Question

1. Identify the 3 main financial statements?

Discuss the purpose of each statement?

Explain how income statement is linked to the balance sheet?

2. Use this information to prepare a financial statement for company ABC Co for the 12 months ended 31st December 2019 Distribution expenses $ 8,000

Salaries and wages related to selling product $ 16,000

Advertisements and promotions for Product $ 5,000

Salaries and wages for administrative staff $ 7,500

Office supplies expenses $ 1500

administrative utility expenses $ 3000

Depreciation on office equipment $ 750

Interest expense $ 1500

Cost of direct material purchase for product Alpha $ 165,000

Cost of stock at the beginning of the period Alpha $ 15,000

Cost of stock at the end of the period Alpha $ 20,000

Revenue from sale of Product Alpha $ 312,500

Based on the above information prepare a basic financial statement and identify the following.

i. Gross Profit

ii. Total operating expenses (Show separately your selling distribution expenses and administrative expenses)

iii. Operating income

iv. Net income (Assume your business is taxed at 4%)

v. Correct Income statement with clear separation of items

Answer 1

Main Financial Statements-

1] Balance sheet :

This is also called as Statement of FInancial Position of company,This Statements shows all the asset and liabilities along with equities in the company.It describes the whole posititon of company in terms of it's Non current asset,Current asset,Short term and long term liabilties along with capital in comman stock or preferred stock.

This gives an idea about company's investment, it's capital structure,reserves.This information gives a picture to all current and potential stakeholders.

2] Income Statement:

This statement is also called as statement of financial performance, It shows the company's real performance in terms of revenue and expenditure.This statement shows the income in two section as revenue from operation and other income, expenditure are also divided in operating and non operating income,This shows how a company earns money.

Statement of cashflows:

This statement shows the flow of cash in the company,how cash arrives in company and how this cash is going out of company.This statement divides the flow of cash in three activities which are operating, investing, and financing activities.This statement gives a basic idea of company regarding source of cash and use of it.

Please find the attached sheets for Income statement and other answers,

Thanks,