Relationships among the Financial Statements

Profit and Loss Statement Statement of owners equity Balance Sheet Cash Flow Statement

Ms Jones Profit and Loss Statement Month Ended 30 June, 2001

Revenues Fees Earned Expenses Wages Expense $ 600

$1,800

Utilities And Telephone Expense

Equipment Rental Expense Office Maintenance Expense

300
200 100 -1,200

Net Profit

$ 600

Ms Jones Statement Of Owners Equity Month Ended 30 June, 2001

J. Jones, Capital, 1 June, 2001 Contribution Of Capital $ 0

95,000

Net Income
Cash Distributions J. Jones, Capital, 30 June, 2001

600
(500) $95,100

Ms Jones Balance Sheet as at 30 June, 2001

Assets Cash Accounts Receivable $34,500 200 Liabilities Accounts Payable Owners Equity J. Jones, Capital Total Liabilities and Owners Equity 95,100 $95,300 $ 200

Supplies
Land Total Assets

600
60,000 $95,300

Note: The cash balance on the balance sheet = ending cash balance in the cash flow statement.

Ms Jones Balance Sheet as at 30 June, 2001

Assets Cash Accounts Receivable Supplies Land Total Assets $34,500 200 600 60,000 $95,300 Liabilities

Accounts Payable

200

Owners Equity Contribution Of Capital 95,000 Net Income 600 Cash Distributions (500) Total Liabilities & Owners Equity $95,300

Note: The cash balance on the balance sheet = ending cash balance in the cash flow statement.

Ms Jones Statement of Cash Flows Month Ended 30 June, 2001

Net Cash Flows from Operating Activities -0Cash Flows from Investing Activities -60,000 Net Cash Flows from Financing Activities 94,500 Cash at Beginning of Month 0 Cash at End of the Month $34,500 Note: The cash balance on the balance sheet = ending cash balance on the cash flow statement.

FINANCIAL STATEMENT FORMAT

Homework: students are to research for real examples of different business Limited company Corporation with at least one subsidiary Partnership

Sole trader

Trading and Profit & Loss Account

(In $)
Sales Less: Cost of Goods Sold Opening Stock Add: Purchase Less: Purchase Returns Add: Carriage Inwards Less: Closing Stock Gross Profit Add: Other Incomes xxx xxx x xx xx xxx Xxx xxx xxx Less: Other Expenses Operating Profit Less Interest xx xxx xxx xxx

Less Tax
Net Profit Less Dividend Retained Profit

xxx
xxx xxx xxx

The Income Statement

1. Statement of operations or a statement of (accrual) performance over a given period of time. 2. Revenues, expenses, gains and losses. 3. Basic relationship:
Sales COGS Operating Expenses Non-operating Income (Expense) Income Tax = Net Earnings

Statement Of Owners Equity

Beginning Capital Contribution Of Capital $ 0

95,000

Net Income
Cash Distributions Ending Capital

600
(500) $95,100

BALANCE SHEET (In $) Fixed Assets: Plant & Machinery Office Equipment Add: Working Capital Current Assets xx xx xxx Cost xxx xxx (In $) Acc. Dep x x (In $) Net Book Value xx xx xxx

Less: Current Liabilities

Financed by:

xx

xxx
xxx

Long Term Liability

Capital Add: Net Profit Less: Drawing xxx xx xx

xx

xxx

xxx xxx

The Balance Sheet

1. Snapshot at a given point in time. 2. Three categories:
a. Assets b. Liabilities c. Equity

3. Basic equation:
Assets = Liabilities + Shareholder Equity

4. Differentiate between current and noncurrent: 1-year threshold

Cash Flow Statement

Cash collections Less: Cash inputs Cash expenses (rent, operating) Cash interest Cash flow from operations Capital expenditures Investment in affiliate Cash flow from investments Short-term borrowing 500,000 (500,000) (710,000) (1,210,000) $(1,750,000) (430,000) (125,000) (2,305,000) $370,000 $2,675,000

Dividends paid
Cash flow from financing

(35,000)
465,000

Net cash flow

$(375,000)

Ending Cash balance, Beginning Cash Balance Net change

$3,625,000 4,000,000 $(375,000)

The Statement of Cash Flows

1. Explanation of the change in cash from the beginning to the end of an accounting time period. 2. Categories include:
a. Operating (activities) b. Investing (activities) c. Financing (activities) The Need to Compare Earnings and Cash-Flow Information

FINANCIAL STATEMENT of DIFFERENT BUSINESS

Homework: students are to research for real examples of different business Limited company Corporation with at least one subsidiary Partnership

Sole trader

Sole trader
Basis: Sole Trader has unlimited liability. Statement: Net profit / loss = Capital at the end of the period + Drawings for the period Opening Capital Additional capital introduced during the period Capital = Assets Liabilities Goodwill: Usually this item is not applicable. Where Goodwill appear in the Balance Sheet, it is assumed that the sole trader has bought the business from someone previously and was not himself the founder of the business

Partnerships
Basis: A partnership is a relationship between two or more persons joins forces in a venture in the view of making profit. In a partnership: Personal liability of each partner for the firms debts is unlimited. All partners usually participate in the running of the business A partnership agreement is usually prepared

Partnerships
Where no agreement, Patnership Act 1890 states:: Partners share profit and losses equally Partners are not entitled to receive salaries Partners are not entitled to interest on their capital account balances Where a partner put in an amount in excess of the capital he has agreed to subscribe, he is entitled to 5% per annum on such an advanced No interest to be charged on drawing A new partner may not be introduced without consent of all existing partners Upon dissolution, the assets must be distributed in the following order: repay outside creditors repay partners advances repay partners capital account balances residue distributed according to profit sharing ratio

Partnerships
Statement i)It is same as sole trader except : the P& L includes a section usually after the calculation of net profit to show the dis tribution of profit among the partners. It is called the profit and loss appropriation account the balance sheet includes a current account ( an account similar to capital account)

APPROPRIATION ACCOUNT for Partnership Business

Net Profit add Charged for interest on drawings Taylor Clark 50 100 150 5150 less: Salary Clark Interest on Capital: Taylor Clark 100 300 400 900 4250 Balance of Profits Shared: Taylor 3/5ths Clark 2/5ths 2550 1700 4250 500 5000

the appropriation account show how the 5000 net profits are shared between partners
Curent Account Share of profits Interest on Capital Salary 2650 Taylor 2550 100 Clark 1700 300 500 2500

less:interest on drawings

50 2600

100 2400

Current Account in Balance Sheet for Partnership

Capital Taylor Clark Taylor Interest on Capital Share of profits Salary 2650 less drawings 2000 100 2550 2000 6000 8000 Clark 300 1700 500 2500 2000

less:interest on drawings

50
600

100
400 1000