MSIN1004 - Accounting for Business (UCL)
How to Balance off An Account
Income Statement Items
sales revenue
less cost of goods sold
_____________________________________
gross profit
less operating expenses
_____________________________________
operating profit (EBIT)
less interest
_____________________________________
earnings before tax (EBT, PBT)
less tax
_____________________________________
net profit (PAT)
less dividends, drawings
_____________________________________
reserves
Balance Sheet Items: Current ASSETS
- CASH in bank
- Accounts / Trade Receivable / Debtors
- Inventory (at cost)
- Prepaid Expenses (Rent, Tax)
- Provisions (CONTRA, Cr balance)
Balance Sheet Items: Current LIABILITIES
- Accounts / Trade Payables / Creditors
- Bills Payable for Operating Services supplied
- Accrued (unpaid) Expenses (Rent, Tax)
- Also include PROVISIONS
, Balance Sheet Items: Non Current ASSETS
- Property, Plant Equipment
>> Equipment at Cost
>> Equipment: Accumulated Depreciation
- Vehicle
Balance Sheet Items: Non Current LIABILITIES
- Bank Loan
Balance Sheet Items: EQUITY
- Ordinary Shareholder Capital
- Premiums
- Reserves
Examples of Operating Expenses
(plus, adjustments included in final income statement operating expenses)
SG&A
- Depreciation Expense (vehicle, property, plant, equipment)
- Rent Expense
- Salaries Expense
- Various Expenses
Adjustments
- Inventory write down
- Increase in provision for bad debts
- Increase in provision for damages
Define Depreciation
Depreciation is the allocation of the cost OR FAIR VALUE (less residual value) of an asset over its useful
life. This is charged as an expense on the income statements of the periods in which the business
benefits from the use of the assets.
D&A does not represent market value.
How should inventory be valued?
- FIFO or Average Cost, less likely LIFO
- but.... not at sale value due to need to be prudent
How to Balance off An Account
Income Statement Items
sales revenue
less cost of goods sold
_____________________________________
gross profit
less operating expenses
_____________________________________
operating profit (EBIT)
less interest
_____________________________________
earnings before tax (EBT, PBT)
less tax
_____________________________________
net profit (PAT)
less dividends, drawings
_____________________________________
reserves
Balance Sheet Items: Current ASSETS
- CASH in bank
- Accounts / Trade Receivable / Debtors
- Inventory (at cost)
- Prepaid Expenses (Rent, Tax)
- Provisions (CONTRA, Cr balance)
Balance Sheet Items: Current LIABILITIES
- Accounts / Trade Payables / Creditors
- Bills Payable for Operating Services supplied
- Accrued (unpaid) Expenses (Rent, Tax)
- Also include PROVISIONS
, Balance Sheet Items: Non Current ASSETS
- Property, Plant Equipment
>> Equipment at Cost
>> Equipment: Accumulated Depreciation
- Vehicle
Balance Sheet Items: Non Current LIABILITIES
- Bank Loan
Balance Sheet Items: EQUITY
- Ordinary Shareholder Capital
- Premiums
- Reserves
Examples of Operating Expenses
(plus, adjustments included in final income statement operating expenses)
SG&A
- Depreciation Expense (vehicle, property, plant, equipment)
- Rent Expense
- Salaries Expense
- Various Expenses
Adjustments
- Inventory write down
- Increase in provision for bad debts
- Increase in provision for damages
Define Depreciation
Depreciation is the allocation of the cost OR FAIR VALUE (less residual value) of an asset over its useful
life. This is charged as an expense on the income statements of the periods in which the business
benefits from the use of the assets.
D&A does not represent market value.
How should inventory be valued?
- FIFO or Average Cost, less likely LIFO
- but.... not at sale value due to need to be prudent
