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statement which summarizes the profitability of the business entity It has two major components 1, Revenue 2,Expenses Result of income statement will be net profit or loss of the business activity.
basic format
Revenue
50,000
Less: Expenses
Rent expense 4000 Salaries expense 5000 Utilities expense 6000 total expense Net income
15,000 35,000
Class activity
Service revenue
Rent expense
Salaries expense Repair and maintenance expense
BALANCE SHEET
The balance sheet lists the amounts of the
companys assets, liabilities, and owners equity at the end of the accounting period. The balances of assets, liabilities and owners equity are taken from trial balance.
Class activity
Cash
Rs.3000 supplies Rs.450 Land Rs.5000 A/c receivable Rs.500 Office equipment Rs.6000 A/c payable Rs.7500 Note payable Rs.1500 Capital Rs.5950
Prepare Balance sheet
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BALANCE SHEET
Cash A/c receivable Supplies 3000 500 450 A/c Payable Note payable Owners equity Capital 7500 1500
5950 14950
ACCOUNTING EQUATION
ASSETS = LIABILITIES +OWNERS QUITY ASSETS --- LIABILITIES = OWNERS EQUITY
DEPRECIATION
Equipment, furniture are purchased and use
in business over the years. Each year value of these assets decline because of their use. Usage of these assets are recorded as depreciation. What journal entry is required?
8
xxx
Example: Company purchased computer for Rs.45000 and expected useful life is 5 years.
What is annual depreciation?
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Computation of depreciation
Cost/ life of asset Annual depreciation: 45,000/5 = Rs. 9000 What is adjusting entry?
in INCOME STATEMENT
ACCUMULATED DEPRECIATION is
Class activity
Attempt MEIGHS AND MEIGHS
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INCOME STATEMENT for the year ended Dec.31,1994 Admission revenue Less: expense Advertising expense 15,000 Rent expense 36,000 Repairs expense 5200 Salaries expense 79000 Light and power expense 4500 Depreciation expense-building 6000 Depreciation-golf 15000 Net Income
192,000
160700 31300
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BALANCE SHEET
Cash A/c receivable Supplies 3000 500 450 A/c Payable Note payable Owners equity Capital 7500 1500
5950 14950
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Class activity
Cash received from customer Rs.200 What is Journal entry?
200
sheet??????
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GENERAL LEDGER
CASH Op Balance 3000 200
3200
A/c Receivable Opening bal 500 200
300
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5950 14950
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worth Rs.500 and you purchase goods for Rs.6000. Now whole stock sold for Rs.8000.
What is Gross profit ???????
Sales Less: cost of sales
8000
Op.stock
6500 1500
19
you bought goods Rs.25000. Total sales for the period is Rs. 43,000. Closing stock in store is Rs. 7000. What is cost of goods sold?????? What is Gross profit????????
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Activity solution
COST OF GOODS SOLD
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Purchases
Goods available for sale Less: closing stock cost of goods sold
22
INCOME STATEMENT
SALES REVENUE Opening stock Rs.5000 Purchases 25,000 Goods available for sale 30,000 Less: closing stock (7000) cost of goods sold GROSS PROFIT
43,000
(23,000) 20,000
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discount
24
NET SALES
SALES REVENUE
56,500 (600)
(2000)
53900
SALES DISCOUNT
NET SLAES
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transportation charges Rs.3000. return goods to supplier Rs.500 and availed purchases discount Rs.3200.
What is net purchases?????????
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NET PURCHASES
PURCHASES
+
TRANSPORTATION NET PURCHASES
PURCHASES RETURN
PURCHASES DISCOUNT
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NET PURCHASES
Purchases
Add: transportation
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ACTIVITY
Sales revenue Purchases Sales return Purchases discount Transportation Sales discount Opening stock Closing stock Find Gross profit????????????
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Sales revenue Less: Sales return Sales discount Net Sales Less: Cost of goods sold Opening stock purchases add: transportation less: purchases discount Less: closing stock
GROSS PROFIT
75600 (200) (600) 74800 12000 56000 1500 (1000) (7000) 61500 13300
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ACTIVITY
Sales revenue Purchases Sales return Transportation Sales discount Closing stock Opening stock
Mds.Inventory-ending (credit)
Purchases, return, discount, transportation Sales revenue, return, discount All expenses Other income
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CURRENT ASSETS
Cash
A/c Receivable
Note receivable Closing stock Marketable securities Short term investment Prepaid/ unexpired / unuse Office supplies
33
34
CURRENT LIABILITY
A/c Payable
Bill payable
Accrued expenses Unearned Bank overdraft Short-term loan
35
Bonds payable
Mortgage loan Debenture payable
36
Owners equity
Capital
37
CLOSING ENTRIES-M&M#179
Firm close all expenses and revenue accounts at
end of financial year. Difference of expense and revenue is transferred to owners equity as profit or loss.
15484 420
15904
38
12570
1275
Advertising expense Salaries expense Telephone expense Insurance expense Office supplies expense Dep.expense-building Dep.expense-equipment Interest expense
To close all expenses accounts
39
3334 James Roberts, capital 3334 (to close the Income summary account)
If drawing is given IF PROFIT
CLOSING ENTRIES
INCOME SUMMARY ACCOUNT ( DEBIT) Mds. INVENTORY-OP PURCHASES TRANSPORTATION CREDIT SALES RETURN SALES DISCOUNT ALL EXPENSES
SALES REVENUE MDS. INVENTORY-ENDING DEBIT OTHER INCOME PURCHASES RETURN PURCHASES DISCOUNT INCOME SUMMARY ACCOUNT
CREDIT
42
REVERSING ENTRIES
There are four types which reversed at the
start of new year. 1. Accrued expense 2.Accrued income 3.Unearned income 4.when expense comes on credit side (unrecorded expense)
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Adjusting entry
Reversing entry
5000
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