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Income Statement

Statement of Financial Position


Week commencing 20 October 2014
Atrill & McLaney Chapters 2 p31 47 and Chapter 3 p67 77

Dhru Shah

Session learning outcomes


By the end of the this lecture, you should be able to:

1.Distinguish between financial and management accounting


2.Identify the links between the two
3.The objectives of the main financial statements
4.Worked examples of Income Statement & Statement of Financial
Position (Erin Gobragh 2)

ACCOUNTING

FINANCIAL ACCOUNTING
For External Users

MANAGEMENT ACCOUNTING
Management

Three Financial Statements


Income Statement

Budgets/ Forecasts,

(previously Profit and Loss Account)

Monthly reports

Statement of Financial Position

(actual vs budget)

(previously Balance Sheet)

Statement of Cash Flow


May 9, 2016

What do the Financial Statements show?


When making decisions about a business, we need to know:-

1. How much wealth was generated during the time period?


Income Statement
2. What is the value (wealth) of the business at the end of the time
period?
Statement of Financial Position
3. What were the cash movements during the time period?
Cash flow statement

May 9, 2016

Income Statement
Measures how much profit (wealth) has been generated during the
time period

Income

Less

Expenses

e.g. Sales

e.g. purchases, wages,

Revenue

rent. Can be both cash

= Profit

and noncash expenses

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Sales...

Also called Revenue/ turnover/ income...

Comprises all sales from trading made during the time period
(regardless of whether or not all cash due has been received)

(The cash budget only shows cash actually received. It also


includes other cash receipts such as money from loans or share
capital this is NOT income.)

May 9, 2016

Erin Gobragh
You may want to refer to your calculations last week.

(see page 26 of the yellow Study Guide)

9 May 2016

Erin Gobragh

You can work out the sales figure....


6.00

Sales

Units

Price ($)

Sales Value

Jan

6,000

6.00

36,000

Feb

8,000

6.00

48,000

Mar

9,000

6.00

54,000

Apr

10,000

6.00

60,000

May

11,000

6.00

66,000

Jun

11,000

6.00

66,000

Total

55,000

May 9, 2016

330,000

Erin Gobragh
...Or you can lift this sales figure straight from your cash budget
calculations from last week!
You may do this for your formal assignment.

May 9, 2016

Erin Gobragh
Budgeted Income Statement
for the 6 months to 30 June 2015
Sales Revenue

330,000

Less Cost of Goods


Sold:
Opening
Inventories
add Purchases
Less Closing
Inventories
Gross Profit
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Purchases

You can work this out...

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11

Purchases

Units

Price ($)

Purchases
Value

Jan

10000

3.50

35000

Feb

8000

3.50

28000

Mar

9000

3.50

31500

Apr

11000

3.50

38500

May

8000

3.50

28000

Jun

12000

3.50

42000

Total

58000

May 9, 2016

203000

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Purchases
Or you can lift the Purchases from your cash budget calculations
You may do this for your assignment!

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Closing Inventory
This can be worked out from your calculations last week
Add all your total units purchased = 58,000
Take away total units sold = 55,000
Multiply by the cost price = 3,000*3.5. This = 10,500.

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Erin Gobragh
Budgeted Income Statement
for the 6 months to 30 June 2014
Sales Revenue
Less Cost of Goods
Sold:
Opening
Inventories
add Purchases
Less Closing
Inventories
Gross Profit
May 9, 2016

330,000

0
203,000
203,000
(10,500)

192,500
137,500
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Erin Gobragh:
The rest of the Income Statement
Gross Profit

137500

less Expenses:
Wages
General Expenses
Rent
Depreciation
Motor Van
Equipment
Net Profit
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Other expenses
All other expenses are deducted from the Gross Profit
For example:

rent
insurance
salaries
depreciation

Some expenses are cash-based. In simple cases, these can be lifted


from your cash budget (but ensure it applies to the time period)

Others are not cash-based, for example Depreciation (the loss in


value of a non-current asset in the time period).

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Expenses

...in a simple case, can usually be lifted from the cash budget

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Erin Gobragh
The rest of the Income Statement
Gross Profit

137500

less Expenses:

4 ees x 140hrs x 6months x$9

Wages

30,240

General Expenses

5,700

950 x 6

Rent

3,500

7000/2

Depreciation:

Net Profit

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Machine purchase: cash payments vs expenses


Income Statement:
Expenses relate to a time
period regardless of
whether or not they are
actually paid in that time
period.

