Preparing Financial Statements

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1. Financial Accounting
Lecture 05: Preparing Financial
Statements
Chapter
4
Masud Jahan
Department of Science and Humanities
Military Institute of Science and Technology

2. Demonstration Problem
To illustrate how to
prepare the financial
2/12
DP1
prepare the financial
statements

3. Income Statement
3/12

4. Babson Builders, Inc.
Income Statement
For the Year Ended 12/31/07
$ $
Revenues and gains:
Sales, net 785,250
Gain on sale of plant assets 24,600
Total revenues and gains 809,850
Proper HeadingProper Heading
Revenues & GainsRevenues & Gains
Income Statement (Single-Step)
4/12
Total revenues and gains 809,850
Expenses and losses:
Cost of goods sold 351,800
Selling Expenses 197,350
General and Admin. Exp. 78,500
Depreciation 17,500
Income taxes 62,500
Loss: sale of investment 9,000
Total expenses & losses 716,650
Net income 93,200
Expenses & LossesExpenses & Losses

5. Babson Builders, Inc.
Income Statement
For the Year Ended 12/31/07
$ $
Sales, net 785,250
Cost of goods sold 351,800
Gross margin 433,450
Operating expenses:
Proper HeadingProper Heading
Gross MarginGross Margin
Income Statement (Multiple-Step)
5/12
Operating expenses:
Selling expenses 197,350
General & Admin. 78,500
Depreciation 17,500 293,350
Income from Operations 140,100
Other revenues & gains:
Dividend income 62,187
Gain on sale of plant assets 24,600 86,787
Other expenses:
Loss: sale of investment 9,000 -9,000
Income before taxes 217,887
Income taxes 62,500
Net income 155,387
Operating ExpensesOperating Expenses
NonNon--operating Itemsoperating Items

6. Babson Builders
Income Statement
For the Year Ended Dec 31 2009
$ $
Sales revenue 785,250
Less: Cost of goods sold (351,800)
Gross margin 433,450
Less: Operating expenses:
Proper HeadingProper Heading
Gross MarginGross Margin
Income Statement (format for exam)
6/12
Less: Operating expenses:
Admin. expenses 197,350
Selling expenses 78,500
Distribution expenses 17,500 (293,350)
Net Income 140,100
Operating ExpensesOperating Expenses

7. Statement of
Changes in
Owner’s Equity
7/12
Owner’s Equity

8. Babson Builders
Statement of Changes in Owner’s Equity
For the Year Ended Dec 31 2009
$ $
Owner’s capital, Jan 1, 2009 0
Add: Investment by owner 300,000
Proper HeadingProper Heading
Statement of Changes in Owner’s Equity
(format for exam)
8/12
Add: Investment by owner 300,000
Net income for year 140,000 440,000
440,000
Less: Withdrawal by owner (75,000)
Owner’s capital, Dec 31, 2009 365,000
IncreasesIncreases
DecreasesDecreases

9. Balance Sheet
9/12

10. A Classified Balance Sheet
Current assets: $ $ $
Cash 30,000
Accounts receivable 60,000
Inventory 70,000
Prepaid expenses 4,000
Babson Builders, Inc.
Balance Sheet
December 31, 2007
Asset Section of the Balance SheetAsset Section of the Balance Sheet
10/12
Prepaid expenses 4,000
Total current assets 164,000
Long-term assets:
Land 320,000
Building 121,000
Less: Accumulated depreciation (10,000) 111,000
Equipment and Fixtures 46,000
Less: Accumulated depreciation (27,000) 19,000
Total long-term assets 450,000
Total assets 614,000

11. A Classified Balance Sheet (continued)
Current liabilities $ $
Accounts payable 62,000
Income taxes payable 16,000
Accrued expenses payable 8,000
Total current liabilities 4,000
Long-term liabilities: 90,000
Liability and Stockholders’ Equity Section of the Balance SheetLiability and Stockholders’ Equity Section of the Balance Sheet
11/12
Long-term liabilities: 90,000
Mortgage payable (due in 25 years) 65,000
Bonds payable (due in 15 years) 100,000
Total long-term liabilities 165,000
Total liabilities 255,000
Owner's equity
Owner's capitel 365,000
Total liabilities and Owner's equity 620,000

12. End of Lecture 05
THANK YOU ALL…THANK YOU ALL…