COMPANY'S INCOME STATEMENT

The income statement is one kind of major financial statements which is used by accountants departments and business owners.  The income statement is referred to as the profit and loss statement , statement of operations, or statement of income. It is a summary of a management's performance as reflected in the profitability of an organization over a certain time of period.

 It is based on a fundamental accounting assumption, Income = Revenue - Expenses and shows the rate at which the owners equity is changing for better or worse. Along with balance sheet and cash flow of statement it forms the basic set of financial information required to manage an organization. It also called earnings report, operating statement, or profit and loss account.


It is very important  format an income statement so that it is appropriate to the business being conducted.It is required by potential lenders, such as banks, investors, and vendors. They will use the financial reporting contain and determine credit limits.

1. Sales
Sales figure represents the amount of revenue generated by the organisation. This amount recorded here is the total sales, less any product returns or sales discounts.

2. Cost of sales
This number represents the costs directly associated with making or acquiring  products. Costs include materials purchased from suppliers used in the manufacture of  product, as well as any internal expenses directly expended in the manufacturing process.

• Gross profit
Gross profit is derived by subtracting the cost of goods sold from net of sales
3. Operating expenses
These are the daily expenses incurred in the operation of  business.

• Sales salaries
These are the salaries plus bonuses and commissions paid to sales staff.

• Advertising
These represent all costs involved in creating and planing print or multi-media advertising.

• Rent
These are the fees incurred to rent or lease office or industrial place.


6. Taxes
This is the amount of income taxes  owe to the government and, if applicable, state and local government taxes.

7. Net income
This is the amount of money the business has earned after paying income taxes.

It is a measures a company's financial performance over a specific accounting period. 

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EVENTS AFTER THE REPORTING PERIOD

IAS 10 discuss Events after the Reporting Period contains requirements when an entity should adjust its financial statements for events after the reporting period and the disclosures note that an entity should be given about the date when the financial statements were authorised and about events after the reporting period(the latter being disclosed where material).

December 2003 IAS 10 was reissued and applies to annual periods beginning on or after 1 January 2005.

Event after the reporting period: It is an event, which could be favourable or unfavourable, that occurs between the closing of the reporting period and the date that the financial statements are authorised for issue.

Events after the closing of reporting period may be classified into two types:
1.Adjusting event: Those events that provide further evidence about conditions that existed at the end of reporting period.It is an event after the reporting period that provides further evidence of conditions that existed at the closiing of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate.

2.Non-adjusting event:It is an event after the reporting period that is indicative of a condition that arose after the closing of the reporting period.

Adjust financial statements for adjusting events - events after the balance sheet date that provides further document of conditions that existed at the closing of the reporting period, including events that detairment that the going concern assumption in relation to the whole or part of the enterprise is not appropriate.  Do not adjust for non-adjusting events - events or conditions that arose after the closing of the reporting period.If an entity discuss dividends after the reporting period, the entity shall not indicate those dividends as a liability at the closing of the reporting period. It is a non-adjusting event.

Going concern assumption issues arising after closing of the reporting period
An entity shall not prepare its financial statements on a going concern assumption basis if management determines after the closing of the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.

Disclosure:Non-adjusting events that should be disclosed if they are of such importance vale that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure note is  the nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made.

A company should be updated disclosures notes that is related to conditions that existed at the closing of the reporting period of ntime to reflect any new messages that it receives after the reporting period about those conditions.

Companies must be disclosed the date when the financial statements were recognised for issue and who gave that authorisation. If the owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that matter.

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FINANCIAL ACCOUNTING AND CONCEPT

Actually Financial Accounting is a skills and concepts .It provides the message that is needed for sound economic decision making. The main objectives of financial accounting is to prepare the financial reports that provides messages about a organisations performance to external audience such as investors, creditors, and tax authorities,shareholders. On the other hand, it is also performed according to Generally Accepted Accounting Principles or GAAP method.

