Week 8 - Preparing and Interpreting Financial statements 1 Recording process step: Preparing financial statements
Name of financial statement
Layout Financial
performance (profitability)
Income Statement (Statement of Profit and Loss)
Heading
- Org name
- Income statement - Period (‘for __ ended _’) Income
- Total income (?) Expenses
- Total expenses (?) Profit/loss (income-expenses) Financial
position Balance sheet Heading
- Org name - Balance sheet - Period (‘as at ___’) Assets
- Current (<12 months) assets - Non-current (>12 months) assets
Total Assets (current assets + non-current assets) Liabilities
- Current Liabilities - Non-current liabilities
Total liabilities (current + non-current) Net Assets (total assets - total liabilities)
Equity (net assets = total assets – total liabilities) Cash
movements Statement of Changes
in Equity Heading
- Org name
- Statement of changes in equity - ‘for the __ ended’)
If profit:
Opening balance of equity (initial capital) Add: Profit (income statement)
Less: Drawings/dividends (income statement)
Closing balance of equity (new capital) ‘for the __ ended’
(opening + add - less = capital in balance sheet) If loss:
Opening balance of equity (initial capital) Add: Capital contribution(?)
Less: loss + any drawings
Closing balance of equity (new capital) (opening + add – less = capital in balance sheet)
Example: Income Statement/ Statement of profit and loss Accounting Solutions
Income Statement
For the year ended 30 June 2022
Income
Service revenue 221 250
Expenses
Rent expense 44 100
Telephone expense 10 095
Wages expense 63 900
Advertising expense 10 125
Supplies expense 45 855 (174 075)
Profit 47 175 (income – expenses = profit)
Example: Balance Sheet
Accounting Solutions Balance Sheet As at 30 June 2018 Assets
Current Assets
Cash at bank 23 165
Accounts receivable 8 895
Supplies 7 305
Non-current assets
Equipment 55 350
Building 157 500
Total Assets (Current assets + non-current assets) 252 215 Liabilities
Current Liabilities
Accounts payable 10 380
Non-current liabilities
Mortgage payable 100 500
Total liabilities (Current liabilities + non-current liabilities) 110 880 Net Assets (Net assets = total assets – total liabilities) 141 335 Equity (Net assets = total equity = total assets – total
liabilities)
Capital, Chris 141 335
Example: Statement of changes in equity
Accounting Solutions Statement of Changes in Equity For the year ended 30 June 2022
Capital, Chris – 1 July 2021 99 360
Add: Profit for the year 47 175
Less: Drawings/ dividends (5 200) (came from income statement) Capital, Chris – 30 June 2022 (closing balance of
capital)
141 335 (= capital amount in balance sheet)
Week 9 - Preparing and Interpreting Financial statements 2
Recording process step: Preparing financial statements – Ratio Analysis
Profitability Ratio
Return on assets ROA (ratio or perc)
!"#$%& ($#)*+ %*,#-. /&0&.-.*&) 23."04. &#&05 0//.&/6!" $%$&' &(()$(*+" $%$&' &(()$(
, ($#)*+ 7050*,. /8..&)
Better if higher ROA
Profit margin (dec or perc)
𝑃𝑟𝑜𝑓𝑖𝑡 (𝑖𝑛𝑐𝑜𝑚𝑒 𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡)
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 (𝑟𝑒𝑣𝑒𝑛𝑢𝑒) = 𝑠𝑎𝑙𝑒𝑠 − 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑡𝑢𝑟𝑛𝑠(𝑖𝑛𝑐𝑜𝑚𝑒 𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡)
Better if higher Profit margin.
(‘for every $1 of sales revenue in _ it generated _’) Liquidity Ratio Current
ratio ($ or ratio)
9)"".*& 0//.&/ (7050*,. /8..&)
9)"".*& 5%07%5%&%./ (7050*,. /8..&) (>1.5 is good)
Better if higher.
Solvency Ratio Debt to total asset ratio
:#&05 5%07%5%&%./ (7050*,. /8..&)
:#&05 0//.&/ (7050*,. /8..&) (around 50% is g)
Better if LOWER (less risk).
