Question : Recognition of balance sheet items

Sr. No. Asset Liability Owner's quity

a Cash
b Notes payable
c Office equipment
d Retained earnings
e Account payable
f Account receivable

g
h
i Capital Stock
j Notes receivable
k Land

A trade mark such as

l McDonald's Golden Arches
 Remarks

A firms goods mgmt - assumng this

as people cost for mgmt. It is G&A
expenses
office supplies is revenue expenses

Intenginlble asset ( assuming that it

carries value)
 Question : Balance sheet preparation
Assumption 1 - tarnsaction a - initially $ 12000 was paid by cash
Assumption 2 - tarnsaction c - supplies on hand are considered as inventory &
Assumption 3 - tarnsaction d - supplier payment is assumed as revenue expen
Assumption 4 - tarnsaction f - $2500 is considered as goods sold & shown as
Assumption 5 - tarnsaction h - Assumed that the inventory is purchased in thi
BALANCE SHEET
Assets Amount

Fixed Assets
Equ purchased (a) 40000
Land(b) 125000

Investment

Assets Loans & advances

Bank balance 109000
Inventory ( C, h ) 25000
Receivables 2500

Intengiable assets

301500

USE
Sr.no Transaction Assets Notes Revenue Expenses Notes

a eqp purchase cost 40000

-14000 cash paid for 12000 + 2000later
b old land 125000 asset
125000 capital a/c
c supplies on hand 12000 inventory
-12000 cash paid
d supplier payment 22000

e share capital 70000 cash

f account receivable 2500 account receivable

g retained earnings 78000 cash

h inventory in hand 13000
13000 cash paid
paid by cash
considered as inventory & paid in this year
assumed as revenue expenses & not as cash pad for purchasing asset
s goods sold & shown as Income.
ventory is purchased in this year & hene cashis paid in this year to purchase the same.
ANCE SHEET Income Statement
Liabilities Amt Expenses Particualrs Amount

Net worth ( Owner's equity) MFG COST / COGS

Share capital 70000
Capital a/c land 125000
Retained earnings 78000
PAT -19500

Loan & Debentures SG&A

Supplier payment (D) 22000

Current Liab & provisions Interest & Bank charges

Account payable (a,d) 48000

Depreciation

TAX

PAT -19500
301500 22000

= Sources
Liabilities Notes Income

26000 notes payable

22000 account payable

70000

2500

78000 part of net worth

 Income Statement
Income Particulars Amount

Operating Income
Sales (F) 2500

Other income

2500

ces
Bank a/c

inflow
Tr no. Details Amt Particulars
eqp purchased
e share capital 70000 cash paid
g retained earnings 78000 cash paid for inventory
148000

109000
 outflow
Amt Tr no.
14000 a
12000 c
13000 h
39000
Question : Income Statement Preparation

Revenue
Cash & sales on a/c 2,000,000

Expenses Cost of good sold 1,250,000

Gross Profit 750,000

Salary & wages 280,000

Advt. & promo 100,000
Misc. exp 25,000
Insurance exp. 3,000

Total 408,000

Operating profit ( EBIT) 342,000

Depreciation 0 assumed

Non operating income 0 assumed

Non operating expenses 0 assumed

Interest 0 assumed

PBT 342,000

Tax expenses 0 no tax

Net Income 342,000

Inputs

Sale 2,000,000
Salary & wages 280,000
Cost 1,250,000
Insurances 3,000
Misc. expenses 25,000
Advt & promo 100,000
Question : Income Statement Interpretation

1 Sales in this year & cash will be collected next year

Answer Income / Revenue is recognized in the period in which Goods / Services are SOLD, not necessari

2 Advt. expenses resulted from last year's promo & the payment will be made next year. Why amt. is listed

Answer Expenses are the amount of resources used up by the entity to earn revenue during a period. An
in the period in which goods & services are used, not necessary the period in which cash is paid

3 100 new computers purchased. Not reflecting in Income statement.

Answer New Computers purchased will be part of assets & hence will not reflect here. The amt. paid ( if in

4 Member of board of director knows the firm issued $ 1000 cash dividend.

Answer Cash dividend will be part of Owner's equity & hence will not be part of income statement. The am
are SOLD, not necessarily in the period in which cash is received.

ext year. Why amt. is listed this year?

enue during a period. An expenses is recognized

iod in which cash is paid.

here. The amt. paid ( if in this year) will reflect in Bank a/c statement.

ncome statement. The amt. paid will be shown as cash outflow in Bank a/c statement.