Actually businesses have two primary objectives:
   1. Earn from profit
    2.Remain to solvent

The four financial statements are :

    1.Balance Sheet
    2.Income Statement
     3.Statement of financial position
     4.Statement of Cash Flows

Double Entry Accounting

Financial accounting is based on Double Entry book keeping system.which each transaction has two effects.One is debt and another  is credit.
 Assets  =  Liabilities  +  Equity

To record transactions, one must be:
1.    Identify an event that has affected the entity financially.
 2.   Measurement the event in the monetary terms.
 3.   Determine which accounts the transaction will be affected.
4. Determine whether the transaction will be increased or decreased the balances in those accounts     5.Record the transaction in the ledger books.
All larger business   follows  the double entry book keeping system. Under the double entry system, instead of recording a transaction in only a single entity account, the transaction is recorded in two accounts of ledger.




This is the financial accounting.Actually it provides internal and external information of organisation.It is helpfull for all financial stakeholder.

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PAYABLE ACCOUNT

When a organisation purchases goods or services in advance of paying for them, we will say that the company is purchasing the goods or service   on credit term. The supplier (seller) of the goods on credit is also recognised to as a creditor. If the buyyer receiving the goods does not sign a promissory note, the supplier's bill or invoice will be recorded by the organisation in its liability account Accounts Payable or Trade Payables.

An accounting entry that is  represented an entity's obligation to pay off a short-term debt entry to its creditors. The accounts payable entry is found on a statement of financial position under the heading current liabilities.

Accounts payable is the certain amount of an entity's short-term obligations to pay seller for products and services which the entity purchased on credit from seller. If accounts payable are not paid within the payment date  to with the seller, the payables account are considered to be in default, which may be triggerd a penalty or interest payment method, or the revocation or curtailment of additional credit term from the seller.

It is a liability account, Accounts Payable will normally have a credit balance. Hence, when a buyyer invoice is recorded, Accounts Payable will be creditedentry and another account must be debited entry . When an account payable(buyyer) is paid, Accounts Payable will be debited entry and Cash will be credited entry. Therefore, the credit balance in  Payable account should be equal to the amount of buyyer invoices that have been recorded but have not yet been paid.

Under the accrual concept of accounting method, the organisation receiving goods or services on credit term must be reported the liability account no later than the date they were received. The same date is used to record the debit  to an expense account or asset account as appropriate. Hence, accountants say that under the accrual concept of accounting expenses are reported when they are incurred.

The  account term payable can be also refered to the person or staff that processes seller invoices and pays the organisation's bills. That's why a seller who hasn't received payment from a buyyer will phone and ask to speak with "accounts payable."

The  payable accounts process involves are reviewing an enormous amount of detail to ensure that the legitimate and accurate amounts are entered in the accounting system. Much of the information that is needed to be reviewed will be found in the following information:

    purchase orders issued
    receiving reports
    invoices from the organisation's
    contracts and other aggriment

The accuracy and completeness of a company's  statements of financial position are dependent on the  payable account . A well-run accounts payable account  will include:

    the timely processing of accurate and legitimate seller invoices,
    accurate adjustment in the appropriate general ledger , and
    the accrual of obligations and expenses account that have not yet been completely processed.
When personal accounts payable are recorded in jeneral ledger, this may be called in a payables ledger, thereby keeping a large number of personal transactions from cluttering up the general books. Alternatively, if there are few payables, they may be recorded directly in the general books. Accounts payable ledger appears within the current liability section of an entity's financial statement

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RECEIVABLE AND BAD DEBTS

An entity which may not be able to recover its outstanding balance in respect of certain receivables. In accountancy  term we can refer to such receivables as Irrecoverable Debts or Bad Debts. irrecoverable debts could be arise for a number of reasons or matter such as when customer going to bankrupt or trade dispute or fraud.


If we think buying something  goods, it's easy to picture ourselves to standing at the checkout, writing out a personal check, and taking possession of the goods. It's a simple  way of transaction—we exchange our money for the store's business.

Every time an entity realizes that it unlikely to recover its debt from a receivable, it must be 'write off' the bad debt or irrecoverable debts from its receivable books. This ensures that the entity's assets  are not stated above the amount it is reasonably expect to recover which is in line with the  prudence concept.

