ACCG1000 Accounting in Society

Topic 8

• Financial Accounting for business: Preparing

Financial Statements
Topic 7 recap
• Closing entries
• Post-closing trial balance

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Topic 8
This week:

q Financial Statements for Decision-Making:

• Statement of Financial Position – Balance Sheet
• Statement of Financial Performance – Income or Profit & Loss Statement
• Statement of Changes in Equity

q Completing the 10-column worksheet

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 Trial balance
Source documents General journal General ledger
(unadjusted)
(Topic 3) (Topic 4) (Topic 5)
(Topic 5)

General ledger (post Adjusted trial

General journal General journal
adjusting entries to
(adjusting entries)
ledger) balance (Closing entries)
(Topic 6) (Topic 6) (Topic 7)
(Topic 6)

General ledger (post

Post-closing trial
closing entries to
balance
ledger)
(Topic 7)
(Topic 7)

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Recall in Topic 1 - What is accounting
Accounting

• Is a “process of identifying, measuring, recording and

COMMUNICATING economic transactions and events
of a business operation”
(Carlon et al. 2016:5-6)

• So, who are the users?

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Users of Accounting Information
Internal Users External Users

• Is the business making profit? • Should I invest in this

• Does the business need to business?
increase its sales? • what do I expect as returns?
• Does the business need a new • Is the business financially
machine? sound?
• Will sales go up if the selling • Is the business providing
price decreases? products that are socially and
• Is there enough cash to pay environmentally friendly?
debts? • Is the company paying the
appropriate amount of tax?
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What information do they need?
Users of financial statements may want information about:
1. Financial performance
Information about the ability of the entity to utilise its assets effectively and efficiently
e.g. profitable? High volume of sales?

2. Financial position
Information about the financial resources controlled by the entity
Information about the entity’s financial structure
e.g. what is the total liability?

3. Cash movements
Information about the entity’s ability to generate cash flows
e.g. cash inflows vs. cash outflows
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Income Statement (ALOIE)
Also known as:
• Statement of financial performance or
• Profit and Loss statement

The Income Statement:

• Reports financial performance for a specific time period (e.g. for the month ended,
for the year ended, etc.)
• Shows income and expenses
• Income > Expenses = Profit
• Income < Expenses = Loss

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Income Statement (ALOIE)…
Accounting Solutions
Income Statement
For the year ended 30 June 2018
Income
Services income 221 250
Expenses
Rent expense 44 100
Telephone expense 10 095
Wages expense 63 900
Advertising expense 10 125
Supplies expense 45 855 (174 075)
Profit 47 175
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Balance Sheet (ALOIE)
Also known as:
• Statement of financial position

The Balance Sheet:

• Reports financial position at a specific point in time (e.g. as at 30 June)
• Shows assets, liabilities, and equities
• Represents the accounting equation (Assets = Liabilities + Equities)
• Two alternative presentation formats (same information)
- Narrative format (vertical) – preferred in ACCG1000
- Account format (horizontal)

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Balance Sheet (ALOIE)…
• Assets and liabilities are classified as current and non-current
• Current assets: expected to be sold, converted to cash or consumed within 12
months (e.g. cash, accounts receivable, inventory)
• Non-current assets: assets that are not current assets, expected to last longer
than 12 months (e.g. land, building, equipment)
• Current liabilities: obligations that are expected to be settled within 12 months
(e.g. accounts payable, salary payable, rent payable)
• Non-current liabilities: all liabilities that are not current (e.g. mortgage payable,
bank loan)

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Balance Sheet…
Account format: Accounting Solutions
Balance Sheet
A=L+E As at 30 June 2018
ASSETS LIABILITIES
Cash at bank 23 165 Accounts 10 380
Payable
Accounts 8 895 Mortgage 100 500
receivable Payable
Supplies 7 305 Total Liabilities 110 880
Equipment 55 350
Building 157 500 EQUITY
Capital, Chris 141 335
TOTAL ASSETS 252 215 TOTAL LIABILITIES 252 215
AND EQUITY
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Balance Sheet…
Accounting Solutions
Balance Sheet
As at 30 June 2018
ASSETS
Narrative format: Current Assets
A-L=E Cash at bank 23165
Accounts receivable 8895
Supplies 7305
Non-Current Assets
Equipment 55350
Building 157500
Total Assets $252,215
LIABILITIES

Current Liabilities
Accounts Payable 10380
Non-Current Liabilities
Mortgage Payable 100500
Total Liabilities $110,880
NET ASSETS $141,335
EQUITY
OFFICE I FACULTY I DEPARTMENT Capital, Chris 13
$141,335
Statement of changes in equity
The statement of changes in equity:
• Reports the changes that took place in equity during the period (e.g. for the month
ended, for the year ended)
• Shows the opening balance, the movement, and the ending balance of equity
• The opening balance should match with the ending balance of equity in last period
• Two places to show the ending balance of equity (Balance Sheet & The statement
of changes in equity)

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Statement of changes in equity…
Accountings Solutions
Statement of Changes in Equity
For the year ended 30 June 2018
Capital, Chris – 1 July 2017 $99 360 Where is this
figure from?
Add: Profit for the year 47 175
Less: Drawings/Dividends 5 200
Capital, Chris – 30 June 2018 $141 335

