Lecture 5 - preparing income statement for gross profit Flashcards
what is a baalnce sheet / statement of financial position
statement of what one owns , owes is owed and worth
at a specific point in time
whats a useful way to remeber the bbalance sheet in terms of time period
a snapshot -as its taken at a specific point in time
what do you ahve to remeber when preparing a balance sheet in terms of the title
title written as : statement of financial position as at DD/MM/YYYY
the balance sheet shows the what of the business
finanical position
What is the income statement
statement showing if business has made a profit or loss during a particular period
how do we write the title of the income statement
ABC income statement for the period of the year ended DD/MM/YYYY
what does the income statement show for the firm
financial perfomancce
what does bookepper do
transaction recording
then come up with trial balance
showing us final balance of the T account
from this point are we still acting as a bookeeper
no accountant
outline the structure of the income statement
title = ABC income statement for the year ended
revenye
(less)cost of sales
gross profit
(less:)
selling and distribution costs
admin expenses
finance costs
tax
net profit/(loss) for the period
what is the biggest and main trading income (on the income statment)
revenue
how many groups of expenses are there
5
state the 5 griups of expenses
cost of sales
selling and distribution costs
administrative expenses
finance costs
tax
within expenses there can be many items in each T/F
T
What is cost of sales
production cost of all units sold during period
sellign and distribution costs
all costs that facilitate the marketing, sales, and distribution of goods or services.
admin expenses
expenses
not related to the cost of goods or sales,
such as salaries/expenses related to admin tasks
finance costs
costs incurred from borrowing from lenders/ creditors.
tax costs
total amount of taxes owed by company to a taxing authority
what gives us the net profit or loss for the period
revenue - all 5 groups of expenses
outline structure of balance sheet - 5 things
title - ABC statemtn of financial position as at DD/MM/YYYY
Non Current Assets + current assets = total assets
Non Current Liabilities + Current Liabilities = total liabilities
Net Assets = Total Assets - Total Liabilities
= Capital / Equity
balance sheet is just
list
what don’t we do wit teh balcne sheet
cant just start taking numbers from the trial balance and putting them into statements immediatley
got to make adjustments
what do period end adjustments show
what number should appear for income in profit and loss account and how much should appear in each expenses group
matching principle
Assumption that in the measurement of profit,
costs should be set against the income which they generate
i.e during the period in which income arises
matching principle is related mainly to the
income statement
explain the matchin principle using the revenue example
if revenue (cash or credit) is noted down for the 12 month period the expenses have to eb for that 12 month period
explain mathcing principle using the company rent example
company pays 3000 for 2 years rent in advance but as an accountat you identify this is for 24mnth period not the 12 so you split it in half to be able to include it in tehe PL account
trial balance lists the balances on the ….. accounts - what are these used for
ledger accoutn s
used to prepare the financial statments
before we prepare the financial statements what should be done and why
period end adjustments
necessary to comply with the matching principle
what are the 4 period end adjustments we need to do
cost of sales
depreciation
bad det written off and provision for bad debt
Accruals and Prepayments
what is cost of sales
what is their value converted to
what are they mainly related to
value of goods removed from inventory because they’ve been sold
from an asset to an expense
to production costs
It’s like calculating how much it cost you to get those toys out of your store because people bought them.
big formula for cost of goods sold ( 5 things to remember)
opening stock (inventory at the start of the year)
+
purchases (cost of Rm) - after deducting any returns
+ carriage in (delivery costs)
-closing inventory ( stock at the end of the year)
simple formula for cost of sales
opening stock + purchases - closing stock
when constructing the income statement what is not represented and why ( in terms of columns)
two columns don’t represent debit and credit - just presentation purposes
+
don’t care about credit and debit as an accountant
when constructing the income statement / calc cost of sales always look for
purchase/sale returns in Trial balance
how do we prepare an income statement
write name of business and * income statement for the year ended 30 April 2021*
revenue
cost of sales and then under that have
invetory of goods at opening date
add :purchases
then underline the sum
less inventory of good on closing date ( in brackets cause its negative)
then have cost of sales again
then underline put in (brackets)
write gross profit figure on the same side as r ( the other studd fo on the other side)
ask if this is really necessary ?
