Financial accounting notes

INCOME STATEMENT: -
The statement prepared to know the gross income and the net income
at the end of a particular period is known as “income statement”. The expenses are
grouped according to the nature and the cost of goods sold is worked out and the
totals of both are deducted from the sales revenue. The positive result of this
exercise represents the net income whereas the negative result shows net loss
sustained by the concern. Income Statement can be prepared in two forms, i.e.
Report or Statement Form and Account Form.

OBJECTIVES of Income Statement:

The income statement reflects the net income or loss earned by the business
during a specific period of time. Income statement serves the following purposes:
• To determine the profit earned and loss sustained during a particular period.
• To know the gross profit on sales to chalk out the selling policy.
• To know the operative expenses to control the cost of operation.
• To know the other income and expenses to help the management for the
expansion purposes.
Company Name …………
Income Statement
For The Year Ended On ………
Expenses Rs. Revenue Rs.

DIRECT EXPENSES Sales

• Wages & Freight In
• Carriage & Cartage OTHER INCOME
• Transportation Charges • Interest Received
• Insurance Premium • Profit on Sales of Fixed
• Merchandise Purchased Assets
GENERAL EXPENSES • Dividend Earned
• Rent of Building • Commission Received
• Taxes & Depreciation • Rent Received
FIANCIAL EXPENSES
• Interest on Loans
• Bank Charges
ADMINISTRATIVE EXPENSES
• Office Rent
• Supplies Expense
• Auditors & Legal
Advisors Charges

Selling & Distributive Expense

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 Financial accounting notes

BALANCE SHEET: -
The “Balance Sheet” is the list of assets and equities prepared at a specific
time. It is also known as the statement of financial condition of a firm. It is normally
prepared at the close of each year.

OBJECTIVES OF THE BALANCE SHEET:

Balance Sheet serves the following purposes:
• It is prepared to determine the financial position of the business.
• It is prepared to determine the progress of the business.
• It fulfils many requirements of the law.

FORMS OF BALANCE SHEET:

Balance Sheet can be prepared in two forms:
a) Report Form. b) Account Form.

SPECIMEN OF A BALANCE SHEET IN REPORT FORM

Company Name
BALANCE SHEET
As On Date (mmm. dd, yyyy)
ASSETS Dr. EQUITIES Cr.
CURRENT ASSETS CURRENT LIABILITIES

NON-CURRENT ASSETS Long-Term LIABILITIES

FIXED ASSETS OWNER’S EQUITY

+ Net Income
INTANGIBLE ASSETS - Drawings

TOTAL ASSETS TOTAL EQUITIES

PREPARATION OF INCOME STATEMENT AND BALANCE

SHEET:
The income Statement and Balance Sheet is prepared from Trial Balance.
Following points should be kept in mind while preparing the income statement and
balance sheet:
• Check the totals of Trail Balance.
• See each item of trial balance, mark all the income statement accounts as (IS) and
the balance sheet accounts as (B/S).
• Record all the items of (IS) into income statement and all items of (B/S) in the
balance sheet.

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