Corporate Financial Reporting

CorporateFinancialReporting
Session 6:IncomeStatement
IIMCPGP2014:
IIMC
PGP 2014:Prof.ArpitaGhosh
Prof. Arpita Ghosh

26

IncomeStatement:USGAAPandIFRS

Twowaysofgroupingincomestatementitems(particularlyoperatingandother
expenses)
byFunction
byNature

Classificationbynatureidentifiescostsandexpensesintermsoftheircharacter,
leadstodescriptionssuchassalariesandwages,rawmaterialsconsumed,
d
depreciationexpense,utilitiesexpenseetc.
i i
ili i

Classificationbyfunction presentstheexpensesintermsofthepurposeofthe
expenditure,suchasformanufacturing,administration,selling&distributionetc

Notethatfinancecosts,taxexpensemustbeidentifiedseparatelyregardlessof
whichclassificationisemployed.

UnderUSGAAP,companiesclassifyincomestatementitemsbyfunction
UnderIFRS,companiescanclassifyexpensesbyeithernatureorfunction.
However,ifacompanyusesthefunctionalclassificationontheincome
statement,disclosurebynatureisrequiredinnotestofinancialstatements.
27

Classification
FunctionalClassification:CostofsalesisdeductedfromRevenuestocalculategrossprofit.
So,itcanprovidemorerelevantinformationusefulforanalysisofFinancialStatements
Butallocatingcoststofunctionsmayrequirearbitraryallocationsbasedonjudgment.
IncomeStatement

IncomeStatement

FortheYearEndedDecember31,2008

FortheYearEndedDecember31,
2008

(classificationofexpensebynature)

(classificationofexpensebyfunction)

(inRsCrores)
Revenue

800,000

(inRsCrores)

Otherincome
Changesininventoriesoffinishedgoods
g
g
andworkinprogress
Workperformedbytheentityand
capitalized

100,000

Revenue

800,000

Costofsale

500,000

Grossprofit

300,000

Otherincome

100,000

50,000
60,000

Rawmaterialsandconsumablesused

110,000

Employeebenefitsexpense

350,000

Distribution(selling)costs

100,000

Depreciationexpense

200,000

Administrativeexpenses

170,000

Otherexpense

10,000

Finance costs
Financecosts

30 000
30,000

Totalexpenses
Profitbeforetax

810,000
90,000

Otherexpenses

10,000

Financecosts

30,000

Profitbeforetax

90,000
28

AssperSch
heduleIIIIofCom
mpaniesAct2013
3

NameoftheCompany.

Profitandlossstatementfortheyearended
Particulars

I.
II.
III
III.
IV.

Revenuefromoperations
Otherincome
T t lR
TotalRevenue(I+II)
(I II)
Expenses:
Costofmaterialsconsumed
PurchasesofStockinTrade
Changesininventoriesoffinishedgoods,workinprogress,andStockinTrade
Employee benefits expense
Employeebenefitsexpense
Financecosts
Depreciationandamortizationexpense
Otherexpenses
Totalexpenses
V. Profitbeforeexceptionalandextraordinaryitemsandtax(IIIIV)
VI. Exceptionalitems
VII. Profitbeforeextraordinaryitemsandtax(V VI)
VIII. ExtraordinaryItems
IX. Profitbeforetax(VII VIII)
X Taxexpense:
(1) C
(1)Currenttax
tt
(2)Deferredtax
XI Profit/(Loss)fortheperiodfromcontinuingoperations(IXX)
XII Profit/(loss)fromdiscontinuingoperations
XIII Taxexpenseofdiscontinuingoperations
XIV Profit/(loss)fromDiscontinuingoperations(aftertax)(XII
Profit/(loss) from Discontinuing operations (after tax) (XIIXIII)
XIII)
XV Profit(Loss)fortheperiod(XI+XIV)
XVI Earningsperequityshare:
(1)Basic
(2)Diluted

NoteNo. Figuresfor
g
(Rupeesin)
Current
Previous
Year
Year

Hindalco:StatementofProfitandLossfortheyearended31/03/2013
YearEnded
Year
Ended
31/03/2013
28,069.78
2,012.85
26,056.93
983.09

