Week 3 and 4 - Preparing Financial Statements.pptx

Week 3 and 4 - Preparing Financial Statements.pptx - Week 3...

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1 Week 3 and 4: Preparing Financial Statements
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2 Contents 1. Statement of Comprehensive Income 2. Statement of Financial Position 3. Statement of Cash Flows 4. Statement of Changes in Owner’s Equity
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3 Statement of Comprehensive Income Compares revenues earned with the expenses incurred. Prepared to ascertain profitability Does not include capital incomes and expenses Formerly referred to as the income statement or profit and loss account. Also referred to as statement of comprehensive earnings
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Statement of Comprehensive Earnings 2009 2010 Sales Revenue X X Cost of Sales (X) (X) Gross Profit X X Other Income X X Selling and Distribution Costs (X) (X) Administrative Expenses (X) (X) Finance Costs (X) (X) Research and Distribution Costs (X) (X) Profits Before Tax X X Income Tax Expense (X) (X) Profits After Tax X X 4
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Sales Revenue Incomes from the core activities of the entity. Must be adjusted for sales returns and VAT Sales to be recognized when earned (Revenue realization concept) 5
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Cost of Sales The cost of goods sold i.e. The direct costs incurred to procure or produce the goods or services that were sold. Determined as: 1. opening stocks + purchases – closing stock in a retail entity 2. The sum of materials, labour and production expenses incurred in a manufacturing firm. 6
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Other Operating Income Incomes earned from non-core activities of the entity. 1. Discounts 2. Rent income 3. Investment incomes (Dividends and interest) 4. Royalties 7
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Selling and Distribution Expenses Costs incurred in marketing and delivery of goods and services to customers. 1. Discounts allowed to customers 2. Carriage of goods (outwards) – to customers 3. Sales commissions 4. Bad debts 5. Other marketing expenses 8
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Administrative Expenses Indirect expenses incurred in administration. 1. Salaries and wages 2. Cleaning 3. Stationery 4. Power and Lighting 5. Transport for administrative staff 9
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Research and development costs Expenditure relating to innovations, product development and search for better ways of conducting business.
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