Module 2: Financial Statements

Nexford University
ACC 6050 Accounting and Financial Reporting
Professor Damian Dunbar
December 04, 2023

Income Statement using GAAP Standards

 TechPay Limited
Income Statement for the Period Ended December 31, 2022
$
Income 750,000.00
Cost of sales and operations 145,000.00
Gross margins 605,000.00
Operating expenses
Salaries and wages 150,000.00
Advertising 25,000.00
Car and truck expenses 75,000.00
Depreciation 4,000.00
Employee benefit programs 10,000.00
Insurance 6,000.00
Legal and professional 12,000.00
Mortgage interest 3,000.00
Other interest paid 2,500.00
Office expenses 5,500.00
Pension and profit sharing plans 10,500.00
Rent on machinery and equipment 5,000.00
Rent on other business property 20,000.00
Repairs 4,000.00
Taxes paid 9,500.00
Travel 20,000.00
Utilities 2,750,00
Other 2,350.00
Total operating expenses 367,100.00
Net operating income 237,900.00

Balance Sheet using GAAP Standards

TechPay Limited
 Balance Sheet
December 31, 2022
Assets $
Cash 100,000.00
Account receivable 300,000.00
Inventories 15,750.00
Prepaid expenses 30,400.00
Property, Plant and Equipment 190,000.00
Less (Accumulated depreciation) 4,000.00
632,150.00
Liabilities
Accounts Payable 150,000.00
Short-term loans 75,530.00
Deferred income tax 4,640.00
Long-term debt 97,950.00
328,120.00
Owner's Equity
Capital 56,000.00
Retained Earnings 10,130.00
Current Earnings 237,900.00
304,030.00
632,150.00

Balance Sheet using IFRS Standards

 TechPay Limited
Balance Sheet
December 31, 2022
Assets
Non-Current assets: $ $
Property, Plant and Equipment 190,000.00
Less (Accumulated Depreciation) (4,000.00)
Total non-current assets 186,000.00
Current assets:
Inventories 15,750.00
Prepaid expenses 30,400.00
Trade Receivables 300,000.00
Cash 100,000.00
Total current assets 446,150.00
Total Assets 632,150.00
Equity and liabilities
Equity
Capital 56,000.00
Retained Earnings 10,300.00
Total equity 66,300.00
Non -current liabilities
Borrowings 173,480.00
Deferred income tax 4,640.00
Total non-current liabilities 178,120.00
Current liabilities
Accounts Payable 150,000.00
Total equity and liabilities 632,150.00

MEMO
From: Oluwakemi Fawole
To: Jennifer Doherty
Date: December 4, 2023
Subject: Understanding GAAP Income Statement, GAAP Balance Sheet, and Differences
between GAAP and IFRS Standards
The income statement, also known as the Profit and Loss Statement, is a critical financial
document that provides insights into your company's performance over a specific period. It
begins with the total sales or service income, which represents the revenue. Following revenue,
various expenses are listed. These include costs directly tied to the production of goods, known
as the Cost of Goods Sold, and operational expenses, such as administrative and selling
expenses. The culmination of this statement is the net income, often referred to as the "bottom
line." This figure is pivotal as it represents what remains after all operating expenses, interest,
and taxes have been deducted from the total revenue. The net income is a key indicator of your
company’s profitability and financial health.
The balance sheet offers a snapshot of your company's financial position at a specific point in
time. It lists assets, liabilities, and shareholders' equity. Assets, the resources controlled by your
company, are usually listed in order of liquidity, i.e., how quickly they can be converted into
cash. This includes current assets like cash and receivables, as well as long-term assets like
property and equipment. On the other side, liabilities represent what your company owes,
classified into short-term (due within a year) and long-term obligations. Shareholders’ equity, the
residual interest in your company's assets after deducting liabilities, includes elements such as
issued capital (common stock) and retained earnings. This balance sheet serves as a fundamental
tool for assessing the financial stability and capability of your business.
The differences between GAAP (Generally Accepted Accounting Principles) and IFRS
(International Financial Reporting Standards) are significant and can notably affect how a
balance sheet is presented and interpreted. One of the primary distinctions lies in the approach
each standard takes: GAAP is more rules-based, offering specific guidelines for various
scenarios, while IFRS is principles-based, allowing for broader interpretation and flexibility. This
fundamental difference influences several aspects of the balance sheet. For instance, under IFRS,
companies have the option to revalue fixed assets such as property, plant, and equipment,
potentially impacting their book value and altering the asset side of the balance sheet. In contrast,
GAAP requires fixed assets to be recorded at historical cost minus accumulated depreciation.
Additionally, IFRS and GAAP differ in their treatment of certain liabilities and equity
classifications, particularly in terms of distinguishing between current and non-current liabilities.
These disparities can result in variations in the reported values and structure of the balance sheet.