ACFI1001 Lecture Notes - Lecture 4: Gross Profit, Financial Statement, Income Statement

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ceruleanbeaver564

23 Jul 2018

School

University of Newcastle

Department

Accounting

Course

ACFI1001

Professor

Marcus

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Document Summary

Nature and purpose of statement of financial performance/income statement. Other stakeholders groups including managers, employees and suppliers will also have an interest in the profit-making ability of the business. Income=increases in economic benefits through the inflow of assets or reduction in liabilities. Revenues= gross inflows of future economic benefits gained by different operating activities. Expenses=opposite of revenue, measure the outflow of assets incurred as a result of generating revenues. The income statement for a period shows the total income generated during a particular period, with expenses deducted, which in turn will then represent a profit or loss. Equation: assets (end)= oe + (income-expenses) + other oe + liabilities. Layout of a typical statement and its components. Key terms: gross profit= difference between the revenues from sales and the cost of those sales; Classifying expenses are normally done under four heading: cost of sales, selling and distribution, administration and general, and financial.

Related Questions

Not-for-profit accounting question

True or False:

Question: FASB Statement NO. 117 directs that revenues and expense be reported in a statement of financial position.

Answer: Per the guidance below I would argue this statement as false. I think that revenues and expenses should be reported in the statement of activities, not the statement of financial position.

âThis Statement NO. 117 requires that all not-for-profit organizations provide a statement of financial position, a statement of activities, and a statement of cash flows. It requires reporting amounts for the organization's total assets, liabilities, and net assets in a statement of financial position; reporting the change in an organization's net assets in a statement of activities; and reporting the change in its cash and cash equivalents in a statement of cash flows.

This Statement also requires classification of an organization's net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of three classes of net assetsâpermanently restricted, temporarily restricted, and unrestrictedâbe displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities.â

I have asked this question previously and received this answer as true, which I think is wrong per the guidance (amounts of change in each of those classes of net assets, which relate to revenue and expense, be displayed in a statement of activities). If you think it is true, please explain why this would be in the statement of financial position. Again I think the answer is false and should be reported in a statement of activities.

IKIBAN INC. Comparative Balance Sheets June 30, 2015 and 2014
	2015			2014
Assets
Cash	$	96,500		$	56,200
Accounts receivable, net		69,300			51,400
Inventory		66,600			96,800
Prepaid expenses		5,100			6,400

Total current assets		237,500			210,800
Equipment		135,200			120,000
Accum. depreciationâEquipment		(28,900	)		(10,500	)

Total assets	$	343,800		$	320,300

Liabilities and Equity
Accounts payable	$	26,900		$	32,200
Wages payable		7,100			16,700
Income taxes payable		2,500			4,100

Total current liabilities		36,500			53,000
Notes payable (long term)		42,000			70,000

Total liabilities		78,500			123,000
Equity
Common stock, $5 par value		240,000			189,000
Retained earnings		25,300			8,300

Total liabilities and equity	$	343,800		$	320,300

IKIBAN INC. Income Statement For Year Ended June 30, 2015
Sales			$	673,000
Cost of goods sold				407,000

Gross profit				266,000
Operating expenses
Depreciation expense	$	53,000
Other expenses		66,900

Total operating expenses				119,900

				146,100
Other gains (losses)
Gain on sale of equipment				2,600

Income before taxes				148,700
Income taxes expense				59,480

Net income			$	89,220

a. A $28,000 note payable is retired at its $28,000 carrying (book) value in exchange for cash.

b. The only changes affecting retained earnings are net income and cash dividends paid.

c. New equipment is acquired for $63,800 cash.

d. Received cash for the sale of equipment that had cost $48,600, yielding a $2,600 gain.

e. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.

f. All purchases and sales of inventory are on credit.

IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2015
Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash



Changes in current operating assets and liabilities







		$0
Cash flows from investing activities



		0
Cash flows from financing activities




		0
Net increase (decrease) in cash		$0
Cash balance at prior year-end
Cash balance at current year-end		$0

Cash Flow on Total Assets Ratio
Choose Numerator:	/	Choose Denominator:	=	Cash Flow on Total Assets Ratio
	/		=	Cash flow on total assets ratio
	/		=

(2) Compute the company's cash flow on total assets ratio for its fiscal year 2015.

copperwildebeest615

QS 12-19 Indirect: Preparing statement of cash flows LO P1, P2, P3

MONTGOMERY INC. Comparative Balance Sheets December 31, 2018 and 2017
		2018			2017
Assets
Cash	$	33,200		$	33,400
Accounts receivable, net		12,100			14,700
Inventory		108,500			84,900
Total current assets		153,800			133,000
Equipment		60,100			50,200
Accum. depreciationâEquipment		(27,100	)		(18,500	)
Total assets	$	186,800		$	164,700
Liabilities and Equity
Accounts payable	$	28,800		$	30,700
Salaries payable		600			700
Total current liabilities		29,400			31,400
Equity
Common stock, no par value		130,000			118,100
Retained earnings		27,400			15,200
Total liabilities and equity	$	186,800		$	164,700

MONTGOMERY INC. Income Statement For Year Ended December 31, 2018
Sales			$	53,500
Cost of goods sold				(22,200	)
Gross profit				31,300
Operating expenses
Depreciation expense	$	8,600
Other expenses		6,600
Total operating expense				15,200
Income before taxes				16,100
Income tax expense				3,900
Net income			$	12,200

Additional Information

No dividends are declared or paid in 2018.

Issued additional stock for $11,900 cash in 2018.

Purchased equipment for cash in 2018; no equipment was sold in 2018.

1. Use the above financial statements and additional information to prepare a statement of cash flows for the year ended December 31, 2018, using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2018
Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operations:
Changes in current operating assets and liabilities






		$0
Cash flows from investing activities


		0
Cash flows from financing activities


		0
		$0
Cash balance at beginning of year
Cash balance at end of year		$0

ACFI1001 Lecture Notes - Lecture 4: Gross Profit, Financial Statement, Income Statement

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