Erin Gobragh…The rest of the Income Statement
Gross Profit 137500
less Expenses:
Wages 30,240
General Expenses 5,700
Rent 3,500
Depreciation:
Motor Van 2,000
Equipment 1,000 42,440
Net Profit 95,060
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14,000 – 12,000
8,000 – 7,000
Statement of Financial Position
Shows:• Assets - owned by the businessMay be:Non-current – held for over a year e.g. plant and equipmentCurrent - used within a year e.g. inventory, trade receivables• Liabilities – what is owed by the businessMay be:Non-current – payable after a year e.g. Long term loansCurrent – payable within a year e.g. trade payables• Equity – what the owner has invested in the businessMoney invested plus retained profits
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The accounting equation
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Nb: Equity is also known as shareholders’ funds or capital
Assets Liabilities
=+
Equity
Erin GobraghStatement of Financial PositionAs at 30 June 2015
Non-Current Assets ($)Motor Van 12,000Equipment 7,000
19,000Current AssetsInventoriesTrade ReceivablesBank & Cash
Total Assets
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Trade receivables (last week!)
Trade receivables are customers who owe you money at the end of the financial period
May sales 50% x 11,000 x 6 =33,000 received in June Remaining 50% =33,000 received in July
June sales 50% x 11,000 x 6 = 33,000 received in July Remaining 50% = 33,000 received in August
Owing at the end of June = £99,000
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Trade receivables from last week...
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Cash Balance at the end of June...
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Erin GobraghStatement of Financial PositionAs at 30 June 2015
Non-Current Assets ($)Motor Van 12,000Equipment 7,000
19,000Current AssetsInventories 10,500Trade Receivables 99,000Bank & Cash 13,560
123,060Total Assets
142,060
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Trade payables from last week...Suppliers to whom you owe money at the end of the financial period
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Erin GobraghStatement of Financial Position (remaining extract)As at 30 June 2015
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Equity
Capital 5,000
add Profit For Period 95,060
Total Equity 100,060
Non-current liabilities (None in this example)
Current LiabilitiesTrade Payables 42,000
42,000
Total Equity and Liabilities 142,060
Erin GobraghStatement of Financial Position (full view)As at 30 June 2015
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Non-Current Assets
Motor Van 12,000
Equipment 7,000
19,000Current AssetsInventory 10,300Trade Receivables 99,000Bank & Cash 13,560
123,060142,060
Equity
Capital 5,000
add Profit For Period 95,060Total Equity 100,060Non-current liabilities (None in this example)
Current LiabilitiesTrade Payables 42,000
42,000
Total Equity and Liabilities 142,060
Statement of Cash Flows
This shows the cash inflows and cash outflows during the time period.
Like cash budgets, this Statement picks up actual cash flows during the period.
In this module we will be looking at and analysing cash flow statements, to assist management decision-making.
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Session learning outcomes
You should now be able to:
1.Distinguish between financial and management accounting2.Identify the links between the two3.The objectives of the main financial statements4.Worked examples of Income Statement & Statement of Financial Position (Erin Gobragh 2)
Reading
• Atrill & McLaney Chapter 2 p31 – 47, 61/62 and Chapter 3 p67 – 77
• Complete Seminar 4 (Rocking Roll Suicide Ltd) and be ready to do Seminar 5 (Ashers 2 Ashers) for next week’s workshop
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Reminder
• AFM coursework assessment (30% of your final mark)• By 31st October 2014 – agree business idea with your seminar tutor• By 5th December 2014 – coursework submission• Optional Drop-in sessions on Wednesday afternoons, if you want to
discuss any aspect of AFM teaching & learning
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