(Rs.Crore)
Year Ended
YearEnded
31/03/2012
28,296.96
1,700.18
26,596.78
615.79

27,040.02

27,212.57

0.38
17 136 51
17,136.51
127.94
1,200.80
3,073.04
435.98
686.95
17.25
2,314.54

205.98
17 843 08
17,843.08
407.31
1,113.35
2,870.67
293.63
689.97

1,866.25

TotalExpenses

24,993.39

24,475.62

ProfitbeforeTax
TaxExpenses:
CurrentTax
DeferredTax

2,046.63

2,736.95

381.41
33.98

562.68
62.93

1 699 20
1,699.20

2 237 20
2,237.20

8.88
8.87

11.69
11.68

Natura
al Classifiication

INCOME
GrossRevenuefromOperations
Less:ExciseDuty
NetRevenuefromOperations
OtherIncome

NoteNo.
24

25

TotalIncome
EXPENSES
PurchasesofStockinTrade
Cost of Raw Materials Consumed
CostofRawMaterialsConsumed
ChangesinInventories
EmployeeBenefitsExpenses
PowerandFuel
FinanceCosts
DepreciationandAmortization
ImpairmentLoss/(Reversal)(Net)
OtherExpenses

26
27
27
28
29
30
31
32
33
34

35

Profit for the year

Profitfortheyear
EarningsperEquityShare:
Basic(`)
Diluted(`)

36

Income Statement Presentation

Income Statement Forms : Single Step and Multi Step
IncomeStatementForms:SingleStepandMultiStep
Single-Step Income Statement (Functional Classification)

Cruz Corporation
Income Statement
For the Year Ended December 31, 2010

A condensed income statement

that arrives at net income in a
single step

Subtract total expenses from

total revenues

Two reasons for using the

single-step format:
No profits until total revenues

exceed total expenses.

Format is simpler and easier

Revenues
Net sales
Interest income
Total revenues

Allmajorcategories
ofrevenues

Costs and expenses

Cost of goods sold
Selling expenses
General and administrative
Interest expense
T t l costs
Total
t andd expenses

$815,040
219,120
138,016
10,524

$1,248,624
$1
248 624
5,600
$1,254,224

Allmajorcategories
ofexpenses
1 182 700
1,182,700

Income before income taxes

Income taxes
IncomeTaxlistedseparately

$71,524
13,524

Net income

$58,000

to read.
Earnings per share

$2.90

31

Single
e Step In
ncome Sta
atement ((Natural C
Classificattion)

INFOSYS:StatementofProfitandLoss
Particulars
Incomefromsoftwareservicesandproducts
Otherincome
Total Revenue
Expenses
Employeebenefitexpenses
Deferredconsiderationpertainingtoacquisition
Costoftechnicalsub contractors
Travelexpenses
Costofsoftwarepackagesandothers
p
Communicationexpenses
Professionalcharges
Depreciationandamortizationexpense
Otherexpenses
Total Expenses
Total
PROFITBEFOREEXCEPTIONALITEMANDTAX
Dividendincome
PROFITBEFORETAX
Tax expense
Taxexpense
Currenttax
Deferredtax
PROFITFORTHEPERIOD

inRs.Crore
YearendedMarch31,
Note
2014
2013
2.16
44341
36765
2.17
2576
2215
46917
38980
2.18
2.10.1
2.18
2.18
2.18
2.18
2.8
2.18

24350
228
2596
1287
920
329
474
1101
1630
32915

19932
85
1731
1281
734
289
504
956
1194
26706

14002

83
12357

4063
255
10194

3361
120
9116

2.36

2.19
2.19

Income Statement Presentation

Multiple-Step Income Statement

Presented in a series of
steps, or subtotals, to
arrive at net income

Highlights
g g s the
e co
components
po e s
of net income
Separates sources of
operating income from
non-operating
ti sources

Three important line items:

Gross profit,
Income from operations
(Operating Income)
Net income.