Cash Budget:
When a machine is purchased,
the full cash payment is
recorded in the cash budget at
the point when payment is
made.
However this full cost is NOT
recorded as an expense in that
time period.
Instead the payment is spread
over the life of the asset i.e. It
depreciates. This amount is
written off each year an expense
in the Income Statement.

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Erin Gobragh
For the non-current assets bought:
The van purchased for $14,000 loses $2000 in value
The storage equipment bought for $8000 loses
$1000 in value.

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Erin Gobragh
The rest of the Income Statement
Gross Profit

137500

less Expenses:
Wages

30,240

General Expenses

5,700

Rent

3,500

Depreciation:
Motor Van

2,000

Equipment

1,000

Net Profit
May 9, 2016

14,000 12,000
8,000 7,000
42,440
95,060
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Statement of Financial Position


Shows:
Assets - owned by the business
May be:
Non-current held for over a year e.g. plant and equipment
Current - used within a year e.g. inventory, trade receivables
Liabilities what is owed by the business
May be:
Non-current payable after a year e.g. Long term loans
Current payable within a year e.g. trade payables
Equity what the owner has invested in the business
Money invested plus retained profits
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The accounting equation


Assets

Liabilities

Equity

Nb: Equity is also known as shareholders funds or


capital

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Erin Gobragh
Statement of Financial Position
As at 30 June 2015
Non-Current Assets
Motor Van
Equipment

($)
12,000
7,000
19,000

Current Assets
Inventories
Trade Receivables
Bank & Cash
Total Assets

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Trade receivables (last week!)


Trade receivables are customers who owe you money at the end of
the financial period

May sales 50% x 11,000 x 6 =33,000 received in June


Remaining 50%

=33,000 received in July

June sales 50% x 11,000 x 6 = 33,000 received in July


Remaining 50%

Owing at the end of June

May 9, 2016

= 33,000 received in August

= 99,000

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Trade receivables from last week...

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Cash Balance at the end of June...

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Erin Gobragh
Statement of Financial Position
As at 30 June 2015
Non-Current Assets
Motor Van
Equipment
Current Assets
Inventories
Trade Receivables
Bank & Cash

($)
12,000
7,000
19,000
10,500
99,000
13,560
123,060

Total Assets
142,060

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Trade payables from last week...

Suppliers to whom you owe money at the end of the financial period

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Erin Gobragh
Statement of Financial Position (remaining extract)
As at 30 June 2015

Equity
Capital

5,000

add Profit For Period

95,060

Total Equity

100,060

Non-current liabilities

(None in this example)

Current Liabilities
Trade Payables

42,000
42,000

Total Equity and Liabilities

May 9, 2016

142,060

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Erin Gobragh
Statement of Financial Position (full view)
As at 30 June 2015
Non-Current Assets
Motor Van

12,000

Equipment

7,000
19,000

Current Assets
Inventory
Trade Receivables
Bank & Cash

10,300
99,000
13,560
123,060
142,060

Equity
Capital

5,000

add Profit For Period

95,060

Total Equity

100,060

Non-current liabilities

(None in this example)

Current Liabilities
Trade Payables

42,000
42,000

Total Equity and Liabilities

May 9, 2016

142,060

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Statement of Cash Flows


This shows the cash inflows and cash outflows during the time period.

Like cash budgets, this Statement picks up actual cash flows during
the period.

In this module we will be looking at and analysing cash flow


statements, to assist management decision-making.

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Session learning outcomes


You should now be able to:

1.Distinguish between financial and management accounting


2.Identify the links between the two
3.The objectives of the main financial statements
4.Worked examples of Income Statement & Statement of Financial
Position (Erin Gobragh 2)

Reading
Atrill & McLaney Chapter 2 p31 47, 61/62 and Chapter 3 p67 77

Complete Seminar 4 (Rocking Roll Suicide Ltd) and be ready to do Seminar 5


(Ashers 2 Ashers) for next weeks workshop

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Reminder
AFM coursework assessment (30% of your final mark)
By 31st October 2014 agree business idea with your seminar tutor
By 5th December 2014 coursework submission
Optional Drop-in sessions on Wednesday afternoons, if you want to
discuss any aspect of AFM teaching & learning

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