FINANCIAL STATEMENTS

FINANCIAL STATEMENTS
A financial statement is former written report duly signed
by owner/owners shows financial activities and the
position of a business or any entity.
There may be some financial possible statements like
Profit and loss statement, balance sheet, cash flow
statement and the statement of retained earnings
wherein profit and loss statement and balance sheet are
basically used in all type of businesses.
<THE SYSTEM OF ACCOUNTING < VOLIUMII< SYED AQEEL RAZA<aqeelraza@live.com>

WORKSHEET
Worksheet is an initial columnar statement but not mandatory contains
on the information of accounts’ ending balances comes to work for
preparing financial statements. It usually contains columns; account
number, head of accounts, ten columns of debit and credit for trial
balance, adjustments, adjusted trial balance, and income statement
accounts and balance sheet accounts.
The worksheet is automatically solve, if you enter the amount of trial
balance in trial balance column, adjusting entries in adjustment column,
the total of adjustment amount and trial the balance amount in
adjusted trial balance column and keep in write place of income and
expense accounts and balance sheet account.
By making worksheet, profit and loss is ascertained before making
profit and loss account and post closing accounts transferable to next
accounting cycle.
Hence, we may say that the worksheet is the end of accounts
statement which provides fuel for preparing financial statements and
saves energy to go back.

Illustration I

Illustration ii

Illustration iii

EXPENSE AND REVENUE SUMMARY ACCOUNT
A new account in the name of Expense and revenue summary is
generated where all accounts relating to Expense and Revenue will be
transferred through closing journal entries by debiting all credit
accounts and crediting all debit accounts to expense & revenue
summary account and the net income or loss is transferred to Capital
account.
All temporary accounts relating to Expense and revenue summary
accounts will have zero balance.

Illustration i
CLOSINGJOURNALENTRIES:
ABC & CO.
June 30, Fee Revenues 52,500/=
ConcessionRevenue 5,000/=
Expense andrevenue summary 57,500/=
Expense andRevenue Summary 59,560/=
UtilityExpenses 5,000/=
Office Maintenance Expenses 9,000/=
SalariesExpenses 25,000/=
Office SuppliesExpenses 2,000/=
DepreciationExpenses 4,050/=
Insurance Expense 1,000/=
WagesExpenses 2,000/=
InterestExpenses 10/=
MiscellaneousExpenses 6,000/=
AdvertisingExpenses 5,000/=
Bank Charges/Commission 500/=

Illustrationii
HELPING HANDS
June 30, FeesRevenue 30,000/=
CommissionIncome 39,000/=
Rent Revenue 4,000/=
OtherIncome 3,000/=
InterestRevenue 3,133/=
SubscriptionRevenue 6,000/=
ServicesIncome 5,000/=
ExpensesandRevenueSummary 90,133/=
June 30, Expense &Revenue Summary 29,900/=
Telephone Expenses 1,000/=
Office Maintenance Expenses 2,000/=
SalariesExpenses 8,000/=
Office SuppliesExpenses 2,000/=
DepreciationExpenses 3,600/=
Insurance Expenses 5,000/=
MiscellaneousExpenses 2,150/=
RentExpenses 2,000/=
ElectricityExpenses 2,000/=
AdvertisingExpenses 2,000/=
Bank Charges/Commission 150/=

MOON ENTERPRISES
June 30, Sales 400,000/=
Expense &Revenue Summary 400,000/=
SalesReturn& Allowances 1,000/=
SalesDiscount 1,000/=
Expense &Revenue Summary
Purchases 350,000/=
Merchandise Inventory(Opening) 25,000/=
Purchase Return& Allowances 2,000/=
Purchase Discount 3,000/=
Transpiration 2,000/=
Customduty 1,000/=

Telephone Expense 1,000/=
Office Maintenance Expense 3,000/=
Repair& Maintenance (P&M) 5,000/=
SalariesExpense 25,000/=
Office SuppliesExpense 1,500/=
DepreciationExpense 10,400/=
Insurance Expense 3,000/=
WagesExpense 3,000/=
Uncollectable/BadDebtExpense 2,000/=
MiscellaneousExpense 2,000/=
RentExpense 500/=
ElectricityExpense 5,000/=
AdvertisingExpense 15,000/=
SalesPromotionExpense 15,000/=
SalesDistributionExpense 15,000/=
Bank Commission 100/=
Bank Charges 200/=

INCOME STATEMENT
Income statement or Profit and Loss Statement is the financial statement which
describes the company’s financial performance in term of net profit or loss over a
specified period. It comprises over two segments as;
Income: Income or revenue describes that the business has earned over a period
from income sources according to nature of business like sales revenue, dividend
income, fees income, commission income, rent income, interest revenue,
subscription revenue, service revenue and so on.
Expenses: Expenses is the cost which incurred during business operation over a
period like salaries, wages, rent expense, insurance expense, and depreciation
expense etc.
Net profitor loss is diagnosed by deducting expenses fromincome.
COSTOF GOODS SOLD
In Manufacturing and trading business, the cost of goods is ascertained by The
Cost of goods sold statement prepared before making income statement or
reported in it.
The cost of goods sold may be ascertained by different methods such as
increasing or decreasing in inventory, beginning inventory + Net Purchases +
Direct Expenses incurred on purchases = cost of goods available – ending unsold
inventory, average cost method etcetera.

