Income Statement Example – Balance Sheet Example - Format - Final Accounts

Final Accounts Include Income Statement and Balance Sheet which are prepared at the end of the accounting period to show financial performance and financial position of the business. Preparing Final Accounts is the fifth step of the Steps in the Accounting Cycle.

Note: There are two Accounting Systems

British and American Accounting System

In both accounting system the accounting treatments are same and we get the equal answer of our question, but names and presentation of accounts are different. In British System of Accounting Profit and Loss account and Balance Sheet are used for final accounts while in American Accounting System Income Statement are used.

Also

Now, the name of Income Statement has changed to Statement of Comprehensive Income and Balance Sheet’s name has changed to Statement of Financial Position.

What is Income Statement

This statement is prepared to show Financial Performance of the business for the Accounting Period. The amount of Net Profit / Net Income shows the financial performance of the business. In British Accounting System, it is known as Profit And Loss Account or Statement of Revenue and Expense.

Below is the trading account performa alongwith Profit and Loss Statement.

Profit and Loss Statement / Income Statement / Statement of Comprehensive Income

 Example

                                                                   Rs.

Sales                                                       200000

Less: Cost of Sales                                 60000

Gross Profit                                           140000                              

Less: Operating Expenses                     20000

Add: Other Income                                4000

Less: Other Expenses                             3000

Net Income                                              121000

Explanation of different items of Income Statement

1. Net Sales

Sales - Return Inward Or Sales Return - Sales Discount

2. Cost of Sales (Cost of Goods Sold)

Opening Inventory + Net Purchases – Closing Inventory + Carriage Inward

Net Purchases = Purchases - Purchase Return - Purchase Discount

3.   Gross Profit

Net Sales – Cost of Sales

4.   Operating Expenses

Expenses incurred for the operations of the business for the purpose of earning Revenue. Examples are:

           i.   Selling Expenses

Expenses incurred for selling goods. Carriage Outward, Advertisements, Commission of the agent.

         ii.   Administrative Expenses

Expenses incurred in conducting day to day office matters. Examples are Office rent, Salaries of staff, Telephone expenses, Printing and Stationary.

5.   Net Operating Income

Gross Profit – Operating Expenses

6.   Other Income and Expenses

All expenses that are not incurred other than selling goods are other expenses. Examples are Losses on sale of assets. All revenues that are incurred in non-selling goods Examples are Profit Received, Rent Received, etc.

7.   Net Income / Net Loss

Net Operating Income + Other Income – Other Expenses

The whole process of the components of Income Statement shown above can be stated in a short way in the form of Income Statement Formula in order to find out Net Income / Net Profit easily as shown below:

Income Statement Formula = Net Income / Net Profit = Revenues (Incomes) - Expenses

What Is Balance Sheet

Balance Sheet is the statement of Assets, Liabilities And Owner’s Equity and it is prepared to show Financial Position for a particular time i.e., at this time what is the financial position of Assets, Liabilities and Equity. It is also known as Statement of Financial Position in these days. It is prepared at the end of Accounting Period and this statement is the part of Financial Statements and Financial Reporting.

Balance Sheet Formula

It is based on the Basic or Fundamental Accounting Equation i.e., Assets = Liabilities + Equity that are represented in the Balance Sheet.

Below is the Business Financial Statement Example that shows us the financial position of the company businesses.

Statement of Financial position / Balance Sheet Example

                Rs.

Current Assets                                            165000 

               

Non-Current Assets                                    70000

Total Assets                                                 235000

Current Liabilities                                      15000

Non-Current Liabilities                             20000

Shareholder‘s Equity                                 200000

Total Liabilities and Owner’s Equity       235000

Note: the total assets must be equal to total of liabilities and Owner’s Equity; otherwise your answer is incorrect.

Explanation of Balance Sheet

1. Current Assets

Current Assets have life of one year or less. Examples are Cash, Accounts Receivable, Inventory, and Office Supplies.

2. Fixed Assets / Non-Current Tangible Assets

Non-Current Assets have life more than one year. Examples are Furniture, Equipment, Plant and Machinery.

3.  Total Assets

Current + Non-Current Assets

4. Current Liabilities

Liabilities have life equal or less than one year. Examples are Accounts Payable, Wages Payable.

5. Non-Current Liabilities / Long term Liabilities

Liabilities having life more than one year. Examples are Bank Loans, Long Term Notes Payable.

6. Shareholder’s Equity

It is the right of the owners in the business. Net Profit Share Capital, Retained Earnings, Share Premium are included in Shareholder’s Equity.

So in the above section, you are presented Income Statement Example and Balance Sheet Example. Hopefully, you will understand how to sketch these financial statements.