Accounting entry required to write off a bad debt or irrecoverable debts is as follows:

Debit    Bad Debt Expense
Credit    Receivable

The credit entry reduces the receivable balance that were recognized to balance sheet. The debit entry has the effect of cancelling the impact on profit of the sales that were previously recognized in the income statement.


In the world of business today, however,most of the company  wants to sell their goods  on credit. This would be equivalent to the grocer of transferring their ownership of the business to you, issuing a sales invoice, and allowing you to pay for the business at a later date.

Example

Rahim LTD sells goods to Karim LTD for $800 on credit. Rahim LTD subsequently finds out that Karim LTD is being liquidated and therefore the prospects of recovering its dues are very low.

Rahim LTD should write off the receivable from Karim LTD in view of the circumstances. The double entry will be recorded as follows:

   
Debit    Bad Debt Expense    800   
Credit    Receivable        800



Whenever a retailer decides to offer its goods or services on credit, two things happen on that time: (1) the retailer boosts its potential to increase revenues since many customers appreciate the convenience and efficiency of making purchases on credit term, and (2) the retailer opens itself up to potential losses if its customers do not pay the sales invoice amount when it becomes due.

Under the accrual basis of accounting a sale on credit will:

    Increase sales or  revenues, which are reported on the income statement, and
    Increase the amount due from customers, which is reported as accounts receivable.

If a customer does not pay the amount it owes, the seller will report:

    A credit loss or bad debts or irrecoverable debts expense on its income statement.

With respect to  statements of financial position, the seller should be report its estimated credit losses as soon as possible using the receivable allowance method. For income tax purposes, however, losses shoud be reported at a later date through the use of the direct write-off method.
Recording Services Provided on Credit

Assume that on may 8, hunny Design Co. provides $5,000 of graphic design service to one of its customer with credit terms of net 30 days time.

Under the accrual basis of accounting concept, revenues and sales are considered earned at the time when the services are provided. This means that on may 8 hunny will record the revenues it earned, even though hunny will not receive the $5,000 until may. Below are the accounts affected on mat 8, the day the service transaction was completed:




In this transaction, the debit to Accounts Receivable increases hunny's current assets, total assets, working capital, and stockholders'  equity—all of which are reported on its financial statement. The credit to Service Revenues will be increased Malloy's revenues and net income—both of which are reported on its income statement.

Accounts receivable are not always be collected in full due to many reasons. Sometimes buyer simply evade payment and the cost of pursuing them is more than the recoverable amount and sometimes they become go to bankrupt, sometimes the debt becomes time-barred etc. A debt which is determined to be uncollectible i.e. there is no chance that the debt would be collected, is called a bad debt or irrecoverable debts. Bad debts or irrecoverable debts were written off from accounts as soon as they are determined. This is because a organisation does not expect future economic benefits from a bad debt and it no longer remains an asset

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INVENTORY

Inventory is a current asset whose ending balance should report the cost of a merchandiser's products awaiting for sale. The inventory of a manufacturer organisation should report the industry cost of its raw materials, work-in-process, and finished goods of invetory. The cost of inventory should be  included all their costs necessary to acquire the items and to get them ready for sale in the market.

The raw materials, work-in-process  and finally finished goods of inventry that are considered to be the portion of a business's assets that are ready for sale. Inventory represents that it is one kind of  most important assets that most businesses possess, because the turnover of inventory  items represent one of the initially sources of revenue generation and subsequent earnings for the company's owners.


                                            

Usually high possessing amount of inventory for long  time periods is not  good for a business because of inventory storage, obsolescence and spoilage costs. Althaow,  too little possessing inventory isn't good for business, because the business  may run the risk of losing out on potential sales and potential market share.

Inventory management , such as a just-in-time inventory system, can be helped minimize  costs because goods are created or received as inventory only when they are needed. When inventory items are acquired or produced at varying costs prise, the company will need to be made an assumption on how to flow the changing costs.

