Page 15 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes 2.1 Types of Financial Statements

There are four different types of financial statements. The different types of fi nancial statements

indicate the different activities occurring in a particular business house.
1. Income Statement
2. Retained Earnings Statement

3. Balance Sheet
4. Statement of Cash Flows
5. Fund Flow Statement
Let us understand each of them one by one.

1. Income Statement: Income statement, also called profit and loss statement (P&L) and

Statement of Operations, is a company’s financial statement that indicates how the revenue
(money received from the sale of products and services before expenses are taken out, also
known as the “top line”) is transformed into the net income (the result after all revenues
and expenses have been accounted for, also known as the “bottom line”). The purpose of
the income statement is to show managers and investors whether the company made or
lost money during the period being reported. The important thing to remember about an
income statement is that it represents a period of time.

Example: The following example shows some of the common elements of the Income
Statement

Sample Company Income Statement
January 1, 2009 to December 31, 2009

Particulars Amount Amount
Income
Gross Sales 346,400
Less returns and allowances 1,000
Net Sales 345,400
Cost of Goods
Merchandise Inventory, January 1 160,000
Purchases 90,000
Freight Charges 2,000
Total Merchandise Handled 252,000
Less Inventory, December 31 100,000
Cost of Goods Sold 152,000
Gross Profi t 193,400
Interest Income 500
Total Income 193,900
Expenses
Salaries 68,250
Utilities 5,800
Rent 23,000
Offi ce Supplies 2,250
Insurance 3,900
Contd…

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