Illustration i
INCOME STATEMENT OF ABC & CO.
FOR THE YEAR ENDED JUNE, 2015
REVENUES
Fee Revenues 52,500.00
Concession Revenue 5,000.00
Gross Revenue 57,500.00
Less: Expenses
Utilitiesexpenses 5,000
Office Maintenance expense 9,000
SalariesExpenses 25,000
Office SuppliesExpenses 2,000
DepreciationExpenses 4,050
Insurance Expense 1,000
WagesExpenses 2,000
InterestExpenses 10
Miscellaneousexpenses 6,000
AdvertisingExpenses 5,000
Bank Charges/Commission 500
Total Expenses 59,560 (59,560)
Net Loss transferredto Capital (2,060)

Illustrationii
INCOME STATEMENT OF HELPING HANDS
FOR THE YEAR ENDED JUNE, 2015
REVENUES
FeesRevenue 30,000.00
CommissionIncome 39,000.00
RentRevenue 4,000.00
OtherIncome 3,000.00
InterestRevenue 3,133.00
Subscription Revenue 6,000.00
Services Income 5,000.00
Gross Revenue 90,133.00
Less: Expenses
Telephone Expenses 1,000
Office Maintenance Expenses 2,000
SalariesExpenses 8,000
Office SuppliesExpenses 2,000
DepreciationExpenses 3,600
Insurance Expenses 5,000
MiscellaneousExpenses 2,150
RentExpenses 2,000
ElectricityExpenses 2,000
AdvertisingExpenses 2,000
Bank Charges/Commission 150
Total Expenses 29,900 (29,900)
NetIncome Transferredto Capital 60,233

Illustrationiii

BALANCESHEET
A Balance sheet is a financial statement which represents company’s
assets, liabilities and equity in summarized way under accounting
formula assets = liabilities + owner’s equity.
It comprises over two sides as;
ASSETS SIDE
EQUITY SIDE
- The assets side describes non-current assets and current assets
reduced by contra assets like accumulated depreciation,
allowance for bad debts etc.
- The Equity side describes long term liabilities and current
liabilities plus owners’ equity reduced by contra equity like
drawings etc.
The way of presenting the financial position over a specific period of
the business is named Balance Sheet.

Illustrationi

Illustrationii

POSTCLOSING TRIAL BALANCE
A post closing trial balance contains accounts relating to permanent
account such as assets, liabilities and owners’ equity which will be open
in next accounting year by opening general entries or opening balances.
The post closing trial balance is prepared from the last balance sheet
indicating the balances of ledger accounts which gives assurance that
the books are in balance and ready for transferring accounts shown as
balance sheet in new accounting period.
OPENING JOURNAL ENTIRES
The opening journal entries provide opening balances of accounts
shown in balance sheet or in post closing trial balance to next
accounting period for further recording transactions.

Illustration i

Opening General Entries:
ABC & CO.
July 1, Building 100,000
Furniture 15,000
OfficeEquipment 30,000
Cash 6,000
Bank 8,100
Accounts Receivable 5,000
Unexpired Insurance 2,000
Prepaid Advertising 1,000
Fees Revenue Receivable 2,500
Accumulated Depreciation (OE) 10,800
Accumulated Depreciation (Fur) 5,400
Notes Payable 4,000
IncomeTax Payable 1,000
Sales Tax Payable 2,000
Salaries Payable 10, 000
Wages Payable 2,000
Interestpayableon notes payable 10
Telephone Expense Payable 1,000
Electricity Power & Light Payable 2,000
Unearned fees Revenue 1,000
Unearned revenuefrom concession 3,000
Capital 127,390

HELPING HANDS
July 1, Furniture 30,000
OfficeEquipment 10,000
Shop Deposit 10,000
Cash 13,700
Bank 10,000
Prepaid Rent 4,000
Notes Receivable 8,000
Accrued Rent Revenue R/A 1,000
Commission Revenue R/A 4,000
Service Revenue R/A 5,000
Interestreceivable on Notes R/A 133
Accumulated Depreciation (OE) 900
Accounts Payable 10,000
Notes Payable 10,000
Unearned Subscription RevenueP/A 3,000
Capital 85,233

MOON ENTERPRISES
July 1, Land 100,000
Building 30,000
Furniture 30,000
Office Equipment 30,000
Plant & Machinery 50,000
Shop Deposit 10,000
Cash 25,000
Bank 20,000
Prepaid Rent 4,500
Notes Receivable 10,000
Prepaid Insurance 4,000
Interest R/A on Notes R/A 200
Office Supplies 500
Merchandise Inventory (End) 100,000
Accumulated Depreciation (OE) 2,700
Accumulated Depreciation (P&M) 5,000
Allowance for Uncollectable/Bad Debts 2,000
Loan 50,000
Accounts Payable 20,000
Notes Payable 10,000
Income Tax Payable 5,000
Sales Tax Payable 10,000
Interest Payable on Bank Loan 500
Interest Payable on Notes P/A 200
Telephone Expense Payable 3,000
Electricity Light & Power Payable 2,000
Capital 336,100

About financial statement, we can say that everything has
stages from start to end then the transaction of the business
reached towards financial statement after passing many stages
like source document, journal, ledger, trial balance,adjustment,
adjusted trial balance, closing entry and financial statement.
Therefore, a financial statement is en end document helps to
owners to understand the financial position of their businesses
and enable them to take further decision to go forward or back
in business according to the situation of finances.
WRITER’S VIEW

FINANCIAL STATEMENTS

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