Now, Have a look at

the ending bal. of
Capital presented in
Balance Sheet!
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Gibbs Barber Shop

Case study to demonstrate accounting for business

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 Account Debit Credit

Cash at Bank 51 240

Adjusted Trial Balance
Accounts Receivable 140

Business Supplies 400

Grooming Equipment 13 200

Accumulated Depreciation – grooming equipment 275

Business Supplies Payable 700

Interest Payable 300

Salary Payable 1 257

Bank Loan Payable 60 000

Service Revenue 400

Capital 10 000

Telephone Expense 160

Rent Expense 400

Depreciation Expense – grooming equipment 275

Interest Expense 300

Business Supplies Expense 300

Salary Expense 5 657

Casual Wages Expense 860

Total 72,932 72,932

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 Account Debit Credit
‘A’djusted Trial Balance
BS – CURRENT ASSET - Cash at Bank 51 240

BS – CURRENT ASSET - Accounts Receivable 140

BS – CURRENT ASSET - Business Supplies 400

BS – NON- CURRENT ASSET - Grooming Equipment 13 200

BS – NON- CURRENT ASSET Accumulated Depreciation – grooming equipment 275

BS – CURRENT LIABILITY - Business Supplies Payable 700

BS – CURRENT LIABILITY - Interest Payable 300

BS – CURRENT LIABILITY - Salary Payable 1 257

BS – NON-CURRENT LIABILITY - Bank Loan Payable 60 000

IS – INCOME – Service Revenue 400

BS – CAPITAL - Capital 10 000

IS – EXPENSE - Telephone Expense 160

IS – EXPENSE - Rent Expense 400

IS – EXPENSE - Depreciation Expense – grooming equipment 275

IS – EXPENSE - Interest Expense 300

IS – EXPENSE - Business Supplies Expense 300

IS – EXPENSE - Salary Expense 5 657

IS – EXPENSE - Casual Wages Expense 860

Total 72,932 72,932

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 Gibbs Barber Shop
Worksheet
For the month ended June 2016

Account names Trial balance Adjustments Adjusted Trial Income Statement Balance Sheet
balance
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr

Cash at Bank 51 240 51 240 51 240

Accounts Receivable 140 140 140

Business Supplies 700 300 400 400

Grooming Equipment 13 200 13 200 13 200

Accumulated Depreciation – 275 275 275

groom equipment
Telephone Payable 0 0 0

Business Supplies Payable 700 700 700

Interest Payable 300 300 300

Salary Payable 1 257 1 257 1 257

Bank Loan Payable 60 000 60 000 60 000

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 Gibbs Barber Shop
Worksheet cont.
For the month ended June 2016

Account names Trial balance Adjustments Adjusted Trial Income Statement Balance Sheet
balance
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Service Revenue 400 400 400
Capital 10 000 10 000 10 000
Telephone Expense 160 160 160
Rent Expense 400 0 400 400
Depreciation Expense – 275 275 275
groom equipment
Interest Expense 300 300 300
Business Supplies Expense 300 300 300
Salary Expense 4 400 1 257 5 657 5 657
Casual Wages Expense 860 860 860
Totals 71 100 71 100 2,132 2,132 72,923 72,923 7,952 400 64 980 72,532
Loss for the Period 7,552 7,552
Totals 7,952 7,952 72,532 72,532

Note: If Gibbs Barber Shop had made a profit, the profit figure would be a DEBIT on the income statement, and CREDIT on
the balance sheet. However, as it is a loss, there is a reduction in owners equity. 20
Gibbs Barber Shop – Income statement
Gibbs Barber Shop
Income Statement
For the month ended June 2016
Income
Service Revenue 400
Expenses
Telephone Expense 160
Rent Expense 400
Depreciation Expense – grooming equipment 275
Interest Expense 300
Business Supplies Expense 300
Salary Expense 5 657
Casual Wages Expense 860
Total expenses (7,952)

Total Profit/Loss (7,552)

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Gibbs Barber Shop – Statement of changes
in equity

Gibbs Barber Shop

Statement of Changes in Owner’s Equity
For the month ended June, 2016
Beginning Capital, Jackson $0
Add: Capital contribution – Jackson $10 000
Less: Profit/Loss for the period ($7,552)
Ending Capital, Jackson $2,448

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 Gibbs Barber Shop
Balance Sheet

Gibbs Barber Shop ASSETS

As at 30 June 2016

– Balance Sheet
Current Assets
Cash at bank 51 240
Accounts Receivable 140
Business Supplies 400
Total Current Assets 51 780

Non-current Assets

• Narrative format Grooming Equipment

Less: Accumulated Depreciation - GE
13 200
(275) 12 925
Total Non-current Assets 12 925
TOTAL ASSETS 64 705

Net Assets = Equity LIABILITIES

Current Liabilities

A–L=E Business Supplies Payable

Interest Payable
700
300
Salary Payable 1 257
Total Current Liabilities 2 257

Non-current Liabilities
Bank Loan 60 000
Total Non-current Liabilities 60 000
TOTAL LIABILITIES 62 257
NET ASSETS $2 448

EQUITY
Capital, Jackson 2,448
TOTAL EQUITY $2 448
Coming up in Topic 9
Topic 8 Tutorial:

Topic 9 Lecture:
• Interpreting and analysing financial statements

1876

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