33

MulltipleSStepISS:Info
osys

TypesofcompaniesandtheirOperations
MerchandisingorTradingCompanies RetailerorWholesaler
BuyandSellproductsinthesameforminwhichacquired
MerchandiseInventory:Costofgoodsacquiredbutnotsold
M h di I
C
f
d
i db
ld
ManufacturingCompanies
Convertsrawmaterialandpurchasedpartsintofinishedgoods
Converts raw material and purchased parts into finished goods
MakesandSellsproducts
ThreetypesofInventories RM,WIP,FG
ServiceCompanies
Donotsellaphysicalproduct
Furnishesintangibleservicesratherthantangibleproducts
Furnishes intangible services rather than tangible products
Example:Hotels,Legalfirms
Mighthavesomematerialinventories
likeserviceoftheplumber,Jobinprogress,butnoFG
35

MultistepIncomeStatements:Components
Service

Merchandising/ Manufacturing
Merchandising/Manufacturing

Revenues

NetSales
minus

minus
i

CostofGoodsSold
Not used in a
Service business

equals

Step1:Gross Profit
minus

OperatingExpenses
equals

Step1:IncomefromOperations

OperatingExpenses
Operating
Income

plusorminus
l
i

OtherRevenuesandExpenses

Step2:IncomefromOperations
plusorminus
l
i

NonOperating

minus

OtherRevenuesandExpenses
minus

InterestExpense
p

InterestExpense
p

equals

Step2:Inc.Bef.IncomeTaxes

equals

equals
EBT

Step3:Inc.BeforeIncomeTaxes

minus

minus

IncomeTaxesExpense

IncomeTaxesExpense

equals

Step3:NetIncome

equals
PAT

Step4:NetIncome

GrossSaleandNetSales

Grosssalesequalthetotalcashsalesandtotalcreditsalesduringagiven
accountingperiod
RevenueisrecordedwhenearnedunderRevenuerecognitionrule
Revenueisrecognizedeventhoughcashmaynotbecollecteduntilthe
followingaccountingperiod

NetSales Amountofsalesandtrendsinnetsalesovertimeareusedto
analyzeacompanysprogress
PaymentTerms:n/15/EOM:Paymentduein15daysfromtheendofthemonth
GrossSales(CashandCreditsales)

1,20,000

Less:Taxes,Ifany(likeExciseDuty)

20,000

Less:SalesReturnsandAllowances

600

NetSales

TradeDiscount

99,400

SalesReturnsandAllowancesDr
TradeReceivablesCr.

SalesDiscounteg.1/10,n/30:
Buyergets1%discountifpaysin10days,
o.w.hecanpayfullamtin30days(p174)

CashDr.990
SalesDiscountDr.10(SellingExp)
TradeReceivablesCr1,000

37

CostofGoodsPurchased:Merchandisingcompany
Beginwith: PurchasePrice*QuantityPurchased
Exclude:PurchaseReturns&AllowancesandPurchaseDiscounts
= Net Purchases
=NetPurchases
Include:Freightin,Taxes(likeCustomsduty,RoadTaxes)TransitInsurance,
HandlingCharges(Unloadingetc)
= Cost of Goods Purchased ( or Net Cost of Purchase)
=CostofGoodsPurchased(orNetCostofPurchase)
Purchases
Less:PurchaseReturns
andPurchaseDiscounts
Add:FreightIn,Taxes,If
any(likeCustomsDuty),
(lik C t
D t )
HandlingCharges,Transit
InsurancePremium
Cost ofgoodsPurchased
of goods Purchased

60,000
800

5,000
64 200
64,200
38

Freight Costs Terms of Sale

Titlepasseswhenshipped
Ownershippassestothebuyer
whenthepubliccarrieracceptsthe
p
p
goodsfromtheseller
Buyerbearsfreightin
Goodsintransit:Buyers
Inventory

Titlepassesatdestination
Titl
t d ti ti
Ownershipremainswiththeseller
untilthegoodsreachthebuyer
Sellerbearsfrightout
Seller bears fright out
Goodsintransit:SellersInventory
Freight costs incurred by the seller are an operating expense.

Cost of Goods Sold: Merchandising Company

Beginning
inventory

Purchasesof
merchandise

Beginning inventory
+ Cost
C t off goods
d purchased
h d

$ 15,000
63 000
63,000

= Cost of goods available for sale 78,000

=
GoodsAvailableforSale
Less:Endinginventory

Cost
ofgoods
sold

Ending inventory
= Cost of goods sold

(18,000)
$ 60,000

Pool of goods
available to sell
during the period
Anincreaseinending
inventorymeansmore
was bought than sold
wasboughtthansold
40

Merchandising Operations - Flow of Costs and COGS

BeginningInventory+CostofgoodsPurchased
=CostofgoodsAvailableforSale=CostofgoodsSold+EndingInventory

