CHAPTER 15

Profit accounts, worksheets and

financial
statements

Learning outcome
To know how to present the profit
determining accounts, general journal
closing entries, worksheets, revenue
statements and balance sheets

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-1
KEY TERMS
• Balance sheet
• Classification
• Cost of sales
• Closing entries
• Current assets
• Current liabilities
• Equity

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-2
KEY TERMS cont.
• Gross profit or loss
• Net profit or loss
• Non-current assets
• Non-current liabilities
• Profit and loss account
• Revenue statement
• Trading account
• Worksheet

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-3
SOME DEFINITIONS
• Cost of sales
– Direct cost of buying and preparing trading stock for sale

• Closing entries
– General journal entries to close all Revenue and
Expense accounts to Trading and Profit and loss

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-4
DEFINITIONS cont.
• Gross profit (loss)
– Result of trading operations

• Net profit
– Result of all operating activities in Profit and loss
account

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-5
FINANCIAL STATEMENTS
• Revenue statement
– All revenue, expense and inventories to obtain gross and
net profits or losses
• Balance sheet
─ A statement of assets and liabilities to be reconciled with
the equity of the owner

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-6
TRADING ACCOUNT
• Contains all revenue and expenses relating to
getting goods ready for sale
• Records opening and closing inventories amounts
for the period
• Calculates gross profit

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-7
TRADING ACCOUNT cont.

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-8
PROFIT AND LOSS ACCOUNT
• Profit and loss account shows:
– gross profit from trading
– other revenues
– expenses of operating the business during current
period
• Calculates net profit or loss for period

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-9
PROFIT AND LOSS ACCOUNT cont.
• Profits or losses belong to the owner of
the business and are transferred by
closing entry to Equity on the balance
sheet

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-10
PROFIT AND LOSS ACCOUNT cont.

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-11
INCOME STATEMENT

Contents of the Revenue Statement

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-12
DRAWINGS
• Drawings is a separate account in the Equity
account
• Records amounts taken from the business by
owner
• Drawings is closed to Equity at end of year
• Drawings are not a business expense and are
recorded in the Equity section of the ledger
accounts

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-13
CLASSIFIED BALANCE SHEET
• AASB 101
• Report showing current assets, non-
current assets, current liabilities, non-
current liabilities and equity

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-14
CLASSIFIED REVENUE
STATEMENT
• AASB 101
• Report showing details of revenue,
expenses, cost of goods sold, gross
profit and net profit

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-15
COLUMNAR WORKSHEETS
• Columnar worksheets contain balances of general
ledger accounts and are used to facilitate
preparation of classified accounts
• Balance day adjustments are entered in the
‘Adjustments’ column, and all trial balance figures
and adjustment changes are transferred to the
‘Adjusted Trial Balance’

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-16
COLUMNAR WORKSHEETS cont.
• Closing inventory figure is entered in both the debit
and credit columns of the ‘Adjustments’
• Worksheet ‘Adjusted Trial Balance’ columns
contain the amounts to be entered in the financial
statements

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-17
CLASSIFICATION OF OPERATING
EXPENSES
Selling expenses
– Advertising for sales
– Salespersons’ salaries
– Shop rent
– Shop telephone
– Freight outwards
– Sales commissions paid
– Sales vehicles expenses
– Depreciation of sales vehicles, shop fittings, etc.

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-18
CLASSIFICATION OF OPERATING EXPENSES
cont.
Administrative expenses
– Advertising for staff
– Administrative staff salaries
– Depreciation of assets and motor vehicles
– Office expenses
– Stationery
– Office telephones
– Travel expenses
– Light and power
– Insurance
– Rates, rent, taxes
– Cleaning

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-19
CLASSIFICATION OF OPERATING
EXPENSES cont.
Financial expenses
– Discount allowed
– Interest on mortgage and loans
– Bank charges
– Interest on overdraft
– Bad debts
– Doubtful debts

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-20
OPERATING REVENUE
• Rent revenue
• Discount revenue
• Commission revenue
• Interest revenue

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-21
CLASSIFICATION OF THE
BALANCE SHEET
Current assets
– Cash at bank and cash on hand
– Inventories
– Debtors control less provision for doubtful debts
– Petty cash advance
– Prepaid expenses
– Accrued revenue

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-22
CLASSIFICATION OF THE
BALANCE SHEET cont.
Non-current assets
– Plant and machinery
– Land and buildings
– Motor vehicles
– Long-term investments
– Patents
– Office furniture and fittings
– Computers and equipment
– Accumulated depreciation deducted from the
relevant asset to show amount left to depreciate
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-23
CLASSIFICATION OF THE
BALANCE SHEET cont.
Current liabilities
– Short-term loans
– Bank overdraft
– Creditors control
– GST liability
– Accrued expenses
– Revenue in advance

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-24
CLASSIFICATION OF THE
BALANCE SHEET cont.
Non-current liabilities
– Loans secured by mortgage
– Long-term loans

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-25
CLASSIFICATION OF THE
BALANCE SHEET cont.
Equity
– Capital—amount business owes owner
– Drawings— owner’s withdrawals from the business
– Net profit or loss—amount transferred from
business operations for the year

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-26
BALANCE SHEET
RECONCILIATION
Current assets + Non-current assets
= Total assets

Less Current liabilities

Less Non-current liabilities
= Net assets

To be reconciled with the Equity account of the

owner

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 15-27