accounting statements balance sheet introduction accounting equation income statement introduction

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Introduction
• P&L account and the Balance sheet are made
up of five (5) Accounting Elements:
– Assets
– Liabilities
– Equity
– Income
– Expenses
Balance Sheet items
P & L items

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Accounting equation
• Assets = Capital + Liabilities
Hence:
• Capital = ???
• Liabilities = ???

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ASSETS
Non-current
assets
Tangible NCA
Intangible NCA
Current assets
e.g. inventory
Receivables
Bank
Cash
prepayments

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LIABILITIES
Non-current
liabilities
Long-term loans
Mortgage
Debentures
Current
liabilities
Trade payables
Bank overdraft
Tax
Accruals

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Equity/Capital
• Capital
• Drawings
• Dividends
• Net profit
• Reserves
• Share capital
• Share premium
• Preference shares

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PROFIT &
LOSS
Income
Sales revenue
Commission receivable
Rent receivable
Discount received
Expenses
Salaries & wages
Telephone
Transport costs
Depreciation
Rent
Insurance

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Alternative names
• Balance sheet – Statement of Financial Position
• P & L – Income statement/ statement of
Comprehensive Income/ Statement of Financial
Performance/ TPLA
• Receivables – Trade/accounts receivables/ Debtors/
Credit customers
• Payables – Trade/accounts payables /creditors/
credit suppliers
• Non-current assets – fixed assets/ long-term assets
• Equity – Capital/ Owners’ contributions
• Stock – inventory

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Summary: P&L and Balance Sheet
• P & L account:
• Sales – Expenses = Profit
• Cost of sales Expenses
• Sales – Cost of Sales = Gross Profit
• Gross profit – Expenses = Net Profit

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Summary: Balance Sheet
• ASSETS – LIABILITIES = CAPITAL
• (NCA + CA) – CL = Financed by:
• Assets – liabilities = net assets
• CA – CL = working capital

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Format of Income statement
INCOME STATEMENT OF X LTD FOR THE YEAR ENDED 31 DECEMBER 20XY
Sales Revenues XXX
Less: Sales returns/ Returns Inwards (XX)
Turnover XXX
Less Cost of Sales
Opening stock/inventory XXX
Add Purchases XXX
Less Purchases returns/ Returns outwards (XX)
Add Carriage inwards XX
Less Closing stock/inventory (XX) (XX)
GROSS PROFIT XXX
Add other income
Rent receivable/ bad debts recovered/ commission receivable
Less expenses
Salaries and wages/ telephone/ rent/ depreciation/insurance etc XXX (XXX)
Net profit/loss XXX

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Format of Balance sheet
Cost Accumulated
depreciation
NBV
Non-current assets
Land XXX - XXX
Property, Plant and Equipment XXX XX XXX
Vehicles, fixtures and fittings etc XXX XX XXX
XXX XX XXX
Current assets
Closing inventory, Trade receivables, XXX
Bank & Cash, Prepayments XXX XXX
Less Current Liabilities
Trade payables, bank overdraft, accruals etc (XX)
Working Capital XXX
Net Assets XXX
Financed by:
Capital XXX
Add: Net Profit/Loss XXX
Less Drawings (XX)
Net Assets XXX