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How to Build
Financial
Statements
Income Statement (Profit and Loss) and
Balance Sheet (Position)
Balance Sheet
This is constructed of Assets, Liabilities and Owners
Capital (Issued Stock/Shares)
Assets (DR) = Liabilitie...
Balance Sheet Continued
• Start building the balance sheet by listing ALL the
assets first (debit balances)
Current Assets...
Balance Sheet Continued
• Next list all the Liabilities and Owner’s Capital (credit
balances)
Current Liabilities
Notes pa...
Balance Sheet Concluded
• Remember that in the balance sheet
Assets (DR) = Liabilities (CR) + Owners Capital (CR)
So all t...
Layouts for Balance
Sheets
• You can use either a columnar account or a T-
account
• Once you understand the debit and cre...
T-Account Balance Sheet
Debit Credit
Current Assets Current Liabilities
Cash Notes payable
Temporay investments Accounts p...
Columnar Balance SheetCurrent Assets Debit
Cash
Temporay investments
Accounts recievable
Inventory
Supplies
Prepayments
In...
Tricky Adjustments For
the Balance Sheet
• Accumulated depreciation of an asset (CREDIT
balance) reduces the book value of...
Profit and Loss Sheet
• This is constructed of the Revenues and the
Expenditures
• All Revenues will have a CREDIT Balance...
Profit and Loss Continued
• Begin by listing all the Revenue streams (CREDIT
Balance)
Revenue
Sales
Interest Earned
Divide...
Working out Costs of
Goods Sold
Figures that you need are
- opening inventory
- purchases
- freight
- closing inventory
Op...
Profit and Loss Continued
• Once you have the Revenues (Credit Balance) and
you have worked out the Cost of Goods Sold (De...
Profit and Loss Continued
• Next you list all the Expenditure (Debit Balance)
• These can be listed in categories such as
...
Layout of Profit and Loss
Sheet
• In the first instance you will have a GROSS PROFIT – this is
the Revenue less Costs of G...
Profit and Loss Sheet
LayoutRevenue CREDIT $$$$$$$
Cost of Goods Sold DEBIT ($$$$$$)
GROSS PROFIT $$$$$$$
Expenditures DEB...
Trickey Things in the
Profit and Loss Sheet
• You may not always be given the purchases – you
may have to work this out – ...
(¯`*•.¸,¸¸,::HAPPY::ACCOUNTANTS::,¸¸,¸.•*´¯)
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How to build financial statements 2014

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Financial accounting, balance sheet, position statement, performance statement, income sheet, assets, liabilities, expenses, revenues, costs of goods sold

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How to build financial statements 2014