B i i I
BeginningInventory
t

Ins

C t f
CostofgoodsPurchased
d P h d

CostofGoods
Available for Sale
AvailableforSale
Outs

CostofGoodsSold

EndingInventory

C l l i off Cost
Calculation
C off goods
d sold
ld (COGS) - For
F Merchandising
M
h di i Company
C
Purchases net of Purchase Returns and Discounts
Add: Freight inwards, Transit Insurance , Others like handling
Charges (related to Purchases)

300000
4000
= Cost
C t off goods
d Purchased
P h d

Add: Opening Inventory

= Cost of goods available for sale
Less: Closing Inventory
= Cost of goods sold

304000
10000
314000
4000
310000

Companiesuseeitheraperpetual inventorysystemoraperiodic inventorysystem to

accountforinventory.

41

Merchandising Operations - Flow of Costs

PerpetualSystem
Maintaindetailedrecordsofthecostof
eachinventorypurchaseandsale.
Recordscontinuouslyshowinventory
thatshouldbeonhand.

PeriodicSystem
Donotkeepdetailedrecordsofthe
ggoodsonhand.
NoRunningaccountofchangesin
inventoryasandwhensalesoccur

Companydetermines costofgoodssold
eachtimeasaleoccurs.
Physicalinventorycountforverification
y
ofaccuracyofrecords

Attheendoftheaccountingperiod,
theendinginventoryonhandis
determinedbyphysicalcount

andCostofgoodssoldiscalculated
atthattimeasfollows:

Traditionallyusedformerchandisewith
highunitvalues.
Providesbettercontroloverinventories
identifiesInventoryLoss
Requiresadditionalclericalworkand
Requires
additional clerical work and
additionalcosttomaintaininventory
records.

Beginning inventory
Add: Purchases, net
Goods available for sale
Less: Ending
g inventory
y
Cost of goods sold

$ 100
100,000
000
800,000
900,000
125,000
,
$ 775,000
42

Comparison

Transactions related to Sales

43

Cost of Goods Sold : Manufacturing Company

RawMaterial :
O
OpeningRM
i RM
+RMPurchases(net)
+Freightin,ifany
ClosingRM
=RawMaterial
Consumedin
production

Raw Material
Consumed

Total Manufacturing Costs

+ Direct Labour Costs

+ Manufacturing Exp
Incl. depreciation on
factory assets

+OpeningWIP
ClosingWIP

= Cost of goods
manufactured

+OpeningFG
= Total Manufacturing Costs

=Goodsavailablefor

Sale

Raw Material
Consumed

ClosingFG
Conversion Costs

= CostofGoods
=
Cost of Goods

Sold(COGS)
44

Calculation of Cost of goods sold (COGS) - For Manufacturing Company

Opening Raw Material
Add: Raw Material Purchased net of Sales returns
and Discounts
Add: Freight in etc.
Less: Closing Stock of Raw Material

10000

= Raw Material Consumed

Add : Direct
Di
L b
Labour
cost or Direct
Di
wages

ConversionCost

Add: Manufacturing Expenses

= Total Manufacturing Costs
Adjustment
Adj
t
t for
f WIP :
Add: Opening WIP
Less: Closing WIP
Adjustment for FG :

200000
4000
7000
207000
50000
35000
292000
20000
30000

= Cost of goods manufactured

Add: Opening Finished Goods
= Cost of goods available for sale
Less: Closing Finished Goods
= Cost of goods sold

282000
8000
290000
10000
280000

Product Cost and Period Cost

Productcosts
Areconnectedwithproductionofgoods
IncludesMaterialcost,LabourcostandothercostsincurredtoconverttheRM
intoFinishedGoods
AlsocalledInventoriable Cost
AddedtoInventory(assets)tilltheproductsaresold
ChargedtoISasandwhengoodsaresold(MatchingPrinciple)
Ch
d t IS
d h
d
ld (M t hi P i i l )

CauseandEffectrelationwithSales,ImportantforascertainingGrossProfits
Donothaveanimpactonincomeuntiltheproducthasbeensold
PeriodCosts
Arecostsassociatedwithagivenaccountingperiodwhichareexpensesinthe
periodinwhichtheyareincurred
Cannotbetracedtoanyrevenuetransactionduringtheperiod,NoCause&Effect
relationshipwithRevenues(OperatingExpenses)
GeneralcostsofbeinginthebusinesslikeGeneralandAdministrativeExpenses
WhatifthereisdifferenceofopinioninclassifyingacostlikeProductionAdministration
asPeriodcostorProductcost?
46

