Professional Documents
Culture Documents
Session One
Understanding Financial Statements
SESSION PLAN
12
Britannia Industries
The companys consolidated net sales for the
year ended March 2008 increased by 23% to
Rs 2776.9 crore. OPM of the company
increased to 8.41%. The increased in
operating profit margin is due to decline in
raw material cost, purchased of finished
goods and conversion & other charges. As a
result, the PBT before extra ordinary items
increased by 85% to Rs 229.30 crore.
13
14
Role of Accounting
Accounting is a system that provides
information on:
Amounts of resources.
How resources were financed.
How were the resources invested.
Results achieved by using those resources.
16
The
Accounting
process
Monetary activities
(Money Measurement Concept)
Economic
activities
(Monetary &
Non-monetary)
Actions
(decisions)
Accounting connects
decision makers with
economic activities
and the cycle
continues with the
results of their
decisions
Accounting
Information
(Financial &
Management
Accounting)
Decision
makers
17
Financial Accounting
Accounting
Financial
Accounting
Management
Accounting
18
Process of Accounting
Creating Accounting heads
Asset, Liability, Equity, Income & Expense
19
110
111
Financial Elements
113
Accounting Equation
Travel
Assets
Liabilities
++ Agency
Owners
Assets ==Vagabond
Liabilities
OwnersEquity
Equity
Balance Sheet
December 31, 2007
$300,000
$220,000
$300,000
= $80,000
$80,000 +Liabilities
+
$220,000
Assets=
& Owners' Equity
Cash
$ 22,500 Liabilities:
Notes receivable
10,000
Notes payable
$ 41,000
Accounts receivable
60,500
Accounts payable
36,000
Supplies
2,000
Salaries payable
3,000
Land
100,000
Total liabilities
$ 80,000
Building
90,000 Owners' Equity
Office equipment
15,000
Capital stock
150,000
Retained earnings
70,000
Total
$ 300,000 Total
$ 300,000
114
Accounting Equation
Contd
Took a bank loan Rs 20 lakhs.
Assets = Liabilities + Owners Equity
Cash (20) = Bank Loan (20)
Cumulative Impact
Cash (50) = Loan (20) + Equity share capital (30)
Monetary Unit Concept
118
Contd
Contd
Bought furniture for the showroom for 5
lakhs.
Assets = Liabilities + Owners Equity
Furniture (5) + Cash (-5) = 0
Cumulative Impact
Furniture (5) + Advance (5) + Cash (40) = Loan
(20) + Equity share capital (30)
Historical Cost Assumption
120
Contd
Purchased inventory for 60 lakhs. Paid
50% in cash and agreed to pay the
balance in 60 days time.
Assets = Liabilities + Owners Equity
Inventory (60) + Cash (-30) = Creditors (30)
Cumulative Impact
Furniture (5) + Inventory (60)+ Advance (5) +
Cash (10) = Creditors (30) + Loan (20) + Equity
share capital (30)
121
Contd
Sold 40 lakhs worth of inventory for 50
lakhs;
Cumulative Impact
Furniture (5) + Stock (20)+ Debtors (20) +
Advance (5) + Cash (40) = Creditors (30) +
Loan (20) + Equity share capital (30) + { Sales
(50) Cost of goods sold (40) }
122
Contd
Manager informs about the following dues staff salary 2 lakhs, advertisement
expenses 2 lakhs, interest 20,000 & rent 1
lakh.
Assets = Liabilities + Owners Equity
0 = Expenses payable (5.2) + OE (-5.2)
Cumulative Impact
Furniture (5) + Stock (20)+ Debtors (20) + Advance
(5) + Cash (40) = Creditors (30) + Expenses
payable (5.2) + Loan (20) + Equity share capital
(30) + {Sales (50) Cost of goods sold (40)
Expenses (5.2)}
123
Contd
Dividend paid to investors 1 lakh
Assets = Liabilities + Owners Equity
Cash (-1) = OE (-1)
Cumulative Impact
Furniture (5) + Stock (20)+ Debtors (20) +
Advance (5) + Cash (39) = Creditors (30) +
Expenses payable (5.2) + Loan (20) + Equity
share capital (30) + {Sales (50) Cost of
goods sold (40) Expenses (5.2)} Dividend
(1)
124
Assets
30
Fixed Assets
Furniture
3.8
33.8
20
20
Debtors
20
Rent Advance
Current Liabilities & Provisions
Creditors
30
Expenses payable
5.2
89
Cash
5
39
84
89
125
50
Other Income
Total Income
50
Expenditure
Cost of goods sold
40
Salary
Advertisement
rent
1
45
PBDIT
Depreciation
Interest
0.2
PBT
4.8
Tax
PAT/Disposable profit
Dividend
0
4.8
1
126
30
Bank loan
20
30
80
Payments
cash paid to supplier
-30
-5
purchase of furniture
-5
paid dividend
-1
-41
39
127
Date at
beginning
of period
Time
Balance
Sheet
Date at
end of
period
Balance
Sheet
Income Statement
Statement of Cash Flows
128
Income
Sales
Receipts
Other Income
0
50
30
Total Income
Bank loan
20
Expenditure
40
Salary
Liabilities
80
Advertisement
Share capital
rent
1
45
-30
-5
purchase of
furniture
-5
paid dividend
-1
-41
30
Payments
cash paid to
supplier
50
39
PBDIT
Depreciation
Interest
0.2
PBT
4.8
Tax
PAT/Disposable profit
Dividend
Balance profit carried to B/S
Assets
30
Furniture
Reserves &
Surplus
Owner's
Equity
Loan from
Bank
3.8
3.8
33.8
20
20
Debtors
20
Rent Advance
4.8
1
Fixed Assets
30
Expenses
payable
5.2
89
Cash
5
39
129
84
89
Qualitative Characteristics of
Accounting Information
1. Understandability
2. Usefulness
1. Relevance
1. Be timely,
2. Provide feedback, and
3. Help predict future conditions
2. Reliability
1. Faithful Representation
2. Credible & Verifiable
3. Neutral
Thank You