  1. 1. How to Build Financial Statements Income Statement (Profit and Loss) and Balance Sheet (Position)
  2. 2. Balance Sheet This is constructed of Assets, Liabilities and Owners Capital (Issued Stock/Shares) Assets (DR) = Liabilities (CR) + Owners Capital (CR) All Assets have a DEBIT as the normal balance All Liabilities and Owner’s capital have a CREDIT as the normal balance This statement tells you how much an entity is worth
  3. 3. Balance Sheet Continued • Start building the balance sheet by listing ALL the assets first (debit balances) Current Assets Cash Temporay investments Accounts recievable Inventory Supplies Prepayments Investments Property Plant and Equipment Land Land Improvements Buildings Equipment Less Accumulated Depreciation Intangible Assets Goodwill Other Assets
  4. 4. Balance Sheet Continued • Next list all the Liabilities and Owner’s Capital (credit balances) Current Liabilities Notes payable Accounts payable Wages payable Interest payable Taxes payable Warranty liability Unearned revenues Long-Term Liabilities Long-term loans Bonds payable Stockholders' Equity Common stock Retained earnings (less Treasury stock) - negative
  5. 5. Balance Sheet Concluded • Remember that in the balance sheet Assets (DR) = Liabilities (CR) + Owners Capital (CR) So all the assets should equal the (liabilities + owners capital)
  6. 6. Layouts for Balance Sheets • You can use either a columnar account or a T- account • Once you understand the debit and credit aspect of the balance sheet (this includes how to increase or decrease these balances)…either systems are very easy
  7. 7. T-Account Balance Sheet Debit Credit Current Assets Current Liabilities Cash Notes payable Temporay investments Accounts payable Accounts recievable Wages payable Inventory Interest payable Supplies Taxes payable Prepayments Warranty liability Unearned revenues Investments Property Plant and Equipment Long-Term Liabilities Land Long-term loans Land Improvements Bonds payable Buildings Equipment Stockholders' Equity Less Accumulated Depreciation Common stock Retained earnings Intangible Assets (less Treasury stock) - negative Goodwill Other Assets
  8. 8. Columnar Balance SheetCurrent Assets Debit Cash Temporay investments Accounts recievable Inventory Supplies Prepayments Investments Property Plant and Equipment Land Land Improvements Buildings Equipment Less Accumulated Depreciation Intangible Assets Goodwill Other Assets xxxxxxxxx Current Liabilities Credit Notes payable Accounts payable Wages payable Interest payable Taxes payable Warranty liability Unearned revenues Long-Term Liabilities Long-term loans Bonds payable Stockholders' Equity Common stock Retained earnings (less Treasury stock) - negative xxxxxxxxx
  9. 9. Tricky Adjustments For the Balance Sheet • Accumulated depreciation of an asset (CREDIT balance) reduces the book value of that asset • Doubtful debts (CREDIT balance) are written off against the Accounts Receivable balance • Unearned revenues (CREDIT BALANCES) are treated as liabilities to the entity • Any warranties (CREDIT BALANCE) is treated as a liability to the entity
  10. 10. Profit and Loss Sheet • This is constructed of the Revenues and the Expenditures • All Revenues will have a CREDIT Balance • All Expenses will have a DEBIT Balance • Often you will have to also work out the Cost of Goods sold o Opening Inventory o Purchases o Closing Inventory This Statement tells an entity if they are making any money
  11. 11. Profit and Loss Continued • Begin by listing all the Revenue streams (CREDIT Balance) Revenue Sales Interest Earned Dividends Received
  12. 12. Working out Costs of Goods Sold Figures that you need are - opening inventory - purchases - freight - closing inventory Opening Inventory + Purchases + Freight + Cost of Goods Available for Sale Less Closing Inventory Cost of Goods Sold
  13. 13. Profit and Loss Continued • Once you have the Revenues (Credit Balance) and you have worked out the Cost of Goods Sold (Debit balance…because this is an expense) Revenue CREDIT Sales Interest Earned Dividends Received Cost of Goods Sold Opening Inventory + DEBIT Purchases + Freight + Cost of Goods Available for Sale Less Closing Inventory Cost of Goods Sold Gross Profit Revenue less Cost of Goods Sold
  14. 14. Profit and Loss Continued • Next you list all the Expenditure (Debit Balance) • These can be listed in categories such as administrative, selling and distribution, and general expenses Expenditures DEBIT Salaries and Wages Rent Light, heat and power Depreciation of assets Repairs and maintenance Other expenses
  15. 15. Layout of Profit and Loss Sheet • In the first instance you will have a GROSS PROFIT – this is the Revenue less Costs of Goods Sold • In the second instance you will have PROFIT FROM OPERATIONS – this is Gross Profit less the operating expenses • In the third instance you may make adjustments for other incomes or other expenses to the Profit from operations- the result is the NET PROFIT BEFORE TAXES • In the fourth instance you may have a provision for income tax which you will remove from the net profit before taxes to give you NET PROFIT AFTER INCOME TAX
  16. 16. Profit and Loss Sheet LayoutRevenue CREDIT $$$$$$$ Cost of Goods Sold DEBIT ($$$$$$) GROSS PROFIT $$$$$$$ Expenditures DEBIT ($$$$$$) PROFIT FROM OPERATIONS $$$$$$$ Other Income CREDIT $$$$$$$ Other Expenses DEBIT ($$$$$$) Net Profit Before Taxes $$$$$$$ Provision for Income Tax DEBIT ($$$$$$) Net Profit After Taxes $$$$$$$
  17. 17. Trickey Things in the Profit and Loss Sheet • You may not always be given the purchases – you may have to work this out – so know the Cost of Goods sold equation well • Bad debts (Debit in the Profit and Loss) is NOT the Provision for Doubtful Debts (Credit in the Balance Sheet) o DR Bad debt (expensed) • CR Provision for Doubtful debts (sometimes known as the Allowance for Doubtful Debts) • The Provision for Doubtful debts often sits below Account Receivables in the Balance Sheet …as a contra reducing Account Receivables balance
  18. 18. (¯`*•.¸,¸¸,::HAPPY::ACCOUNTANTS::,¸¸,¸.•*´¯)

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