GrossProfits

CostofGoodsSold(COGS):
Aggregateofcostofpurchaseorproductionofunitssoldandcostincurredto
bringthemtothelocationandconditionofsales
MatchedwithRevenuesgeneratedduringtheperiod,ProductCost

Gross Profits
GrossProfits
=NetSales CostofGoodsSold

C
Comparisonwithpast,Industry
i
ih
I d
GrossProfit:Absolute
GrossProfit/NetSales

Showsefficiencyof
Pricing,Purchasing
&ManufacturingProcess

CanalsobeimprovedbyOperatingExp SalesDiscounts:Asyoubooksuggests:
Treatitas sellingexpense,&notdeduct
47
incalculatingNetSales

HINDALCO :FlowofCostsandCOGS

Operating Expenses and Operating Income

ExpensesotherthanCOGS,Interest,&Taxthatareincurredinrunningabusiness
SellingExpenses
StoreRent,Salary,travel
St
R t S l
t
l
expensesofSalesstaff,Sales
Commission,DeliveryExpense
Promoting sales, Advertising
Promotingsales,
Freightoutexpense(FOBD),
Deprecn.onstoreequipment
General & Administrative Expenses
General&AdministrativeExpenses
Accounting,Personnel(Salaries)
Credit&Collections
Officerent,Dep
Office rent Dep onOfficeEquipm
on Office Equipm
Expensesrelatedtooverall
operations(Stationery,Telephone)

GeneralOccupancyExpenses:Rent,
p y p
Utilities,Insurance(Tobeallocated:
SellingandGen&Adm Expenses)
49
OperatingIncome:GrossProfit OperatingExpenses
R&DisshownseparatelyorasG&A

HINDALCO:Operating Expenses

EarningsBeforeInterestandTaxes(EBIT)
= Operating Income
=OperatingIncome
+OtherRevenuesandGains
OtherExpensesandLosses

OtherIncomeandExpenses:Non operatingActivities,EBIT
Various revenues, expenses, gains and losses unrelated to companys main line
of operations, Not part of a companys operating activities
Otherincomeandgains
InterestIncomeonsecurities(incaseofacompanyotherthanafinancecompany)
DividendIncome(frominvestmentincapitalofothercompanies)
Gainonsaleofinvestments,plant&equipment
Othernonoperatingincome(netofexpensesdirectlyattributabletosuchincome)
likeRentincome

Otherexpensesandlosses
Casualtylossesfromrecurringcauseslikevandalism,accidents
Lossfromsaleofinvestment,plant&equipment
,p
q p
Lossfromstrikesbyemployees,suppliers
52

OtherRevenuesandExpenses:Non operatingActivities
HINDALCO

53

EBITandEBT
Incomebeforeincometaxes(EBT)=EBIT InterestExpense/Financecost

EBITDA(Earningbeforeinterest,tax,depreciationandamortization)
=EBIT+Depreciation&Amortization
54

EBT,TaxesandNetIncome(PAT)
Incomebeforeincometaxes

Amountacompanyhasearnedfromallactivities: operatingand
nonoperatingbeforetakingintoaccounttheamountof
incometaxesitincurred

Less
Less
Incometaxesexpense

Provisionforincometaxes,representtheexpensefortaxeson
Provision
for income taxes represent the expense for taxes on
corporateincome

Netincome

Bottomlineiswhatremainsofthegrossmarginafter
operatingexpensesarededucted,
operating expenses are deducted
otherrevenuesandexpensesareaddedordeducted, and
incometaxesexpensearededucted
Representsearningsthataccruetostockholders
AmounttransferredtoRetainedEarningsfrom
Amount transferred to Retained Earnings from IS

Netincome=Incomebeforeincometaxes(EBT) Incometaxesexpense
PAT=EBIT InterestExpense Incometaxesexpense55

Income
Statement
Presentation

Net Profit Margin

= Net Income
Net Sales

Measures the
M
th
extent by which
selling price covers
p
all expenses

Show
separately
asfinance
fi
cost
56

20XX

MultipleStepIncomeStatement

TotalRevenues:
Sales Revenue(NetSales)
Gross Sales(Priceper unit * Unitssold)
Less: Taxes,SalesReturns
OtherOperatingIncome
Less: CostofGoodsSold(COGS):

