1. Entry for January
Balance sheet
|
Particulars |
Amount |
|
Assets |
|
|
Current assets |
€ – |
|
Non-Current assets |
€ – |
|
Total assets |
€ – |
|
Liabilities |
|
|
Non-current liabilities |
€ – |
|
Loan capital |
€ 100,000.00 |
|
Current liabilities |
€ – |
|
Total liabilities |
€ 100,000.00 |
|
Shareholder’s equity |
|
|
Shareholders capital |
€ 300,000.00 |
|
Retained earnings |
€ – |
|
Shareholder’s equity |
€ 300,000.00 |
|
Total liabilities and shareholder’s equity |
€ 400,000.00 |
Profit and loss statement
|
Particulars |
Amount |
|
Revenue |
€ – |
|
Less: Expenses |
|
|
Depreciation |
€ 10,000.00 |
|
Total operating expenses |
€ 10,000.00 |
|
Operating revenue |
€ (10,000.00) |
|
Less: Interest expenses |
€ – |
|
Earnings before taxes |
€ (10,000.00) |
|
Less: Taxes |
€ – |
|
Earnings available for shareholders |
€ (10,000.00) |
Balance sheet
|
Particulars |
Amount |
|
Assets |
|
|
Current assets |
€ – |
|
Non-current assets |
|
|
Furniture |
€ 360,000.00 |
|
Less: Depreciation |
€ 20,000.00 |
|
Total non-current assets |
€ 340,000.00 |
|
Total assets |
€ 340,000.00 |
|
Liabilities |
|
|
Non-current liabilities |
€ – |
|
Loan capital |
€ 100,000.00 |
|
Current liabilities |
€ – |
|
Total liabilities |
€ 100,000.00 |
|
Shareholder’s equity |
|
|
Shareholder’s capital |
€ 300,000.00 |
|
Retained earnings |
€ (10,000.00) |
|
Shareholder’s equity |
€ 290,000.00 |
|
Total liabilities and shareholder’s equity |
€ 390,000.00 |
Profit and loss statement
|
Particulars |
Amount |
|
Revenue |
|
|
Sales of software |
€ 25,000.00 |
|
Total revenue |
€ 25,000.00 |
|
Less: Expenses |
|
|
Depreciation |
€ 10,000.00 |
|
Monthly rent |
€ 2,000.00 |
|
Salaries |
€ 100,000.00 |
|
Loan interest |
€ 5,000.00 |
|
Interest payment |
€ 5,000.00 |
|
Total operating expenses |
€ 122,000.00 |
|
Operating revenue |
€ (97,000.00) |
|
Less: Interest expenses |
€ – |
|
Earnings before taxes |
€ (97,000.00) |
|
Less: Taxes |
€ – |
|
Earnings available for shareholders |
€ (97,000.00) |
Balance sheet
|
Particulars |
Amount |
|
Assets |
|
|
Current assets |
€ – |
|
Non-current assets |
|
|
Furniture |
€ 360,000.00 |
|
Less: Depreciation |
€ 20,000.00 |
|
Total non-current assets |
€ 340,000.00 |
|
Total assets |
€ 340,000.00 |
|
Liabilities |
|
|
Non-current liabilities |
€ – |
|
Loan capital |
€ 100,000.00 |
|
Current liabilities |
€ – |
|
Total liabilities |
€ 100,000.00 |
|
Shareholder’s equity |
|
|
Shareholder’s capital |
€ 300,000.00 |
|
Retained earnings |
€ (97,000.00) |
|
Shareholder’s equity |
€ 203,000.00 |
|
Total liabilities and shareholder’s equity |
€ 303,000.00 |
Profit and loss statement
|
Particulars |
Amount |
|
Revenue |
|
|
Sales of software |
€ 25,000.00 |
|
Total revenue |
€ 25,000.00 |
|
Less: Expenses |
|
|
Depreciation |
€ 10,000.00 |
|
Monthly rent |
€ 2,000.00 |
|
Salaries |
€ 100,000.00 |
|
Loan interest |
€ 5,000.00 |
|
Interest payment |
€ 5,000.00 |
|
Total operating expenses |
€ 122,000.00 |
|
Operating revenue |
€ (97,000.00) |
|
Less: Interest expenses |
€ – |
|
Earnings before taxes |
€ (97,000.00) |
|
Less: Taxes |
€ – |
|
Earnings available for shareholders |
€ (97,000.00) |
Balance sheet
|
Particulars |
Amount |
|
Assets |
|
|
Current assets |
|
|
Bank account |
€ 25,000.00 |
|
Total current assets |
€ 25,000.00 |
|
Non-current assets |
|
|
Furniture |
€ 360,000.00 |
|
Less: Depreciation |
€ 30,000.00 |
