Escolar Documentos
Profissional Documentos
Cultura Documentos
Unit IV
www.msubbu.in
Financialwww Statements
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Dr. M. Subramanian
Associate Professor
Department of Chemical Engineering
Sri Sivasubramaniya Nadar College of Engineering
Kalavakkam 603 110, Kanchipuram (Dist)
Tamil Nadu, India
msubbu.in[AT]gmail.com
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Introduction
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Flow of Information through an Accounting System
The left side of the account book page has been arbitrarily
designated the debit side, wand
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convention is true regardless .of
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Journal and Ledger Entries
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Accounting Equation
Double-entry bookkeeping system, expressed as follows in
simplest terms:
Assets = Equities
Equities are claims against the firm and may be divided into
liabilities and owners equity.
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Liabilities are outside claims against the assets of a firm, e.g.,
accounts payable, borrowed funds, taxes owed. These
obligations require settlement in the future.
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Financial Report
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Balance Sheet
The balance sheet consists of two parts: the assets, which are
what the company owns, and ww the liabilities and stockholders
equity, which are what the company
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The total assets must equal the total .in liabilities plus the
stockholders equity for both sides of the sheet to balance.
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The Balance Sheet Format
LIABILITIES AND
ASSETS
OWNERS EQUITY
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Contd..
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Assets
The assets of a company are divided into three broad categories:
current assets, fixed assets, and intangibles.
The liabilities are what a company owes, divided into current and
long-term liabilities.
Long-term liabilities are debts due more than a year from the
date of the financial report. Long-term loans from insurance
companies and investment houses are another form of long-term
liability
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Stockholders Equity
This is the total interest that the stockholders have in the
business.
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Multi-Step Format Single-Step Format
Net Sales Net Sales
Cost of Sales Materials and Production
Gross Income* Marketing and Administrative
Selling, General and
Research and Development
Administrative Expenses
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(SG&A) w. ms
Operating Income* ub
Other
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Other Income & Expenses Pretax Income
Pretax Income* Taxes
Taxes Net Income
Net Income (after tax)* --
Two basic formats for the income statement are used in financial
reporting presentations - the multi-step and the single-step
Read more:
http://www.investopedia.com/articles/04/022504.asp#ixzz27YV
B5ZlV
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Terminologies in Income Statement
Net Sales: the net sales is the amount of money received for
the goods sold less the amount of returned goods and
allowances for reduction in prices (e.g., allowing for freight on
goods shipped).
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Cost of Goods Sold and Operating sub Expenses: this item
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includes all the expenses in converting .in raw materials into
finished products, including depreciation, as well as sales,
administration, research, and engineering expenses.
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Connections between income statement and
balance sheet accounts
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Connections between income statement and balance sheet accounts.
Heres a quick summary explaining the lines of connection in the figure, starting from
the top and working down to the bottom:
Making sales (and incurring expenses for making sales) requires a business to
maintain a working cash balance.
Making sales on credit generates accounts receivable.
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Selling products requires the businesswto
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Acquiring products involves purchases on credit
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Depreciation expense is recorded for the use of fixed assets (long-term operating
resources).
Depreciation is recorded in the accumulated depreciation contra account (instead
decreasing the fixed asset account).
Amortization expense is recorded for limited-life intangible assets.
-contd..
Operating expenses is a broad category of costs encompassing selling,
administrative, and general expenses:
Some of these operating costs are prepaid before the expense is recorded,
and until the expense is recorded, the cost stays in the prepaid expenses
asset account.
Some of these operating costswwinvolve
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accounts payable. sub
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Some of these operating costs are from recording unpaid expenses in the
accrued expenses payable liability.
Borrowing money on notes payable causes interest expense.
A portion (usually relatively small) of income tax expense for the year is unpaid
at year-end, which is recorded in the accrued expenses payable liability.
Earning net income increases retained earnings.
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400
500
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(300)
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(contd.)
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(contd.)
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Example Financial Statements
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Based on
2009-2010 Annual Report of
POWER GRID Corporation of India Ltd
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POWER GRID Corporation of India Ltd
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Assets Distribution - Example
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Liabilities Distribution - Example
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Income Contributions - Example
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Expenses Distribution - Example
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