Multiple Step Income Statement
Multiple step income statement is prepared for merchandise and manufacturing business. In first step you calculate
cost of goods manufactured and sold. In second step you calculate result of business operations i.e. profit or loss.
Merchandising Business:
Purchase of Goods
Expense on Purchase Costing Activities
Business point
Expense on Sale
Operating Activities
Sale
Co Name
Income Statement
For The Year Ended On the --/--/--
Particulars Rs Rs
Sales XXX
- Sale Return (XXX) XXX
- Cost Of Goods Sold
Opening Inventory XXX
+ Purchases xxx
- Purchase Return (xxx) XXX
+ Expense On Purchase
Wages xx
Transportation xx XXX (XXX)
Cost Of Goods Available For sale XXX
- Closing Inventory (XX)
Gross Profit XXX
- Operating Expense
Rent XX
Salaries XX
Advertisement XX
Admin Expense XX (XXX)
XXX
Other Income XX
Profit Before Tax XXX
Manufacturing Business:
Raw Materials
Expense on Purchase
Costing Activities Factory/ Production
Process
Labour FOH
Convert
Finished Goods
Expense on Sale
Operating Activities
Sale
Prime Cost = Material = labour
Conversion Cost = Labour + FOH
Process Cost = Material + Labour + FOH
Inventories:
Raw Material = Raw Material Inventory
Semi-Finished Goods = W.I.P
Finished Goods = Finished Goods Inventory
Co Name
Cost of Goods Sold Statement
For the Year Ended on --/--/--
Particulars Rs Rs
Raw material Opening Inventory XXX
Purchase of Raw material XX
Purchase Return / Allowances (XX) XX
Expense On Purchase
Wages XX
Carriage XX XX
Material Available For Use XXX
R.Material Closing Inventory (XXX)
Material Used XXX
Labour XXX
Prime Cost XXX
FOH XXX
Process Cost XXX
W.I.P XXX
Cost of Goods Manufactured XXX
Finished Goods Opening Inventory (XXX)
Cost Of Goods Available XXX
For Sale XXX
Finished Goods Closing Inventory (XXX)
Cost Of Goods Sold XXX
Co Name
Income Statement
For The Year Ended On --/--/--
Particulars Rs Rs
Sales XXX
- Sale Return (XXX) XXX
- CGS (XXX)
Gross Profit XXX
- Operating Expense
Admin XXX
Marketing XXX
General XXX
Distribution XXX (XXX)
Profit From Operation XXX
+ Other Income XXX
Earnings Before Interest & Tax (EBIT) XXX
- Interest (XXX)
Earnings Before Tax ( EBT) XXX
- Tax (XXX)
Net Income XXX
Change in Owners’ Equity
The financial statement that is used to update the owner’s equity.
Co Name
Statement of changes in Owner’s Equity
For The Year Ended on --/--/--
Particulars Rs Rs
Owner’s capital at the start of year XXX
+ Additional Investment during the year XXX
+ Net Income XXX XXX
Equity During the year XXX
- owner’s withdrawal / drawing/ dividend XXX
Net loss XXX (XXX)
Owner’s equity at the end of the year XXX
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Types of Accounts:
Assets Liabilities Owner’s Equity Revenue Expenditure
Balance Sheet Owner’s Equity Statement Income Statement
Cash Flow Statement
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Balance Sheet
The financial statement that is used to show the financial position of business. Financial position refers to
the resources (assets) business have as compare to claim on assets of the business (liabilities). Therefore
balance sheet is prepared with the help of accounts of assets, liabilities & equity.
General Current Format
Co Name
Balance Sheet
As On --/--/--
Current Assets: Rs Rs
Cash XXX
Cash at Bank XXX
Note Receivable XXX
A/C Receivable XXX
Prepaid Expense XXX
Accrued Income XXX
Inventory XXX
Total Current Assets XXX
Fixed Assets:
Land XXX
Building XXX
Furniture XXX
Total Assets XXX
Current Liabilities:
Bank over draft XXX
Note Payable XXX
A/C Payable XXX
Outstanding Expense XXX
Unearned Income XXX
Total Current Liabilities XXX
Long Term debt & Equity:
Bonds XXX
Bank Loans XXX
Capital XXX
Net Profit XXX
Drawings (XXX) XXX
Total Debt & Equity XXX
Assets = Liabilities + Equity
Liabilities = Equity – Assets
O.Equity = Assets – Liabilities
Modified Current Format:
Co Name
Balance Sheet
As On --/--/--
Current Assets: Rs
Cash XXX
Cash At Bank XXX
Note Rec XXX
A/c Rec XXX
Prepaid Exp XXX
Accrued Income XXX
Inventory XXX
Total Current Assets XXX
Current Liabilities:
Bank over draft XXX
Note payable XXX
A/c Payable XXX
Outstanding Expense XXX
Unearned Income XXX
Total Current Liabilities (XXX)
Working Capital XXX
Fixed Assets XXX
Net Worth of Business XXX
Sponsored By:
XXX Equity
XXX
Long term debts
XXX
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Working Capital = Current assets – current liabilities
Financial Sources
Debt Equity
Long Term Loans Owner’s Investment
Bonds/ debentures Stock/ shares
Bank loan/ mortgage New Partner
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Cash Flow Statements:
The financial statement that is used to show the inflow & outflow of cash from
business. For this purpose the business is divided into three categories,
- Operating Activities
- Investing Activities
- Financing Activities
In operating activities the cash flow from operation is showed.
In investing activities it is showed that how much cash has been in flowed or outflowed due to investment
of business.
In financing activities cash used / generated due to finance has been showed.
Co Name
Cash Flow Statement
For the year ended on --/--/--
Operating Activities: Rs Rs
Net Profit/ loss XXX
+ Depreciation XX
Drawing XX
Bad Debts XX XXX
Cash Available/(used) from operation XXX
Other Activities:
Current Asset increase (XXX)
Current Asset decrease XXX
Current Liabilities increase XXX
Current liabilities decrease (XXX)
A) Cash available/ (used) by operating activities XXX
Investing Activities:
Increase in Fixed assets (XXX)
Decrease in fixed assets XXX
B) Cash available/ used by investing activities XXX
Financing Activities:
Increase in T.debt/ equity XXX
Decrease in T.debt/ equity (XXX)
Drawing/ dividend (XXX)
C) Cash available/ used by financing activities XXX
Cash available/ used by all activities A+ B+ C XXX
Opening Balance of Cash XXX
Closing Balance Of Cash XXX
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Generally Accepted Accounting Principles
1: Entity Principle:
The Business has its own economic entity. Business has separate entity from its owner.
2: Counter Account:
The account which is created against any account due to violation of any accounting principle is known as counter
account
3: Cost Principle:
According to cost principle the assets must be recorded on its historical cost not on its market cost. Means the actual
value you paid for acquiring the asset.
4: Going Concern:
This principle state that a business is a continuous process not for a specific time period.
5: Periodicity Principle:
When you assume that business is a continuous process than to evaluate the results of business you must identify
business activities into certain accounting period & evaluate the results at the end of the accounting period.
6: Matching Principle:
This principle states that at the end of every accounting period you must match the revenue and expense with each
other and transfer its net result to the owners’ equity.
7: Realization Principle:
This principle states that record revenue when you earned it weather you receive cash or not and record the
expense when you received services weather you pay cash or not.
8: Dual Aspect:
According to this principle accountants assumed that every economic event or business transaction has two effects
& both are recorded in the books of accounts.
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