Paper F3, Financial Accounting Lecture by: Miss Atiqa Rehman

INCOME STATEMENT

• It tells the performance of Business for the year ended. • It records all the Incomes & Expenses.

ABC Ltd Income Statement of Comprehensive Income for the year ended $ $ $

Sales xx - Sales Return (xx )

Net Sales XXX

Cost of Sales XXX

Opening Stock xx + Purchases (xx ) - Purchases Return xx + Carriage Inward xx - Closing Stock (xx )

Gross Profit

+ Other Income xx Discount received xx Commission received etc. xx - Other Expense (xx ) Carriage Outward xx Discount Allowed xx Utility Bills xx Rent etc. xx

Net Profit XXXX

Cost of Sale:

All cost necessary to in occur to make the product available for sale.

Transportation Expense:

Paid by Seller Selling expense Indirect expense Include in other expense Carriage Outward

Paid by Buyer Purchase Cost Direct expense Include in calculation of Cost of Sale Carriage Inward

1-Page | 15th of March 2011 Prepared by: Mani Shah

CENTER FOR PROFESSIONAL EXCELLENCE, RAWALPINDI http://acca.moviezbuzz.com Paper F3, Financial Accounting Lecture by: Miss Atiqa Rehman

Equations:

1. Net Sales = Total Sale - Sales Return

2. Net Purchases = Total Purchases - Purchases return

3. Cost of Sales = Opening Stock + Purchases – Purchases Return + Carriage Inward – Closing Stock

4. Gross Profit = Net sales - Cost of Sales

5. Net Profit = Gross Profit + Other Income – Other Expense

Example:

A Business made Sales of $300,000 during the year, Purchases of $150,000; Business has stock of $30,000 on 1 st Jan 2010 & $50,000 on 31 st Dec 2010. Business also incurred Electricity Expense of $2000 and carriage outward of $1000. Calculate Gross Profit, Net Profit & Cost of Sales?

Solution:

Cost of Sales = Opening Stock + Purchases – Purchases Return + Carriage Inward – Closing Stock

= 30,000 + 150,000 – 0 + 0 – 50,000 = 130,000

Net Sales = Total Sale - Sales Return

= 300,000 - 0 = 300,000

Gross Profit = Net sales - Cost of Sales

= 300,000 - 130,000 = 170,000

Net Profit = Gross Profit + Other Income – Other Expense

= 170,000 + 0 – 2,000 – 1000 = 167,000

2-Page | 15th of March 2011 Prepared by: Mani Shah

CENTER FOR PROFESSIONAL EXCELLENCE, RAWALPINDI http://acca.moviezbuzz.com