Financial Accounting

Dr. Chandra Mohan Patnaik

Associate Professor (Accounts )
School of Management
KIIT University, Odisha
bcmpatnaik@ksom.ac.in, bcmpatnaik@gmail.com
Hello:9668224322
 Brief profile
 Completed Ph.D in Finance from Bareilly University in 2005.
 Best faculty award 4 times including in 2018 from KIIT
University.
 Received Rajiv Memorial Award from Governor of Odisha in
2012 for contribution in Academics excellence.
 Successfully Completed guidance to 14 Ph.D Students and 6
are pursuing under me including 3 foreign scholars.
 Published more than 175 research papers including 40
papers in SCOPUS indexed Journals- World’s Top most
Journals.
 Editor -in -Chief in SAJMMR and reviewer & member of
various international journals.
 Joined in KIIT in 2007, prior to that associated with Modi
Group in Modinagar (UP) and Wilsonia Group in Moradabad (UP)
 Teaching Accounting is my Passion
Assessment process

r
este
n d sem rks
E ma
-40

Mid semester-
20 marks

Assignment -10 Marks

( copy and case study)
Class participation-
10 Marks
4 Quiz of 5 marks each
=20 Marks
Class rules/ expectation from
students
 Class time will be 5 minutes buffer at the beginning
and 10 minutes at the end for biometrics.
 After 5 minutes no body will be allowed to enter into
the class and will stay out .
 One hour and 15 minutes will be actual session.
 All are expected to maintain proper register for
Accounting subject. ( 5 marks will be awarded)
 All are expected to participate in class discussion
 The hidden agenda is class disciple is most important
during the session.
 Quiz will be conducted strictly as per examination
condition no relaxation on this part.
Bonus marks (subject to maximum of 60
marks in internals)
Physical Attendance in Class Bonus marks in Internal out of
60 marks.
100% 10%
95% 7.5%
90% 5%
85% 2.5%
Why Should we study Accounting?
 Management  Creditors
 Employees  Bankers
 Owners
 Investors
 Government
 Researchers
( MEO)  Public
 Consumers
 ( CBI-GR-PC)

Internal Users External Users

Book Keeping Vs Accounting
It is the art of It includes analyzing
maintaining accounts in and interpreting of
a systematic manner financial statements
Can be done by unskilled Can be done by skilled
employee employee
Person deals with this Person deals with this
Known as book keeper known as accountant
No need for separate It needs separate ledger
books for each and every
accounts
Accounting principles
 Conservatism  Money measurement
 Consistency concept
 Business entity concept
 Materiality  The going concern
 Disclosure concept
 Cost concept
 The dual aspect concept
 Realization concept
 Accrual concept
 Matching concept
Periodicity concept

Concepts- Assumptions/ ground

Conventions- Usage and Customs
rules
Basis of Accounting System :

 1.Cash or receipt basis : It is the method of recording

under which revenues, costs, assets and liabilities are
reflected in accounts in the period in which actual
receipts or actual payments are, made. Receipts and
payments A/C in case of clubs societies; hospitals etc.
are the examples of cash basis of accounting.
 2. Accrual or Mercantile basis : It is the method or
recording transactions by which revenues, costs, assets
and liabilities are reflected in accounts in the period in
which they accrue. This basis includes considerations
relating to outstanding, prepaid, accrued and received in
advance.

Capital and Revenue
Expenses
 The amount spent for  The amount spent for
acquiring fixed assets day to day operation and
with an intention to any asset purchased,
retain in the business with an intention to re-
and the benefit of which sale them and whose
will be carried forward benefit will be derived in
beyond one accounting the current accounting
period. period.
 Eg. Machinery, Furniture,  Eg- Salary, rent, printing
building , equipments and purchase of good
etc.

