Balance Sheet & Income Statement- Financial accounting

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1. Statement of Financial Position & Income Statement

2. Financial Statements

3. Financial Statements
The financial statements show the effects of business transactions. The main
types are:
•sales of goods (either for cash or on credit)
•purchase of inventory for resale (either for cash or on credit)
•purchase of noncurrent assets
•payment of expenses such as utilities
•introduction of new capital to the business
•withdrawal of funds from the business by the owner

4. A = L + E
ASSETS(A)=LIABILITIES(L)+EQUITY(E)
Thebalancesheetsgetsitsnamefromthefactthatthetwosidesof
theequationabovemustbalanceout.
AssumeyoupurchasedacarforRs1,000,000onleaseaftermakinga
downpaymentofRs200,000.Yourfinancialpositionwillbe:
1,000,000(A)=800,000(L)+200,000(E)

5. Accounting Equation

6. Accounting Equation
An assetis something the business controls such as:
• inventory, e.g. goods manufactured or purchased for resale
• receivables, e.g. money owed by credit customers, prepaid expenses
• cash
• noncurrent
assets
• and is available for use in the business.
A liabilityis something owed by the business to someone else, such as:
• payables, e.g. amounts owed to credit suppliers, accrued expenses
• loans.
Capitalis a type of liability. This is the amount that is due to the owner(s) of
the business. It will increase each year by any new capital injected into the
business and by the profit made by the business. It will decrease by any
amounts withdrawn from the business by the owner(s).

7. NCA and Current Assets

8. NCL and Current Liabilities

9. Class Activity!

10. Balance Sheet
DESCRIPTION 2023 DESCRIPTION 2023
ASSETS EQUITY
Fixed Assets 10,000,000Sharecapital 15,000,000
Intangibles 2,000,000Total 15,000,000
Inventory 5,000,000
Debtors 1,500,000LIABILITIES
Cash 1,200,000Loanfrom bank 3,000,000
Creditors 1,700,000
Total 19,700,000Total 4,700,000
TOTAL ASSETS 19,700,000TOTAL EQUITYAND LIABILITIES 19,700,000
BelowisthebasicstructureofaBalancesheet.

11. Balance Sheet

12. Income Statement
“Aprofitandlossstatement(P&L)summarizestherevenues,costsand
expensesincurredduringaspecificperiodoftime.”
Itgivesanideaastowhatthecompanyearned,expendedandsavedforthe
owners.
Revenue/Salesiswhatyouearn–Salary
Expenseiswhatyouspend–Rent,utilities,schoolfeesetc.
Profitiswhatyousave–Savings

13. Income Statement
BelowisthebasicstructureofaP&Lstatement.
DESCRIPTION 2023 2022
Revenue / Sales 5,000,000 4,500,000
Cost of Sales (3,000,000) (2,450,000)
GROSS PROFIT (GP) 2,000,000 2,050,000
Selling and Distribution expenses (250,000) (235,000)
Administrative expenses (700,000) (630,000)
OPERATING PROFIT 1,250,000 1,185,000
Other income 100,000 70,000
Interestcost (400,000) (345,000)
PROFIT BEFORE TAXATION (PBT) 950,000 910,000
Taxation (688,000) (300,300)
NET PROFIT /
PROFIT AFTER TAXATION (PAT)
262,000 609,700

14. Income Statement

15. Relationship between B/S and I/S

16. Management Accounting vs Financial Accounting

17. Thank you!