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 .