The inventory item is-
a complete listing of merchandise or stock on hand, wip, raw materials, finished goods of inventory on hand, etc., made it each year by a business concern.

the objective of items represented on such a list, as a merchant's stock of goods in inventory.

the aggregate value of a inventory of goods.

raw material from the inventory time of its receipt at an organisational plant for manufacturing purposes to the time when sold.

a detailed, often descriptive, list of articles, giving the code number, quantity value, and value of each item; catalog.

a formal list of movables, as of a merchant's inventory of goods.

a formal list of the property of a person.

a tally of one's personality traits, aptitudes, skills. for use in counseling and guidline.

a catalog of natural resources, especially a count or estimate of wildlife and game in a particular area.

the act of making a catalog or detailed listing.
verb , inventoried, inventorying.



Cost of inventoey is calculated as:
Opening inventory+purchase-closing inventory.
So we can say, goods might be unsold at the end
of an accounting period and so still be held in
 inventory.

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LIMITED COMPANY

Limited liability company is a one kind of business where many investor invest their money.And it is a large business.May be their are thousand of shareholder of this business.It can be operated business domestically or internally.It has many many investor or shareholder.

Actually shareholders provide money. Annually company issue share and shareholders collect this shares and business increase their money. on the other word sharemarket is a one kind of money market. Shareholder provides money but they do not operate the business. So they collect director and director run the whole business.All the decision make director.And company run continually to his like


Like owners of partnerships or sole trader they provide their personal income tax.But the LLC itself is not a separate taxable entity. Like owners of a organization, however, all LLC owners are protected from their personal liability for business debts and claims -- it is known as "limited liability." For this reasons, many people say that the LLC combines the best features of the partnership and corporate business structures in the world.

Because of these dual benefits, of the shareholders, or “Members” as they are known if part of an "limited liability.Actually it has certain tax advantages, including, but not limited to, pass-through taxation and partnership treatment by the IRS. These advantages make limited liability very desirable for certain business  ventures.

Advantages of the LLC form of business organization:
⦁    Tax advantage
⦁    limited liability
⦁    more people
⦁    much money
⦁    better job for worker
⦁    big market place
⦁    issue share anytime
⦁    fringe benefit

    An limited liability company allows their members, to like shareholders in a corporation, to enjoy limited liability. The LLC is a separate legal entity.  Its assets are considered separate and apart from Member’s assets.Because save for the amount invested by the member in the LLC.

Some of the minor disadvantages of an LLC might be:
⦁    It is very hard.
⦁    It is very risky business
⦁    Tax rate is high
⦁    It is very costly
⦁    It is bouring job

A organisation structure whereby the shareholder of the company cannot be held personally liable for the company's all debts or liabilities.LLC differ slightly from one country to country. However, it is very essentially a hybrid entity that is combination of the characteristics  corporation and a partnership or sole tradership.

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PARTNERSHIP BUSINESS

Partnership is one kind of business where two or more than people operate this business.It is owned jointly number of people.The may be partner, client,friend,family or relative.The partners are jointly and severally liable for any losses that the business could make.It is a traditional business.

There are two or more people are associated.Like a sole trader the partnership is not legally distinguished from its member.Professional assets of the partners can be used.

The more advantage of trading as a partnership is:

• There are more money.
• More resources are available. 

• Partner can substitute for each other.

Disadvantage of partnership is:

• There are unlimited liability.
• Management system is week.

Also partners can introduce or money at any time when the like.

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SOLE TRADER

Sole trader is a that business which is owned and operated by one person.It is owned and management by one person but there might be any number of employees.A sole trader is fully and personally liable for any losses that the business might make.

According conventions recognise the business as a separate entity from its owner.Althow it has unlimited liability.Actually it is a small business and owner provides all financial resources.

The advantage of operating as a sole trader is flexibility and autonomy.He can operate the business in his personal will and manage the business as he likes.Also he can introduce or withdraw  capital at any time.

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GOODWILL

Parent holding(investment) at fair value....................................................xx
NCI value at acquisition.............................................................................xx

Total acquisition.......................................................................................    x
Less:
Fair value of net assets at acquisition...........................................................(xx)
Goodwill on acquisition..............................................................................    x

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