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

BMS Chapter 2 Introduction to Financial Statements (Part 2) 2 Income statement (Statement of profit or loss) Income XX Expenses (X) Profit / (loss) X / (X) HND - FA - Dhanushka Abeysekara 1

BMS Mobile phone buying and selling company Main Income Sale of Phones Main Cost Purchase cost (Cost of sales) Interest income Other income Electricity Other expenses Water Salaries Income XX Expenses (X) Profit / (loss) X / (X) Main Main Sales 1000 Other Cost of sales (400) Other Gross profit 600 Other income 100 Other expense (250) Net profit 450 Sales - Cost of sales = Gross profit Gross profit + Other income - Other expenses = Net profit HND - FA - Dhanushka Abeysekara 2

BMS 2.1 Cost of sales Opening stock 3 items 5 items Purchases 8 items Total Closing Stock 2 items 6 items Sold Since 6 items sold, the cost related to 6 items should be the cost of sales Cost of sales Opening Stock xx Purchases xxx Closing Stock (xx) xxx HND - FA - Dhanushka Abeysekara 3

BMS Example 2 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 Rs Inventory (Stock) at 1 August 2008 10,000 Sales 150,000 Purchases 40,000 Selling and Distribution expenses 48,000 Administration expenses 15,000 Interest expense 1,600 * Inventory at 31 July 2009 were valued at Rs.12,000 Statement of profit or loss for the year ended 31 July 2009 Rs Rs Sales 150,000 Cost of Sales Opening Inventories 10,000 Purchases 40,000 Closing Inventories (12,000) (38,000) Gross profit 112,000 Other expenses Selling and distribution 48,000 Administration exp 15,000 Interest 1,600 (64,600) Net profit 47,400 HND - FA - Dhanushka Abeysekara 4

BMS Review Questions – 7.1, 7.2 Readings Study text – Chapter 7 – 7.1 to 7.3 Home work Study text – Chapter 7 – Review Questions – 7.3A, 7.4A Study text – Chapter 8 – Review Questions – 8.3A, 8.4A HND - FA - Dhanushka Abeysekara 5