Professional Documents
Culture Documents
CMA Part 1
External Financial Reporting
CMA Part 1
Financial Statements
Financial Statement
User:
The person receiving these reports is termed the user of the financial
statement.
CMA Part 1
Users of Financial Statements
Banks
Suppliers
Customers
CMA Part 1
Users of Financial Statements -Internal
Management: for analyzing the Owners: for analyzing the viability and
organization's performance and profitability of their investment and
position and taking appropriate determining any future course of
measures to improve the company action.
results.
Accounting information is presented to
Employees: for assessing company's internal users usually in the form of
profitability and its consequence on management accounts, budgets,
their future remuneration and job forecasts and financial statements.
security.
CMA Part 1
Users of Financial Statements-External
Creditors: for determining the credit commit any financial resources to the
worthiness of the organization. Terms of company.
credit are set by creditors according to the
assessment of their customers' financial Customers: for assessing the financial
health. Creditors include suppliers as well as position of its suppliers which is necessary
lenders of finance such as banks. for them to maintain a stable source of
supply in the long term.
Tax Authourities: for determining the
credibility of the tax returns filed on behalf Regulatory Authorities: for ensuring that the
of the company. company's disclosure of accounting
information is in accordance with the rules
Investors: for analyzing the feasibility of and regulations set in order to protect the
investing in the company. Investors want to interests of the stakeholders who rely on
make sure they can earn a reasonable such information in forming their decisions.
return on their investment before they
CMA Part 1
Types of Business
CMA Part 1
Financial Statements
Methods:
Single step
Multi step
CMA Part 1
Income Statements – Single Step
Format:
Revenues xxxx
Profit/Loss xxxx
Shown net of
Discounts
Returns
Allowances
Cost of Goods Sold
The cost of goods that were sold to produce revenue
Retailer Manufacturer
Beginning Inventory Beginning Inventory
+ Purchases + Cost of Goods
Manufactured
– Ending Inventory
– Ending Inventory
= Cost of Goods Sold
= Cost of Goods Sold
Operating Expenses
Selling expenses
Result from the company’s effort to create sales
Examples
Advertising
Sales commissions
Sales supplies used
Administrative expenses
Relate to the general administration of the company’s
operation
Examples
Salaries
Insurance
Bad debt expense
Other Income or Expense
Secondary activities not directly related to operations
Dividend income
Interest income
Gains (losses) from sale of assets
Interest expense
Special Income Statement Items
XYZ Corporation
Statement of Comprehensive Income
For the Year Ended December 31, 20XX
Sales $ 230,000
Cost of goods sold 140,000
Gross profit 370,000
Operating expenses 40,000
Operating income 330,000
Other income 4,000
Income before income taxes 326,000
Income taxes 20,000
Net income 306,000
Other comprehensive income
Available-for-sale security adjustment, net of tax 5,500
Minimum pension liability adjustment, net of tax 3,500
Foreign currency transaction adjustment, net of tax (5,000)
Other comprehensive income 4,000
Comprehensive income $ 310,000
The use of judgments and estimates in the accounting process enables management to use such
figures that would generate desired net income or net loss figure for the period.
A manipulation in net income is possible by using a particular inventory valuation method such
as FIFO method, LIFO method and average costing method. The company may use such method
that generates the desired result.
While preparing income statement we take into account only those activities whose value can
be objectively measured.
For example, a sound customers relation policy can develop a good customer base that can certainly
be beneficial for a profitable business operation but its value cannot be objectively measured unless
evidenced by an actual business transaction.
CMA Part 1
COGS
CMA Part 1
Cost of Goods Sold
Cost of goods sold (COGS) are the direct costs
attributable to the production of the goods sold by a
company.
It’s explains certain change in the amount of the owner’s equity in the
business. In business which is organized as corporation the statement of
owner’s equity is replaced by the statement of retained earnings.
CMA Part 1
Statement of Owner’s Equity
CMA Part 1
Earnings Per Share - EPS
Share
Capital
Preferred Common
CMA Part 1
Common Stock & Preferred Stock
“Common stock possesses the traditional right of ownership
voting right, participation in dividends, and a residual claim
to assets in the event of liquidation.”
Common Preferred
Voting Rights Yes No
Obligation to pay No Yes
dividends
Accumulation of No Yes
Dividends
What we Own:
Assets ==> Resources (Current and Fixed assets)
What we Owe:
Liabilities ===> Obligations (CL, Long term Liabilities and Equity)
Statement of Financial Position
CMA Part 1
(Balance sheet)
Balance sheets is used to know liquidity, net worth and in the
calculation of return on investment
A = L + E
( External) (Internal)
from owner's perspective:
E = A - L
Statement of Financial Position CMA Part 1
(Balance sheet)
Assets
Side
Current
Assets
CMAIP
Non
Current
Assets
PPE
Statement of Financial Position CMA Part 1
(Balance sheet)
Liabilities
&Equity Side
Current
Liabilities
Long Term
Liabilities
Equity
Super 6
CMA Part 1
Equity - Super 6
Thank You…