Capital Expenses Revenue Expenses

Pillars of Accounting
Income ( Revenue)
 It refers to all the revenue receipts during the
accounting period. It includes sale proceeds,
amount received from services, rent received,
interest received , commission received and all
other receipts which will can be considered as
revenue
Operating and non-operating
revenue
 Various Incomes
 Sales
 Income from services
 Rent received
 discount received
 commission received
 interest received
 bad debts recovered
 apprentice premium
 income from investment
 Expenses
 Itincludes all the revenue expenses which are
incurred to run the organization. It includes all
the day to day expenses. Like sales expenses,
administrative expenses, Financial charges etc.
This includes operating and non-operating
expenses.
Operating expenses-relating to
main operation of business
Non- operating expenses-incidental
or indirect to main operation
Various expenses
 Purchases  Stores consumed
 Carriage  Royalty
 Carriage inward  Motive Power
 Freight  Coal, coke
 Freight inward  Water
 Wages  Oil
 Factory expenses  Octroi
 Dock charges
 Custom Duty
Contd.
salary  entertainment
 rent, rate & taxes expenses
 stationary  repairs

 postage and  depreciation

telegram  interest
 audit fees  trade expenses
 legal charges  conveyance
 telephone charges  charity
 insurance premium  bank charges
Assets- (Company owns)
 These are the economic resources of an
organization . This helps to generate the
revenue. The characteristics are
 Having a value
 It should be companies Control
 Have a recordable value.
Various Assets
 Cash in hand  Goods sent on
consignment
 Cash at bank
 Long term investments
 Bills receivable  Trade mark

 Sundry debtors  Patents

 Vehicle
 Closing stock
 Furniture
 Finished goods  Investments
 Raw materials  Machinery and plant
 Tools
 Work in progress
 Land and building
 Stationary
 Goodwill
Non Current Assets- (Body through
which blood circulates)
Tangible Assets and Intangible
assets
Capital work in progress
 Capitalwork in progress account
contains all expenses incurred on
the asset until it is
converted into working condition. All these ex
penses will become part of
the cost of that asset. Any construction which
is not completed before financial year.
Current Assets- life blood of the
organisation
Classification of Assets
Wasting Assets
Fictitious Assets
Contingent Assets
Liabilities (Company owes)
 Liabilities
represent money that organization
owes. This is money that it owes because it
was borrowed by the organization. In other
words, liabilities shows the sources of money,
where the organization has received its funds.
Various Liabilities
 Bank overdraft
 Bills payable
 Sundry creditors
 Short term loans
 Bank loans
 Long-term loans
 Incomes received in advance
 Capital
Non- current liability – Payable
beyond one accounting period
Current liability- payable within
one accounting period
Contingent liability
Determinants of cash transaction
 The transactions,  Goods sold for cash
where the terms on Rs1,000
cash or on cheques,  Rent paid by cash
by cash or by Rs 500
cheques, for cash  Salary paid by
or for cheques are cheque Rs 2,000
used are identified  Good are purchased
as cash for cash Rs 6000
transactions.
Contd.
 The transactions  Charges paid Rs200
where in the terms  Shilpi settled her
paid, received, account of Rs1,000
settled, cleared,  Rs2,000 deposited
deposited, in the bank
withdrawn etc is  Mr. Anirban cleared
used are identified his account or
as cash Rs500 by paying
transactions. Rs450
Contd.
 The transactions  Goods sold to
where both cash Sravani for Cash
and personal names Rs1,000
are mentioned are  Goods purchased
termed as cash from Suman for
transactions cash Rs6,000
Credit transactions
 The transactions  Goods sold to
where in personal Sravani Rs1,000
names or name of a  Good returned from
firm is mentioned Sreemoti Rs5,000
are identified as  Goods returned to
credit transactions Sivani Rs1,000
 Goods purchased
from Suman
Rs6,000
Account
 An account is summarized record of relevant
transactions relating to same activity or
particular head that has taken place during a
given period. Separate individual accounts are
opened for every head of expenses, revenue,
asset, liability and capital
Accounts involved
1. Purchased goods for cash Cash, goods
2. Purchased plant Plant ,cash
3. Purchased furniture Furniture, cash
4. Purchased good on credit Goods, creditor
5. Sold goods on credit to X Goods, X
6. Rent received Cash, rent
7. Salary paid Salary, cash
8. Commission received Commission, cash
9. Cash deposited in to bank Bank ,cash
10. Started business with capital Cash, capital

Transactions Accounts involved

Transactions treatment through
Method-I
Transactions treatment through
Method-II
Accounting equation
Format of Accounting Equation
Transactions Assets Liability Equity
+
Cash Goods Furniture
Furniture purchased
Contd.
Contd.
Creditors paid by taking a fresh
loan
Creditor becomes the partner or
the contributor
Capital transferred to loan
Contd.
Contd.
Tips for Accounting equation
Contd.
Contd.
Contd.
Double entry system
Debit and Credit
Modern rules of Debit and credit or
rules under accounting equation
Contd.
Contd.
Contd.
Journal
Accounting Cycle
Balance Sheet
The Balance Sheet presents an enterprise’s
assets, liabilities and equity at a point in time.
It summarizes the resources, and the claim to
those resources by owners and creditors of
the enterprise on a certain date
Balance Sheet
Format of Balance Sheet
Items Details Amount

