Transcripts
1. Introduction: Hello, This is the
accounting Academy. In this class, I
will be explaining about accounting basics
for financial statements. I will explain about the
profit and loss statement, the balance sheet statement, and the cash flow statement. Using specific examples. This class is useful to
business professionals, entrepreneurs, small business
owners, and for students. This class will provide you with a key understanding of these important
financial statements. In a short period of time. My experiences in finance with over ten years
of experience.
2. Profit and Loss Statement: Hello, This is the
accounting Academy. In this lesson, I
will be explaining about one of the key
financial statements, the profit and loss statement, also known as an
income statement. I will be talking about
a manufacturing company and using some
specific examples. The numbers are produced
in thousands and it is assumed to be December
of a particular year. Starting with the definition. Profits and loss statement
shows the performance of a company over
a period of time. First part of the
profit and loss statement is the greatest. Trade cells will provide a specific example to
explain further here. Sales formula equals quantity
multiplied by selling price to a manufacturing company will have a number of
toys that it sells. Each toy will have a
specific selling price per unit and a certain amount of quantity of
those toys is sold. For a straight cells
are essentially the quantity multiplied
by the selling price. The sum of all the sales provides total
gross trade cells. Next day is sales discounts. For a manufacturing
company will have some large customers and there will be offered
specific discounts. Sales discounts are
therefore deducted from the gross trade
cells to arrive at the total net trade cells. Next on the profit and loss
statement is cost of sales. Key components of cost of sales or the standard
cost of sales. Again, I will provide a
specific example here. Cost of sales formula is cost type multiplied
by the quantity. To a manufacturing company will have specific types of costs, such as raw materials,
labor, and packaging. And each of those will
have a specific cost. And there's a certain amount of quantity that needs to be used. So the cost of sales
is a cost per units multiplied by the
quantity of that type of cost that provides the total cost of sales for
the goods have been sold. Then there's this other
costs not in standard. This includes items such as
purchase price variances, inventory re-evaluation, and inventory
adjustment postings. I will not go into further
detail in this lesson. The total provides
the total cost of sales on a profit and loss
statement is the gross profit. This is the profits of
the business calculated by starting with net trade cells and deducting the direct costs, which is the cost of sales. This is a key measure of
business performance. Next, they're selling
and marketing expenses. This can include things
such as advertising, online and promotional
activities, as well as marketing costs. There's also a distribution costs that can include stocking, shipping, and
transportation of goods. There's functional expenses. This can include costs of
certain functions such as IT, finance, legal, and HR. Also, depreciation
and amortization. Depreciation is for
a tangible assets and amortization is for
an intangible asset. I will explain further
with a specific example. Formula for depreciation is a sunk cost divided by the
useful life of that asset. In this example, cost of machinery divided by the
useful life of the machinery, provides the depreciation cost in the profit and loss
statement each year. And what's always station has a similar concept for
intangible assets. These are specific
examples of selling general and
administrative expenses. Then there's other
income and expenses. Can do include interest income, interest expenses, and other miscellaneous
income and expenses. And net income before tax. Gross profit minus selling general and
administrative expenses. And also minus other
income and expenses. Then there's tax. And then there's net income, which is net income
before tax minus tax. This is an example of a profit and loss statement
for a manufacturing company.