|
Total non-current assets |
€ 330,000.00 |
|
Total assets |
€ 355,000.00 |
|
Liabilities |
|
|
Non-current liabilities |
€ – |
|
Loan capital |
€ 100,000.00 |
|
Current liabilities |
€ – |
|
Total liabilities |
€ 100,000.00 |
|
Shareholder’s equity |
|
|
Shareholder’s capital |
€ 300,000.00 |
|
Retained earnings |
€ (97,000.00) |
|
Shareholder’s equity |
€ 203,000.00 |
|
Total liabilities and shareholder’s equity |
€ 303,000.00 |
Profit and loss statement
|
Particulars |
Amount |
|
Revenue |
|
|
Sales of software |
€ 50,000.00 |
|
Total revenue |
€ 50,000.00 |
|
Less: Expenses |
|
|
Depreciation |
€ 10,000.00 |
|
Monthly rent |
€ 2,000.00 |
|
Salaries |
€ 100,000.00 |
|
Loan interest |
€ 5,000.00 |
|
Interest payment |
€ 5,000.00 |
|
Total operating expenses |
€ 122,000.00 |
|
Operating revenue |
€ (72,000.00) |
|
Less: Interest expenses |
€ – |
|
Earnings before taxes |
€ (72,000.00) |
|
Less: Taxes |
€ – |
|
Earnings available for shareholders |
€ (72,000.00) |
Balance sheet
|
Particulars |
Amount |
|
Assets |
|
|
Current assets |
|
|
Bank account |
€ 25,000.00 |
|
Total current assets |
€ 25,000.00 |
|
Non-current assets |
|
|
Furniture |
€ 360,000.00 |
|
Less: Depreciation |
€ 40,000.00 |
|
Total non-current assets |
€ 320,000.00 |
|
Total assets |
€ 345,000.00 |
|
Liabilities |
|
|
Non-current liabilities |
€ – |
|
Loan capital |
€ 100,000.00 |
|
Current liabilities |
€ – |
|
Total liabilities |
€ 100,000.00 |
|
Shareholder’s equity |
|
|
Shareholder’s capital |
€ 300,000.00 |
|
Retained earnings |
€ (72,000.00) |
|
Shareholder’s equity |
€ 228,000.00 |
|
Total liabilities and shareholder’s equity |
€ 328,000.00 |
Profit and loss statement
|
Particulars |
Amount |
|
Revenue |
|
|
Software sales |
€ 50,000.00 |
|
Total revenue |
€ 50,000.00 |
|
Less: Expenses |
|
|
Depreciation |
€ 10,000.00 |
|
Monthly rent |
€ 2,000.00 |
|
Salaries |
€ 1,00,000.00 |
|
Loan interest |
€ 5,000.00 |
|
Interest payment |
€ 5,000.00 |
|
Marketing campaign |
€ 8,000.00 |
|
Total operating expenses |
€ 1,30,000.00 |
|
Operating revenue |
€ (80,000.00) |
|
Less: Interest expenses |
€ – |
|
Earnings before taxes |
€ (80,000.00) |
|
Less: Taxes |
€ – |
|
Earnings available for shareholders |
€ (80,000.00) |
Balance sheet for six months ended at June
|
Particulars |
Amount |
|
Assets |
|
|
Current assets |
|
|
Bank account |
€ 75,000.00 |
|
Total current assets |
€ 75,000.00 |
|
Non-current assets |
|
|
Furniture |
€ 3,60,000.00 |
|
Less: Depreciation |
€ 50,000.00 |
|
Total non-current assets |
€ 3,10,000.00 |
|
Total assets |
€ 3,85,000.00 |
|
Liabilities |
|
|
Non-current liabilities |
€ – |
|
Loan capital |
€ 1,00,000.00 |
|
Current liabilities |
€ – |
|
Total liabilities |
€ 1,00,000.00 |
|
Shareholder’s equity |
|
|
Shareholder’s capital |
€ 3,00,000.00 |
|
Retained earnings |
€ (80,000.00) |
|
Shareholder’s equity |
€ 2,20,000.00 |
|
Total liabilities and shareholder’s equity |
€ 3,20,000.00 |
a. Definition of financial accounting
Financial accounting is the specialized branch in accounting that keeps the track for financial transactions of the company. Using the standardized guidelines, various transactions are presented, summarized and recorded in the financial statement or the financial report like balance sheet or the income statement. Information from the financial accounting is utilized for the decision making through external users like creditors and investors (Deegan 2013).