Assets
Office equipments
Stock
Bank
Cash
Building
Total of assets
Liabilities
Creditors
Outstanding expenses
Overdraft
Equity
Share capital
Income Statement or Profit & Loss
Account
 It is a dynamic document which shows the
results of operation of an enterprise for a
particular period of time. In this statement
revenue of a particular period are marched
with the expenses of that period. The excess
of revenue over expenses is known as net
income and excess of expenses over revenue
is known as net loss
Why Profit is important?
 For business profit is like engine of a car. As
the car ends when its engine is separated
from it, similarly identity of business comes
to an end when the word profit is removed
from it. Profit is very important in any
business.
Why Profit & Loss Account is
prepared?
 The answer to this question is simple and
obvious . As the name suggests, this
statement is prepared to find out whether an
organization has made a profit or a loss.
Profit Cycle
Loss Cycle
Profit and Loss
Items Amount
Income
Sales
Income from services ____________
Other receipts
Total Income ____________
Expenses
Cost of sales
Salary
Expenses due
Depreciation
Rent
Total of Income ____________
____________
Profit ( Income – Expenses) / Loss ( Expenses-
Statement of retained earnings

Particulars Amou
nt
Opening retained earnings
Add Profit during the year
Les Dividend paid during the
year
Closing balance of retained
earnings
Capital Expenditure
 It is the amount spent to acquire the assets
not for resale them, it is for generating the
income of the business unit. The benefit of
this is not for one year, it is for the longer
period. For example purchase of land and
building, purchase of plant, brokerage or
commission paid for acquiring the long term
loan etc. These expenses are recorded in
Balance Sheet.
Contd.
Revenue expenses
It includes purchasing assets required for
resale at a profit or being made into saleable
goods, maintaining fixed assets in good
working conditions, meeting the day to day
expenses of carrying business, cost of goods,
raw materials and replacements, renewals,
repairs, depreciation of fixed assets, rent
rates, taxes, wages and salaries, carriage,
insurance etc.
Contd.
Revenue expenses becomes
capital expenditure
Contd.
Deferred Revenue Expenses
 It is the expenses which would be normally
treated as revenue expenses but it not written
off in one year as its benefit is not exhausted
in one year but over a period of year. The
nature of this is non-recurring and special
nature. It may be spread over a number of
years, a proportionate amount is charged to
profit &loss account every year and the
balance amount is treated as an asset and
shown on the balance sheet asset side
Contd.
Revenue Profit
Capital receipt
Revenue receipt
Capital loss
Profit Before Interest and Tax
(PBIT) or operating profit or EBIT
 This is a measure of gross performance of a
company with reference to its total capital
employed. As the term suggests, interest and
tax are not deducted while computing PBIT.
Interest is a reward of borrowed capital and
tax is a compulsory deduction imposed by
law. It is also known as Earnings Before
Interest and Tax ( EBIT). Generally it is used
to measure managerial Performance.
Profit Before Tax (PBT) or
EBT
 This is a measure of net profit before
charging tax. Since tax is a compulsory and
non –discretionary charge on the company,
net profit is first presented before charging
tax. By this the users can understand profit
earning ability of the company and the tax
impact separately. This also otherwise known
as Earnings Before Tax (EBT).
Profit After Tax (PAT)
 This is a measure of net profit. This is used to
understand the profit earned after tax charge.
It is otherwise known as Earnings After Tax
(EAT).
Basics
Basics
Basics
Basics
Order of Payment
Cash Flow Analysis
 Explains reasons for changes in cash position
of a concern. Transactions which increase the
cash position of the concern are known as
inflow of cash and those decreases the cash
position are known as out flow of cash.
Cash flow Reporting
Operation Activity
Investing Activity
Financing Activity
Cash from investing
activities
 Sale of fixed assets
 Sale of investment
 Purchase of fixed asset (-)
 Purchase of investment (-)
 Interest received
 Dividend received
 Loans to subsidiaries (-)
 Net cash from investing activities
Cash flow from financing activity
 Issue of shares and debentures
 Proceeds from long-term borrowings
 Repayment of long-term borrowings (-)
 Redemption of preference shares and

debentures (-)
 Dividend paid (-)
 Interest paid (-)
 Net cash from financing activities
Cash Flow Statement
Particulars Details Amount
I. Cash flow from Operating Activities

