CHAPTER NO.

03
FINANCIAL STATEMENTS

Kardan
Institute of
Higher
Education

1
Financial Statements
Financial statements are those
statements which are prepared to
know the financial position and
performance of an entity. These are
the major financial statements:
– Balance Sheet
– Income Statement
2
What is a Balance Sheet
 It is a statement which is prepared to know
the financial position of an organization at a
specific date.
 In other words it gives information about
assets, liabilities and capital of an entity at a
specific date

3
 Major Balance Sheet Items
Assets Liabilities and Equity
 Current assets:  Current liabilities:
– Cash & securities – Payables
– Receivables – Short-term debt
– Inventories  Long-term liabilities
 Fixed assets:  Shareholders' equity
– Tangible assets
– Intangible assets

4
Balance Sheet
as on ______
 Assets:
– Current Assets: $7,681.00
– Non-Current Assets: $3,790.00
– Total Assets: $11,471.00
 Liabilities:
– Current Liabilities: $5,192.00
– LT Debt & Other LT Liab.: $971.00
– Equity: $5,308.00
– Total Liab. and Equity: $11,471.00
5
What is income statement
 It is a statement which is prepared to know
about the financial performance of a an
entity for a specific period.
 It is prepared to compare revenues against
expenses to know the profitability of an
organization.

6
Major Income Statement Items
 Sales
 Sales returns
 Cost of goods sold
 Operating expenses:
– Selling and distribution expenses
– Administration expenses
 Interest expenses
 Taxation

7
 XYZ COMPZNY
Income Statement
For the year ended Dec 31,2010
Sales $25,265.00
Costs of Goods Sold -$19,891.00
Gross Profit $5,374.00
Selling & Distribution expenses ($1,761.00)
Administrative expenses (1,613.00)
Profit from Operations $2,360.00
Interest ($100.00)
Profit before tax $2,260.00
Income Taxes ($785.00)
Net Income $1,575.00

8
 Inventories for a Manufacturing Concern
A manufacturing business has three distinct inventory
accounts:
1. Raw Material Inventory:
This inventory account (sometimes called Materials and supplies or
stores) reflects the cost of raw materials and factory supplies that
will be consumed in the manufacturing process.

2. Work in Process Inventory:

This account reflects the cost of raw materials, direct labor, and
factory overhead on goods on which manufacturing has begun but
has not been completed at the end of the specific period
Kardan
Institute of
Higher
Education 3. Finish Goods Inventory:
The Finished Goods Inventory account reflects the cost for goods
that have been completed and are ready for sale
9
 Cost of Goods Sold

Merchandiser Manufacturer
Beginning merchandise inventory Beginning finished goods inventory

Plus purchases Plus cost of goods manufactured

Merchandise available for sale

Finished goods available for sale
Less ending merchandise inventory
Less ending finished goods inventory
Kardan
Cost of good sold
Cost of good sold
Institute of
Higher
Education

10
XYZ COMPANY
COST OF GOODS SOLD STATEMENT
FOR THE YEAR ENDED DECEMBER, 2012
$
Direct Materials used:
Beginning Raw Materials 10,000
Purchases 200,000
Purchases Returns (3,000)
Freight in 4,000
Cost of Materials Available for Use 211,000
Ending Raw Materials (12,000)
Direct Materials used 410,000
Direct Labour Cost 250,000
Factory overhed 150,000
Total Factory Cost 810,000
Add: Beginning Work in Process 25,000
Total Work Put in to Process 835,000
Less: Ending Work in Process (28,000)
Cost of Goods Manufactured 863,000
Add: Beginning Finished Goods 26,000
Cost of goods available for Sale 889,000
Less: Ending Finished Goods (34,000)
Cost of Goods Sold 855,000
11
XYZ COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31,2010
$
SALES 200,000
LESS: SALES RETURNS (5,000)
NET SALES 195000
COST OF GOODS SOLD (100,000)
GROSS PROFIT 95,000
LESS: OPERATING EXPENSES:
SELLING EXPENSES (25,000)
ADMIN EXPENSES (45000)
NET INCOME 25,000

12
 Exercises 01
 The following data is taken from the books of Toyota Manufacturing for the
year ended Dec 31, 2005
 Purchase of raw materials $50,000
 Direct Labor cost 20,000
 Factory Overhead 10,000
 Inventories
 opening closing
 Raw Materials 10,000 20,000
 Work in process 15000 10,000
 Finished goods 5000 3000
 Required :
 Total Manufacturing cost
 Cost of goods manufactured
 Cost of goods sold
 Exercises 02
 The following data is taken from the books of Habib Gulzar beverages limited for the
year ended Dec 31, 2010

 Purchase of Raw Materials $50,000
 Direct Labor Cost 40,000
 Factory overhead Cost 30,000

 Inventories
 Opening Ending
 Raw Materials 10,000 15000
 Work in process 20,000 10,000
 Finished goods 30,000 20,000

 Required :
 Total Manufacturing cost
 Cost of goods Manufactured
 Cost of goods sold statement
 Exercises 03
 The following data relates to the Moon Manufacturing for the year ended Dec 31, 2009

 Inventories
 January 1 December 31
 Raw Materials 40,000 20,000
 Work in process 30,000 15000
 Finished goods 30,000 10,000

 Purchase of Raw Materials $ 60,000
 Direct Labor cost 50,000
 Factory overhead 30,000

 Sales for the year 300,000
 Sales return and allowance 20,000
 Marketing expenses 10,000
 Administrative expenses 15000
 Income tax expense 5000

 Required:
 Cost of goods sold statement
 Income statement
 Exercises 04
 The December 31, 19B trial balance of the Balkwell Company showed:
 Sales ……………………………… $ 9,000,500 Sales return and allowances …….. $
25,200
 Purchases (net) …………….. 2,400,000 Transportation in …………………….. 32,000
 Direct Labor ……………………. 3,204,000 Factory overhead …………………….
1,885,600
 Sales Salaries …………………. 2,00,000 Advertising expense ………………..
1,55,000
 Delivery expenses ……………………. 65,000
 Inventories
 December 31, 19B December 31, 19A
 Finished goods $467,400 $ 620,000
 Work in process 136,800 129,800
 Materials 196,000 176,000

 Required:
 Total Manufacturing cost
 Cost of goods manufactured
 Cost of goods sold
 Income statment
 Exercises 05
 Cost of goods sold statement, income statement
 The accounting department of the Ruthven Company provided the following data for May ;
 Sales $72,000; marketing expenses 5 %, administrative expenses 1 %, other expenses 5 % of all
sales ; purchases $ 36,000; factory overhead 2/3 of direct labor; direct labor $ 15,000.
 Beginning inventories:
 Finished goods ………………………………………………… $ 7,000
 Work in process …………………………………………. 8,000
 Materials …………………………………………………….. 8,000

 Ending inventories:
 Finished goods …………………………………………… $ 10,200
 Work in process …………………………………………. 15,000
 Materials…………………………………………………….. 8,500

 Required:
 Cost of goods sold statement
 Income statement