BuggsBunny

Financial Statement
Financial Statements represent a formal
record of financial activities of business.
These are written reports that quantify
the financial performance of business.
 Financial Statement
There are following parts of financial
statement in services business.

➢ Income Statement / Profit & Loss Statement

➢ Statement of Owner’s Equity

➢ Balance Sheet / Statement of Financial Position

 Income Statement
The income statement is a report made
by management of business that shows
the revenue, expenses, and net income or
loss for a period.
Statement of Owner’s Equity

This statement shows the owner’s

investment in the business minus
the owner's withdrawals from
the business plus the net income (or
minus the net loss) since
the business began.
 Balance Sheet
A balance sheet is a financial statement
that reports a company's assets,
liabilities and owner’s equity at a specific
point in time.
 Closing Entries of Temporary Accounts
Temporary Accounts:
Expenses and revenue accounts are called
temporary accounts, because they accumulate
the transactions of only one accounting period,
at end of period accounts have to be closed.
Closing Entries:
The journal entries made for the purpose of
closing temporary accounts are called closing
entries.
 Closing Entries of Revenue Accounts
Revenue accounts have credit balances.
Therefore, closing a revenue account means
transferring its credit balance to the Income
Summary account.

Date Particulars L.F Dr. Cr.

Services Revenue Account XXXX
Income Summary Account XXXX
(To Close Revenue Accounts)
 Closing Entries of Expenses Accounts
Expenses accounts have debit balances.
Therefore, closing a expenses account means
transferring its debit balance to the Income
Summary account.
Date Particulars L.F Dr. Cr.
Income Summary Account XXXX
Rent Account XXXX
Salaries Account XXXX
Advertising Account XXXX
Supplies Expenses Account XXXX
Insurance Expenses Account XXXX
(To Close Expenses Accounts)
 Closing Entries of Income Summary
Credit / debit balance of income summary
account has been transferred to Owner’s equity.

Date Particulars L.F Dr. Cr.

Income Summary Account XXXX
Owner’s Equity XXXX
(To Close Income Summary Account)
 After-Closing Trail Balance
After the revenue and expanse accounts have
been closed, it is prepared after-closing trail
balance that consists of only balance sheet
accounts.
Particulars (Dr.) (Cr.)
Cash XXXX
Supplies XXXX
Prepaid Insurance XXXX
Equipment XXXX
Accumulated Depreciation XXXX
Salaries Payable XXXX
Capital at End XXXX
XXXX XXXX
 CAPITAL EXPENDITURES
Expenditure means the amount spent. Any expenditure incurred for the following purposes
is capital expenditure:
a) For acquiring fixed assets such as land, buildings, plant and machinery, furniture and
fittings and motor vehicles. These assets should not be acquired, with a view to resell
them at a profit but to retained in the business. The cost of fixed asset would include
all expenditure up to the time assets becomes ready for use.
b) For making improvements and extensions to the fixed assets e g. addition to buildings.
c) For increasing the earning capacity of a business or for reducing the cost of
manufacture, administration or distribution in business e.g. expenditure incurred in
removing the business to a central locality or compensation paid to a retrenched
employee.
d) For raising capital monies for he business brokerage paid for arranging \loans, discount
on issue of shares and debentures, underwriting commission etc.
 REVENUE EXPENDITURES
Expenditure will be treated as revenue if it is incurred for the following
purposes:
a) Expenditure for purchasing assets i.e., assets meant for resale profit
or for being converted into saleable goods, such as the cost of
goods. raw material and stores.
b) Expenditure incurred by maintaining fixed assets in proper Working
order e.g.. repairs to plant and machinery, buildings. furniture and
fitting etc.
c) Expenditure Incurred for meeting day to day expenses of carrying
on a business e.g., salaries, wages, rent, rates•, taxes, stationary,
etc.
Difference between Capital
Expenditure & Revenue
Expenditure
CAPITAL & REVENUE RECEIPT
• CAPITAL RECEIPT: Receipts which are non-recurring (not
received again and again) by nature and whose benefit is enjoyed
over a long period are called -capital Receipts", eg. money brought
into the business by the owner (capital invested), loan from bank, sale
proceeds of fixed assets etc.
• REVENUE RECEIPT: Receipts which are recurring (received again
and again) by nature and which are available for meeting all day to
day expenses (revenue expenditure) Of a business concern are known
as "Revenue Receipts", e.g. sale proceeds d goods, interest received,
commission received, rent received. dividend received etc.
Difference between Capital
Expenditure & Revenue
Expenditure