II. Cash flow from Investing Activities

III. Cash flow from Financing Activities

Net Increase (Decrease) in cash ____________

+ Beginning Balance of Cash ---
End Balance of Cash ----
Trial Balance
 Trial Balance is a statement, prepared with
the debit and credit balances of ledger
accounts to test the arithmetical accuracy of
books of accounts.
Items shown in the trial balance
Debit side Credit side
Cash in hand Capital
Cash at bank Bank overdraft
Bills receivable Creditors
Drawings Sales
Land and building Bills payable
Furniture Loan (credit)
Plant and machinery Mortgage (payable)
Investments Purchase return
Opening stock Discount ,rent, interest (received)
Rent ,rates and taxes Provisions for bad debts
Wages General reserve
Freight Depreciation reserve
Discount allowed Depreciation fund
Export duty Provision for depreciation
Provisions
Reserve
Classification of reserve
Depreciation
Causes of Depreciation
Contd.
Ratio Analysis
 In general words, a ratio is an expression of
relationship of one figure with another. It may
be defined as the relationship, or proportion
that one amount bears to another. It is found
by dividing a figure with another. A ratio may
be expressed in percentage in which the
base, is taken as equal to 100 and the
quotient is expressed as per hundred of the
base
Various ratios
Components
Short term ratio
Short term solvency or liquidity
ratios
Current ratio or working capital
ratio
Liquid Ratio or quick ratio
Absolute liquid ratio
Activity or Turnover ratio
 It measures the effectiveness with which a
firm uses its available resources.
Activity or Turnover ratios
Contd.
Stock or inventory turnover ratio

 This ratio is an indicator of velocity of

flow of inventory in business. This shows
the rate of conversion of stock in to sales. In
fact, inventory policy of management and
liquidity of firm both may be tested by this
ratio. This is also a measure of marketing
capacity of the firm. No any standard rate or
norm can be determined for this ratio
because it based more on nature of industry
and sales policy of the firm.
Contd.
 Cost of goods sold / Average stock
 Cost of goods sold = opening stock + purchases+
direct expenses – closing stock
 Average stock = opening stock + closing stock / 2
 Note :1. If cost of goods sold cannot be calculated
then sales will be taken as base
 2. if opening and closing stock is not given in that
case closing stock will be treated as average stock
 3 Higher the ratio good for the organization. A
low stock turnover ratio indicates that the goods
do not sell quickly and efficiently, so the
maximum inventory remains lying in the
warehouse .
Debtors Turnover ratio or Receivable
Turnover Ratio (DTR)
 This ratio is a qualitative analysis of a firm’s
marketing and credit policy and debtors
realizations. It is calculated to know the
uncollected portion of credit sales in the form
of debtors by establishing relationship
between trade debtors and net credit sales of
the business.
Contd.
 DTR = Net credit sales / Average receivables
 Net credit sales = Total sales – cash sales –

sales return
 Avg. receivables = opening receivable
+closing receivable / 2
 Receivable = Debtors + Bills receivable
 A decrease in this ratio each year is an

indicator of efficiency of marketing and

credit policy of the firm.
Average collection period :

 This period indicates the period taken in the

realization or collection of debtors. In other
words, it represents the average number of
days for which a firm has to wait before its
receivables are converted into cash. The
purpose of calculating this period is to find
out the ratio of cash flow from collection of
debtors
Contd.
 Average collection period or average age
of receivables=
 Trade receivables/ sales per day
 Or
 Trade receivables / net credit sales X 365

