Basic Financial

Statements
TOPIC 4
Learning Outcome
By the end of this session, students will be able to:
Explain the purpose of Statement of Profit & Loss
Balancing off account and transfer to Statement of Profit & Loss.
Construct a Statement of Profit & Loss based on information given.
Draw up a balance sheet from information given in a trial balance.

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Income Statement
STATEMENT OF PROFIT AND LOSS

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Gross Profit
This is the Trading account section of the income statement:

Cost of Gross
Sales goods Profit /
sold (loss)

Opening Stock + Purchases – Closing stock = Cost of goods sold

Unsold Goods

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Net Profit
This is the Profit and Loss account section of the income statement:

i.e. Rental Received, Commission Earned

Gross Other Net Profit

Expenses
Profit Revenues / (loss)

i.e. Utilities Expenses, Stationery Expenses

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Example

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Additional Information
 B. Swift has drawn up a trial balance as on 31 December 2017 after the
completion of his first year in business.
 Let’s assume that the closing stock is RM3,000, and the value will be the
cost price (purchase price) of goods.
 To calculate cost of goods sold:

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Additional Information (Continue)
 The cost of goods sold for this year will be:

 Based on the sales revenue RM38,500, the gross profit can be calculated:

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Balancing off & Transfer
(A) ) The balance of sales account :
1. Debiting the sales account (closing it).
2. Crediting the trading account.
(B) The balance of the purchases account:
1. Debiting the trading account.
2. Crediting the purchases account (closing it).
(C) Closing inventory account:
1. Debit closing inventory account.
2. Credit the trading account.

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Balancing off accounts

Trading (C)

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Transfer to Trading Account

Balancing figure

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Closing off expenses accounts

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Transfer to profit and loss account

Balancing figure

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Statement of Profit & Loss (Income
Statement)

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Effect on the capital account Transfer to capital account

Balancing figure

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Redrafted Trial Balance
After all expenses account were closed off and net profit have been transferred
to the capital account:

Updated balance for

capital account

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Reviewed Questions
TUTORIAL 4 (KEEP YOUR ANSWER, IT WILL BE USED
LATER IN TUTORIAL 5)

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Statement of Financial
Position (Balance
Sheet)
STATEMENT OF FINANCIAL POSITION

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Trial balance
• This is a list of the debit and credit balances in the accounts.

Income statement
• This is a list of revenues and expenditures arranged so as to produce
figures for gross profit and net profit for a specific period of time.

Statement of financial position

• This is a list of balances arranged according to whether they are
assets, capital or liabilities and shows the financial situation on a
specific date.
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Layout of the Statement of financial
position
Assets
Non-current assets
◦ Were not bought primarily to be sold.
◦ Are to be used in the business.
◦ Are expected to be used in the business for a long time.

Current assets
◦ Likely to change in the short term (within 12 months)
◦ Listed in increasing order of liquidity:
◦ Inventory
◦ Accounts receivable
◦ Cash at bank
◦ Cash in hand

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Layout of the Statement of financial position
Liabilities
Current liabilities
◦ Items that have to be paid within a year.

Non-current liabilities
◦ Are items that have to be paid more than a year

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Statement of financial position

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Reviewed questions
TUTORIAL 5

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THE END