C ti
Continuation20XX
ti
20XX

OPERATINGPROFIT
orProfitfromOperations
Add:OtherIncome(Non
Add:
Other Income (NonOperating)
Operating)
(includes InterestIncome)
Less:
OtherExpenses(NonOperating)

RawMaterialConsumed
(opening+Purchases closing)

EBIT
(Earnings BeforeInterestandTaxes)

DirectLabourCost

Less:InterestExpense

Manufacturing Expenses

EBT (EarningsBeforeTax)

Adjustment forWIP
(Add:OpeningWIPLess:closingWIP)

Less: IncomeTax

Adjustment forFG
(Add:OpeningFG,Less:closingFG)
COGS

PAT
(Earnings or Profits After Tax)
(EarningsorProfitsAfterTax)
or (NetIncome orNetProfits)
Less:DividendtoPreference SH

GROSS PROFIT

Profits Available toEquitySHs

ProfitsAvailable
to Equity SHs

Less:OperatingExpenses(SG&A)

EPS

HINDALCO

Earningspershare(EPS)isthenetearningsavailabletocommonstockholdersforthe
g p
( )
g
perioddividedbytheweightedaveragenumberofcommonstocksharesoutstanding
BasicEPS=

(Netincome Preferreddividends)
Weighted average number of shares outstanding
Weightedaveragenumberofsharesoutstanding

PROFITFORTHEPERIOD
EARNINGPEREQUITYSHARE
Equity shares of per value Rs 5 each
EquitysharesofpervalueRs.5each
AfterExceptionalitem
Basic
Diluted

INFOSYS

Numberofsharesusedincomputingearningpershare
Basic
Diluted

10194

9116

178.39
178.39

158.76
158.76

57,1402566
571402566

574232838
574233691
58

2.32

MissingFigures
4A.1
Sales
Beginninginventory
Netcostofpurchase
Costofgoodsavailableforsale
EndingInventory
Costofgoodssold
Grossprofit
Operating expenses
Operatingexpenses
Netprofit(loss)

Case1 Case2 Case3 Case4 Case5

79 000 43,700
79,000
43 700 96,100
96 100 13,900
13 900 63,500
63 500
2,400
850
8,500
280
9,600
58,900 34,700 79,400 14,710 87,400
61,300 35,550 87,900 14,990 97,000
4,700
960
2,300
110
2,000
56,600 34,590 85,600 14,880 95,000
22,400
9,110 10,500
980 31,500
16 800
16,800
9 470
9,470
9 200
9,200
1 720
1,720
4 000
4,000
5,600
360
1,300
2,700 35,500

59

4A.1

Case1

Case2

Case3

Case4

Case5

Sales

79,000

43,700

96,100

13,900

63,500

Beginninginventory
i i i

2 400
2,400

8 0
850

8 00
8,500

280

9 600
9,600

Netcostofpurchase

58,900

34,700

79,400

14,710

87,400

Costofgoodsavailableforsale

61,300

35,550

87,900

14,990

97,000

EndingInventory

4,700

960

2,300

110

2,000

Costofgoodssold

56,600

34,590

85,600

14,880

95,000

Gross profit
Grossprofit

22,400

9,110

10,500

980
980

31,500
31,500

Operatingexpenses

16,800

9,470

9,200

1,720

4,000

Netprofit(loss)

5,600

360

1,300

2,700

35,500

60

Date
Apr.1
Apr.5
Apr.7
Apr.9
Apr.16
Apr.19
Apr.24

3B.2(P150)
Journalentries
CashSystem
Debit
Credit Date
CashA/c 20000
Apr.1
Sh
ShareCapitalA/c
C it l A/
20000
RentExpenseA/c
3600
Apr.5
CashA/c
3600
SuppliesExpenseA/c
610
Apr.7
Cash A/c
CashA/c
610
CashA/c 9200
Apr.9
RevenuefromservicesA/c
9200
SalariesExpenseA/c 1600
Apr.16
CashA/c
1600
NoEntry
Apr.19