Financial statements are the collection of the reports regarding the financial condition, financial results and cash flows of the organization. The standard contents for the financial statements are –
- Balance sheet – it reveals the liabilities, assets and the shareholder’s equity as on the reporting date. However, it does not contain the information related to a period of time.
- Cash flow statement – it reveals the changes in cash flow of the company covering the reporting period.
- Income statement – it reveals the company’s results with regard to its financial and operational activities covering the reporting period. It involves the losses, gains, expenses and the revenues (Rodriguez, Julie, and Piotr Kaczmarek2016).
- Shareholder’s equity statement – it presents the changes with regard to the equity during reporting period. Though the format of the report varies, it includes the shareholder’s equity started from the accounting period given to the end of that period
Apart from these statements, it includes the explanation for various activities and the additional details for some of the accounts and various other items as directed by applicable framework of accounting like IFRS or GAAP.
Balance sheets reveals the shareholder’s equity, assets and liabilities of the company and the accounting formula is Assets = Shareholder’s equity + liabilities. Assets are shown 1st as per the liquidity and include cash, receivables, inventories and fixed assets like furniture, fixtures, plant and equipment. On the other hand, the income statement assists in measuring the present value of the business. Expenses and revenues are revealed through the income statement as they accrued and are segregated into non-operating and operating activities (Biddle 2015). Further, the cash flow statements reveal the changes in cash through various activities like operating activities, financing activities and investing activities of the company for a certain period of time. Finally, the statement of shareholder’s statement reveals the changes in shareholder’s equity and retained earnings for the period under consideration.
- Revenue – it is the income from the business that is earned from the sales of services or goods. It may also include the income from other sources like royalties, fees and interest incomes. The revenue is generally stated for specific period of time.
- Profit – in simplest term, the profit is generated from the revenue after deducting the expenses. Earning the profit means the company is able to make more money after covering up all its expenses (Hoyle et al. 2015).
- Cash – cash is that amount which is retained by the company after making all the payments. When any payment is made through bank or cash the balance gets reduced and on the contrary when the cash is received the balance is increased.
References
Biddle, G. C. “The Role of Financial Statements in Reporting Financial Performance.” Accounting & Finance/IASB Research Forum. 2015.
Deegan, Craig. Financial accounting theory. McGraw-Hill Education Australia, 2013.
Hoyle, Joe Ben, Thomas Schaefer, and Timothy Doupnik. Advanced accounting. McGraw Hill, 2015.
Rodriguez, Julie, and Piotr Kaczmarek. “Financial Statements.” Visualizing Financial Data (2016): 183-215.
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