Chapter 4 COST ACCOUNTING The Income Statement Balance sheet --- applies at one specific time; Changes in balance-sheet

et --- due to revenue received (from sales of goods & services) + costs incurred in production & sales of goods Income sheet (statement)---accounts for all income & expenses (sales, salaries, purchases, depreciation, wages, taxes, etc.) --- maintain proper record --summarized for periodic statement Consolidated income statement --- based on specific time period Indicates surplus capital; shows relationship among total income, costs, profits over time period Important for design engineers Gross income or Gross revenue --- total amount of capital received, resulted from sales Net revenue --- total capital after deducting all costs & taxes Interests considered as expenses--- listed as a separate expense E.g. Fig. 4.3: Consolidated Income Statement For ABC Chemical Company at Year End

Compiled by Prof. Prasad Parulekar

(A) INCOME 1. Net Sales 2. Dividends from subsidiary & associated companies 3. Other (a) Total (Gross) Income (1+2+3) (B) DEDUCTIONS 1. Cost of goods sold 2. Selling & Administrative expenses 3. Research Expenses 4. Provision for Employees Bonus 5. Interest Expenses 6.Net income applicable to Minority Interests 7. Others (b) Total Deductions (1+2+-----+7) (C) INCOME BEFORE PROVISION FOR INCOME TAXES (a-b) (D) LESS PROVISION FOR INCOME TAXES (E) NET INCOME (Net Profit) (C-D) (F) EARNED SURPLUS AT BEGINNING OF YEAR (c) Total Surplus (E+F) (G) SURPLUS DEDUCTIONS 1. Preferred dividends, ($ 3.85 per share) 2. Common dividends, ($ 2.50 per share) (d) Total Surplus Deductions (1+2) EARNED SURPLUS AT END OF YEAR (c-d)
2

$ 341,822,557 $ 798,483 $ 2,534,202 $ 345,155,242 $ $ $ $ $ $ $ $ $ $ 243,057,056 42,167,634 10,651,217 649,319 3,323,372 143,440 2,608,694 302,600,732 42,554,510 18,854,000

$ 23,700,510 $ 90,436,909 $ 114,137,419 $ 721,875 $ 13,148,300 $ 13,870,175 $ 100,267,244

Compiled by Prof. Prasad Parulekar

Maintaining Account Records Balance sheet, Income statement --- summarizes records; relates asset, liabilities, income, costs at particular time or over period of time Day-to-day records to be maintained properly JOURNAL --- can be a book, group of vouchers, computer printout --- all original transactions are listed LEDGER --- group of accounts--- condensed and classified information from JOURNAL Debits & Credits Format of recording business transactions Debit entry--- represents, addition to account; increases asset , decreases equity Credit entry represents, deduction from account; decreases asset, increases equity Accounting Records --- show balance between asset & equity; transaction must affect both asset & equities with similar amount Each debit entry requires equal & offsetting credit entry E.g. Account Debit Credit 1. Rent 100 Cash 100 2. Cash 400
3 Compiled by Prof. Prasad Parulekar

Sale 3. Equipment Cash 4. Cash Loan

400 500 500 1000 1000

Double-entry-book keeping ---- procedure of entering debit & credit in account The Journal 1st 2 columns --- date of transaction 3rd column ---- analysis of account affected by transaction; debits listed first, credit below it Brief description of item (if necessary) Last 2 columns --- amounts of individual debit & credit; debit on left, credit on right always 4th column --- designated as F for Folio --no. of ledger account or page no. in which journal entry is posted E.g. Fig. 4.4 A Typical Journal Page The Ledger Separate ledger accounts for different items--- e.g. cash, equipment, accounts payable, manufacturing expenses etc. Serves as secondary record of business transactions & used as intermediates between journal record & balance sheet, income statement
4 Compiled by Prof. Prasad Parulekar

E.g. Fig. 4.5 Typical Ledger Sheet That has been closed and Balanced

Compiled by Prof. Prasad Parulekar