3. Balance Sheet Statement: Hello, In this lesson, I will be explaining about another key financial
statements, the balance sheet statement. This example is for a toy
manufacturing company, the numbers are produced
in thousands and it is assumed to be December
of a particular year. Starting with the definition, the balance sheet shows the
financial performance of a company at a point in time in comparison to a profit and
loss statement that shows the financial performance of a company over a period of time. Also, key parts of the balance sheet is
that it should balance. The formula is, total assets are equal to total liabilities
plus total equity. Firstly, starting
with current assets. Current assets are assets that can easily be converted to cash. Cash, and cash equivalents. That's mainly includes
bank accounts. Inventories. In
manufacturing company would likely have three
types of inventories. Raw materials. That's
all the component parts. Let's have been sourced
from suppliers. Work in progress. That is, the toys
that are partially completed and finished goods. That is the final goods, the final toys that
have been completed. Accounts receivable is
when the company sells toys to its customers and it is owed funds
from the customers. That is three examples
of current assets. There's also non-current assets. This is assets that cannot
easily be converted to cash. An example is property,
plant and equipment. This can include items such
as machinery and vehicles. The value of property, plant and equipment
is the total cost of the original items minus the cumulative depreciation from prior years and
the current here. This is an example of
a non-current asset. Total assets equal current assets plus
non-current assets. Next is current liabilities. That is short-term liabilities can include accounts payable, that is money that a company
owes to its suppliers. And invoice has been received by the company from its suppliers. Accrued liabilities is where service or cost has
been incurred by a company and the supplier has not yet issued an
invoice to the company. Deferred income. This is when a customer pays in advance for goods that have not yet been supplied will be
supplied in the future. It is considered
as a liability as the finished goods have not yet been supplied
to the customer. That is three examples
of current liabilities. Next, non-current liabilities. These are liabilities over
a longer period of time. This can include
a long-term loan that is an example of a
non-current liability. Total liabilities equal current liabilities plus
non-current liabilities. Next, there's total equity. This can include capital, funds invested into the company by its owners or shareholders. Retained earnings. That is profits
generated by a company from prior year's net
income for current year. That is profits generated by the company in
the current year. That is examples
of total equity. And total liabilities. And equity is the sum of total liabilities
plus total equity. That is an example of a balance sheet statements for a toy manufacturing company.
4. Cash Flow Statement: Hello. In this lesson, I will
be explaining about another key financial statement,
the cashflow statement. This example is for a
manufacturing company, the numbers are produced
in thousands and it is assumed to be December
of a particular year. It is over the
period of one year. Starting with a definition. The cashflow statement shows the financial performance of a company in managing its cache. This is different compared to a profit and loss
statement that shows the performance of a company
over a period of time. And the balance sheet
statement that shows the performance of a
company at a point in time. It is important to understand that cash and profits
are different. The difference between cash accounting and
accrual accounting. Profit is recorded based
on accrual accounting. In this approach,
revenue and costs are recognized when a
transaction occurs. It doesn't necessarily mean that cash has been transferred. Firstly, there is cash and cash equivalents at the
beginning of period. Next, there's three key parts
to the cashflow statement. So starting with net cash
from operating activities, this is cash that is directly related to the operations
of the business. The starting point is net income before tax from the profit
and loss statement. Depreciation and
amortization are added back as this is not
an actual cash flow. Working capital
includes inventory, receivables and payables. This shows the change in these three types
of transactions. For a toy manufacturing
company may have purchased significantly more raw materials because it is going
through a stage of growth that would have a negative impact
on the cash flow. For inventory.
Receivables, the company may be slower collecting
cash from its customers. For payables, the company may be paying its suppliers
more quickly. Those are examples of
impact on cash-flow. That provides the total net cash from operating activities. Next day is net cash from
investing activities. This is usually for non-current
assets of the business. It can include purchase
of investments. That will be a cash outflow. Sales of investments, which
will be a cash inflow. And purchases or sales, property, plant and equipment. That's what provide the net cash from investing activities. Then there's net cash from
financing activities. This is relating to cashflow for how an
entity is financed. Examples can include
a long-term loan. Increasing that loan would therefore increase
the cash balance. It can also include dividends. There are some examples of net cash from
financing activities. Net change of cash and cash equivalents is the
sum of the cashflow of movements from
operating activities, investing activities and
financing activities. Then there's cash and cash equivalents at
the end of period. That is, cash and cash
equivalents at the beginning of period plus the net change of
cash and cash equivalents. That is an example of
a cashflow statement for a toy manufacturing company.
Accounting Academy
