Chapter 2 Introduction to Financial Statements (Part 2) 2 Income - - PDF document

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Chapter 2

Introduction to Financial Statements (Part 2) 2 Income statement (Statement of profit or loss)

Income XX Expenses (X) Profit / (loss) X / (X)

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Mobile phone buying and selling company

Main Income Sale of Phones Main Cost Purchase cost (Cost of sales) Interest income Other income Electricity Water Salaries Other expenses

Income XX Expenses (X) Profit / (loss) X / (X)

Sales 1000 Cost of sales (400) 600 Gross profit Other expense (250) 450 Net profit Other income 100

Main Other Main Other

Sales

• Cost of sales

= Gross profit Gross profit + Other income

• Other expenses

= Net profit

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Opening stock 3 items Purchases 5 items Total 8 items Closing Stock 2 items Sold 6 items

Since 6 items sold, the cost related to 6 items should be the cost of sales

2.1 Cost of sales

Opening Stock xx Purchases xxx Cost of sales Closing Stock (xx) xxx

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The followings are Income and Expenses of an entity for the year ended 31 July 2009. Prepare statement of profit or loss for the year ended 31 July 2009 Example 2 * Inventory at 31 July 2009 were valued at Rs.12,000 Rs Inventory (Stock) at 1 August 2008 Sales Purchases Selling and Distribution expenses Administration expenses Interest expense 10,000 150,000 40,000 48,000 15,000 1,600 Statement of profit or loss for the year ended 31 July 2009

Rs Rs Cost of Sales Opening Inventories 10,000 Sales 150,000 Purchases 40,000 Other expenses Selling and distribution 48,000 Administration exp 15,000 Interest 1,600 Closing Inventories (12,000) (38,000) 112,000 Gross profit (64,600) 47,400 Net profit

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Home work Study text – Chapter 7 – Review Questions – 7.3A, 7.4A Review Questions – 7.1, 7.2 Readings Study text – Chapter 7 – 7.1 to 7.3 Study text – Chapter 8 – Review Questions – 8.3A, 8.4A