days
 Or
 365/ DTR
Contd.
 In this respect, the general rule is that
average collection period should not exceed
the stated credit period on trade terms plus
1/3rd of such period. If average collection
period exceeds 4/3 of stated credit period, it
will indicate either liberal credit policy or
slackness of management in realizing debts.
A higher average collection period also
implies that chances of bad debts are larger.
Creditors Turnover Ratio
 The short-term creditors ( i.e, suppliers of
goods and bankers) are very much interested
in this ratio, as it shows the firm’s trend of
payment to its short-term creditors. This ratio
shows the relationship of credit purchases and
trade creditors. This ratio indicates the
velocity with which the creditors are turned
over in relation to purchases. Higher the
creditors velocity, better it is. A fall in this
ratio shows delay in payment to creditors.
Creditors or payable turnover ratio
 CTR = Net credit purchases / Average
payables (creditor +BP)
 Net credit purchase = Total purchase – cash

purchase – purchase return

 Average payable = opening payable + closing

payable / 2
 Note : if opening and closing is not given

then closing will be considered as average

Average payment period
 While analyzing creditors, usually average
period is also calculated. This period
discloses the time taken by the firm in
making payment to its trade creditors.
 Average disbursement period is compared

with credit period allowed by suppliers of

goods to know promptness or delay in
payment
Contd.
 Average payable / net credit purchase X no.
of month or weeks or days
 Or
 No. of month or week or days / CTR
Total assets turnover ratio
 Cost of goods sold or net sales / Total assets
 Total assets = Fixed assets + current assets –

fictitious assets- depreciation on fixed assets

 This relationship indicates the efficiency

of the utilization of assets to attain the

maximum turnover on sales. A rise in the
ratio indicates more intensive utilization
of assets, while fall in the turnover
suggests under utilization of assets .
Fixed assets turnover ratio
 Cost of goods sold or net sales / net fixed
assets
 Net fixed assets = Fixed assets – depreciation
 If there is an increase in this ratio, it will

show that there is better utilization of

fixed assets .If there is a fall in this ratio,
it will show that investment in fixed has
not been utilized efficiently. Ideal of this
in a manufacturing company is 5:1
Current assets turnover ratio
 Cost of goods sold or net sales / current
assets
 This ratio measures the concern’s
efficiency in utilization of its current
assets. This ratio also indicates the over
investment or under investment position
of current assets in a concern .
Working capital turnover
ratio
 Cost of goods sold or net sales / working
capital
 The high ratio indicates efficient use of

working capital in the concern while low

working capital turnover ratio indicates
under utilization of working capital in the
concern
Capital or net worth turnover ratio
 Net sales or cost of goods sold / net worth or
share holder’s fund
 It indicates whether the capital employed

by the shareholder’s in a business is used

efficiently or not
Total capital turnover ratio
 Cost of goods sold or net sales / capital
employed
 Capital employed = long term and short term
capital
 By calculating this ratio, efficiency of
capital employed may be known. This
ratio shows how many times capital has
been rotated for generating the sales. The
higher the ratio, better it is for the
business concerns. No ideal standard can
be fixed for this ratio.
Capital Structure Ratio or long –
term solvency ratios
 Debt equity ratio
 Solvency ratio
 Proprietary ratio
 Fixed asset ratio
 Capital gearing ratio
 Debt service ratio or interest coverage ratio
Debt Equity Ratio
 Debt equity ratio = Outsider’s fund / shareholder’s
fund
 Alternative:
 Debt equity ratio = long-term debt / share holders
fund or net worth
 Note: in this case current liabilities will be ignored.
 Standard norm: 2 : 1, however lending
institutions prefer 1:1
 A low ratio signifies a smaller claim of
creditors. More precisely, the greater the debt-
equity ratio, greater the risk to the creditor .
Outsiders fund and share holders
fund
Proprietary Ratio
 This is also known as equity ratio, net worth
to total assets ratio.
 Proprietary ratio = Share holders fund / Total

assets
 Higher the ratio better is the financial

position of the firm .

Solvency Ratio or debt to total
assets ratio
 Solvency ratio = Total outside liabilities /
total assets
 If the amount is enough to pay the

external liabilities then the company is

said to be solvent .
Fixed Asset Ratio
 Fixed assets ratio = Net fixed assets /
(shareholders fund + long term liability)
 Or
 Fixed asset ratio = Net fixed assets /
Share holders fund
 Standard norm: 1 :1. It is well
established that fixed assets should be
financed only out of long-term funds.
This ratio shows whether this is so .
Capital gearing ratio
 CGR = Share holders fund / out sider’s fund
 Share holder’s fund = Equity capital +
reserve +surplus
 Outsider’s fund = Preference share
capital + Debentures + Other long term
loans.
 Note : If capital gearing ratio is less
than 1, we will call it high gearing of
capital and if gearing ratio is more than 1
then low gearing of capital is assumed
Debt service ratio or interest
coverage ratio
 Interest coverage ratio =
 Net profit before interest and tax /Interest on

fixed long term loans or debentures.