A 28
Apr.28

TelephoneExpenseA/c 470
CashA/c
C h A/
CashA/c
2600

Apr.30

RevenuefromServicesA/c
NoEntry

Apr.24
470
A 28
Apr.28
2600
Apr.30

Apr.30

AccrualSystem
Debit
CashA/c 20000
Sh
ShareCapitalA/c
C it l A/
PrepaidRentA/c
3600
CashA/c
SuppliesA/c
610
Cash A/c
CashA/c
CashA/c
9200
RevenuefromservicesA/c
SalariesExpenseA/c
1600
CashA/c
TradeReceivableA/c
9700
Revenuefromservices
TelephoneExpenseA/c 470
CashA/c
C h A/
CashA/c
2600
UnearnedRevenueA/c
ElectricityExpenseA/c
ElectricityExpensePayable

130

RentExpenseA/c

1200

SuppliesExpenseA/c

SalariesExpenseA/c
SalariesPayable

3600
610
9200
1600
9700
470

130

1200
430

SuppliesA/c(610180=430)
Apr.30

20000

2600

PrepaidRentA/c(3600/3=1200)
Apr.30

Credit

430
1600

61
1600

Date
Apr.1
Apr.5
Apr.7
Apr.9
Apr.16
Apr.19
Apr.24
A 28
Apr.28
Apr.30

3B.2(P150)
Journalentries
CashSystem
Debit
Credit Date
CashA/c 20000
Apr.1
Sh
ShareCapitalA/c
C it l A/
20000
RentExpenseA/c
3600
Apr.5
CashA/c
3600
SuppliesExpenseA/c
610
Apr.7
Cash A/c
CashA/c
610
CashA/c 9200
Apr.9
RevenuefromservicesA/c
9200
SalariesExpenseA/c 1600
Apr.16
CashA/c
1600
NoEntry
Apr.19
TelephoneExpenseA/c 470
CashA/c
C h A/
CashA/c
2600
RevenuefromServicesA/c
NoEntry

Apr.24
470
A 28
Apr.28
2600
Apr.30

Apr.30

AccrualSystem
Debit
CashA/c 20000
Sh
ShareCapitalA/c
C it l A/
PrepaidRentA/c
3600
CashA/c
SuppliesA/c
610
Cash A/c
CashA/c
CashA/c
9200
RevenuefromservicesA/c
SalariesExpenseA/c
1600
CashA/c
TradeReceivableA/c
9700
Revenuefromservices
TelephoneExpenseA/c 470
CashA/c
C h A/
CashA/c
2600
UnearnedRevenueA/c
ElectricityExpenseA/c 130
ElectricityExpensePayable
RentExpenseA/c

SuppliesExpenseA/c

SalariesExpenseA/c
SalariesPayable

3600
610
9200
1600
9700
470
2600
130

1200
430

SuppliesA/c(610180=430)
Apr.30

20000

1200

PrepaidRentA/c(3600/3=1200)
Apr.30

Credit

430
1600

621600

NetProfitunderCashbasisVsAccrualbasis
3B.2(P150)continued
BASIS
R
Revenuefromservices
f
i
SalariesExpense
RentExpense
Supplies Expense
SuppliesExpense
Telephoneexpense
ElectricityExpense
BASIS
Revenuefromservices
SalariesExpense
R
RentExpense
E
SuppliesExpense
Telephoneexpense
Electricity Expense
ElectricityExpense
TotalExpenses
NetProfit

Cash
Accruals
9200 2600 9200
9200+2600
9200+9700
9700
1600 1600+1600
3600
1200
610
430
470
470
0
130
Cash
11,800
1,600
3 600
3,600
610
470
0
6,280
5,520

Accruals
18,900
3,200
1 200
1,200
430
470
130
5,430
13,470

63

Assignment Questions for Chemalite Case:

1. Prepare T accounts to record the transactions of Chemalite during its preoperation
period as well as for the full year 2003.Compute the closing balances of each account
and prepare the Adjusted Trial Balance.
2. Recoding of the some of these transactions would have involved you making one or
more assumptions. Identify such transactions and explain the assumptions.
3. Prepare MultiStep Income Statement, Classified Balance sheet, and Statement of
Retained Earnings for the year ended 31st Dec 2003.
4. How much of the total change in cash is related to operations? How much is related to
financing? How much is related to investing?
5. Use 3) and 4) above to help perplexed Alexander explain to the stockholders why
Chemalitess bank account did not support Alexander
Chemalite
Alexanderss feeling that things
things were going
well.
Hindalco :
1. Estimate Gross Profit, Prepare function based IS multistep, gauge the growth
and the trend in important figures. Try to explain performance.
64

ThankYou