Balance Sheets and

Income Statement

Presented by: Alli Arthur

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 Homework Review
Who are your customers?

What are the characterisitics of the products/services that you

offer your customers?

Why should they buy the products/services from your

business?

What is the difference of your business from your

competitors?

What are your non-financial resources that you listed in your

plan?

How will you attract new customers?

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 Income Statements
What is an income statement?
A summary of a company’s profits or loss during any
one given period of time (such as month, three
months, or one year). The income statement records
all revenues for a business during this given period,
as well as operating expenses for the business.
Why is it important for a business owner to know how much
profit or loss their business is making?
To find out what areas of the business are over
budget or under budget. Specific items that are
causing unexpected expenses can be shown, such
as phone, fax, mail, or supply expenses.
Income statements can also track dramatic increases in
product returns or cost of goods sold*.

*COGS is the costs directly associated with making or acquiring your products 3
(includes materials purchased from outside suppliers used to manufacture your
How does one calculate the profits & losses?
You subtract all the expenses from all the
incomes.
Incomes - Expenses = Profits/Losses

How do you know what all the incomes and expenses are in
order to do the income statement properly?
You have the cash book that has been well
documented.

It is necessary to understand all that comprises an income

statement and how to do one properly because is it the most
basic element required by potential lenders (i.e. banks,
investors, vendors). 4
Components of an Income Statement
Variable costs - the direct costs and are essential to selling your
product/service. For example, the unit price that you pay for one can of tomato
that you buy in gross constitutes as a direct cost for your product when you resell
it. At the same time, if you make your products, the amount associated with the
production is a variable cost. (A carpenter that earns 1000 F/hour to work on a
table for 3 hours. So, 3000 F is the variable cost for the table.)
Fixed costs - all the other costs associated witht eh operation of
your business. For example: rent, electricity, transportation of stock, etc.
Depreciation - is used to find the value of your equipment and
tools. You take the price of purchase and divide it by the life time
(number of weeks, months, years) of the article. Every time you use a
tool or machine, it wears out a little more, so it’s value diminishes a little as well.
In doing an income statement, it is important to include this value reduction
because you will eventually have to replace the equipment. You should save the
amount of the depreciation each month in order to replace the equipment when it
completely wears out but you should know that in case of inflation (a raise in
price), the money will probably not be enough to completely cover the cost of the
equipment.
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 Case Studies
Income Statement
Business Name : Klui-Klui Selling Group
Period : 1 March - 29 March

Expenses Incomes
Description Amount Description Amount
2 Bags of groundnuts 30.000 10 baskets at 5000f/unit 50.000
Bags 1.000 10 other baskets at 4500
Depreciation 1.550 f per unit 45.000
Transportation 4.500
Food 800
Others 1.000

Total Expenses 38.850 Total Incomes 95.000

Profits = (Incomes - Expenses) 56.150

The other 2 studies will be done in groups. Each group should

do an income statement for each history. You will have 15
minutes. 6
 Review
How do you do an income statement?
List all the incomes and all the expenses (including
depreciation) for a given period of time and subtract.
Why do we use groupings under the categories of incomes and
expenses?
So that we don’t have to record every income and
expense receipt on the income statement. It simplifies
the task.
Before doing an income statement, what should one do?
Use a cash book regularly to record ALL transactions!!
If you are required to record incomes/expenses in the cash book, how
can mistakes be made that will change the actual outcome of the
income statement?
•If you record only one expense, the income statement
will indicate that you have made more profits than in
reality.
•If you record only one income, the income statement will7
indicate that you are running at a loss, which is not true.
Why is it important to do an income statement
regularly?
So that you know if your business is
taking a loss or making a profit. If you
have a loss, then you know that you need
to change something. If you are making a
profit, you can continue what you are
doing while looking for other ways to
increase your profits.

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 Balance Sheets
What is a balance sheet?
The balance sheet it a table of the wealth and debts
of a business at a moments notice. The balance
sheet should quickly show the use of funds for
rapport with the sources of the resources.
We can tell them the uses of assets and liabilities. The assets
and liabilities are two different aspects of the same amount of
money. This is because the total of assets should be equal to
the total liabilities.
If the balance sheet is a “snapshot” of the wealth of the
business at a precise date in time, then the situation will
change per day with the various movements of money (sales,
purchases, etc.)
When should a balance sheet be done?
Normally, the balance sheet is done at the same 9
time as the income statement, so every 3 months or9
 What is an asset? Liability?
Assets are considered to be valuables. They are subdivided
into current and long-term assets to reflect the ease of
liquidating each. Cash, for obvious reasons, is considered the most liquid
of all assets. Long-term assets, such as real estate or machinery, are less likely
to sell overnight or have the capability of being quickly converted into cash.

Liabilities include all debts and obligations owed by the

business to outside creditors, vendors, or banks that are
payable within one year, plus the owners’ equity.

Owners’ equity is made up of the initial investment in the

business as well as any retained earnings that are reinvested in
the business.
Assets must always equal the liabilities.
Assets = Liabilities
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The Elements of a Balance Sheet
a) List of Assets (wealth)
• Current Assets - any assets that can be easily converted into
cash within one calendar year.
i. Cash
ii. Accounts Receivable
[Link] Receivable
• Fixed Assets - assets that are used in connection with the
business but difficult to liquidate into cash quickly.
• Land
• Buildings
• Office Equipment
i. Machinery
ii. Vehicles
i. Total Fixed Assets - the total dollar value of all fixed assets in
your business, minus any accumulated depreciation.
• Total Assets - the total dollar value of both short-term and
long-term assets of your business. 1
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b) List of Liabilities (debts)
• Accounts Payable
• Notes Payable
• Accrued payroll and withholding
• Total current liabilities
• Long-term liabilities
• Owners’ Equity
i. Common Stock
• Retained earnings
• Total liabilities and owners’ equity

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 Homework
Moto or Mill?
You are to select the most appropriate
technology that yields the most profits.

Use an income statement and balance sheet to

decide which technology is the best to buy.

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