 Note : This ratio measures the margin of

safety for the lenders. The higher the

number, more secure the lender is in
respect of his periodical interest income.
Normally, fixed interest charges should be
covered six to seven times .
Profitability ratios:
Based on sales
 Gross profit ratio
 Operating ratio
 Expenses ratio
 Operating profit ratio
 Net profit ratio
Gross profit ratio
 Gross profit / net sales X100
 Net sales = Sales – sales return
 Gross profit = net sales – cost of goods sold.
 The gross profit ratio is primarily a test of
the efficiency of purchases and sales
management. No ideal standard is fixed
for this ratio, but the gross profit ratio
must be adequate .
Operating ratio
 Cost of sales + operating expenses / net
sales X 100
 Operating expenses = office and
administrative expenses + selling expenses +
discount allowed + bad debts etc.
Other profitability ratios
Profitability ratios based on
capital
 Return on gross capital employed
 Return on net capital employed
 Return on proprietors net capital
 Return on average capital employed
 Return on total assets
Return on gross capital employed
 EBIT / Gross capital employed X100
 Gross capital = Equity share capital +
preference share capital +reserve and surplus
+ all long and short term external loans
 Or
 All net fixed assets + current assets +
including goodwill of the firm but fictitious
assets are not included
Return on net capital
 EBIT / Net capital employed X100
 Net capital employed = Equity share capital +

preference share capital + reserve and

surplus + long term loans
Return on proprietor’s capital
employed
 Net profit after interest and tax / proprietor’s
net capital employed X100
 Proprietor’s net capital = Equity share capital

+ preference share capital + reserves and

surplus – accumulated losses, if any
Return on average capital
employed
 Net profit / average capital X100
 Average capital = Opening capital + closing

capital / 2
 Or
 Opening capital +1/2 of current year’s profit
 Or
 Closing capital – ½ of current year’s profit
 Return on capital employed reflects the

overall profitability of the business

Return on total assets
 Net profit / Total net assets X 100
 Total net assets = Total assets – fictitious

assets
Return on proprietor’s fund or
equity or return on net worth
 Net profit / Proprietor’s fund X100
 Proprietor’s fund =Equity share capital +

preference share capital +reserves and

surplus+ undistributed profit – debit balance
of profit & loss if any.
Ratios showing profitability on
shares
 Earning per share(EPS)
 Earning Yield Ratio(EYR)
 Dividend Per share (DPS)
 Pay-out Ratio (POR)
 Dividend Yield Ratio (DYR)
 Dividend coverage ratio (DCR)
 Price earning ratio (PER)
Earning per share(EPS)
Earning Yield ratio (EYR)
Dividend Per Share (DPS)
Pay-out ratio (POR)
Dividend Yield Ratio (DYR)
Dividend cover ratio (DCR)
Price Earning Ratio (PER)
Analysis and Interpretation of
Financial Statements
 It is the process of identifying the financial
strengths and weakness of the firm by
properly establishing relationship between
the items of the Balance Sheet and Profit &
Loss Account and other operating data.
Meaning
Comparative Income
Statement
 This statement shows the operational results
of the business for a number of accounting
periods so that changes in absolute figures
from one period to another period may be
stated in terms of money and percentage.
Comparative Balance Sheet
 Comparative Balance Sheet analysis is the
study of the trend of the same items, group
of items and computed items in two or more
balance sheets of the same business
enterprise on different dates
Common- Size Statements
 Common-size statements cover up the
shortcomings of the comparative statements
by expressing each item of the statements as
a percentage of total. In common-size
statements relative values of items are
shown.
Common-Size Balance Sheet
 In common-size balance sheets, various
items of assets and liabilities of balance
sheets of two or more years are shown at
their relative values. That is ,each item of the
assets is shown as percentage of total assets
and each item of liabilities as percentage of
total liabilities and capital fund.
Common-Size Income Statement
 In this statement relationship is established
between items of income statement and
volume of sales in percentage form. In other
words, in a common –size income
statement ,each item of income statement is
shown in percentage based on net sales.
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