How To Prepare the Financial Statements For A Manufacturing Company

Append below are:

(a) The following financial statements for a manufacturing company:

• Statement of Cost Of Goods Manufactured
• Income Statement
• Balance Sheet

(b) Salient points to note in a manufacturing company:

There are three (3) types of inventories namely:

• Raw materials, work in progress and finished goods
• Remember that:

Cost of Goods Manufactured = Beginning Work in progress Plus Total current manufacturing cost( direct labor + factory overheads) Minus Ending work in progress

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FORMAT of Statement of Cost Of Goods Manufactured for year ended 31 st December 2008

	$		$
Opening work in progress			XXX
Direct material
Opening inventories	XXX
+ Purchases	XXX
Raw material available for use	XXX
-Closing inventories	(XX)
Raw material consumed/used		XXX
Direct labor		XXX
Factory overhead:
Indirect material	XX
Indirect labor	XX
Others	XX
Total factory overhead		XXX
			XXX
Less: Closing work in progress			(XXX)
Total current manufacturing cost			XXX

FORMAT of Income Statement for the year ended 31st Dec 2008

		$	$
Sales Revenue			XXXX
Less: Cost of Goods Sold
Beginning Finished Goods Inventory		XXX
Cost of Goods Manufactured		XXX
Cost of Goods Available for Sale		XXX
-Ending Finished Goods Inventory		(XXX)
Cost of Goods Sold			(XXX)
Gross Profit			XXXX
Less: Operating Expenses			XXXX
Selling Expenses			XXX
Administrative Expenses			XXX
Net Income/(loss)			XXX

Format of Balance Sheet As At 31 st December 2008 ( extracted only Current Asset portion )

		$	$
Current Assets
Cash			XXX
Accounts Receivable			XXX
Inventories:
Raw Materials		XX
Work in progress		XX
Finished goods		XX	XXX
Sundry deposits and prepayment			XXX
Total Current Assets			XXX

What are the required Qualitative characteristic of the financial statement

One of the examination question asked about on financial statement is on the qualitative aspect of the financial statement.

Normally, candidates are asked to quote some qualitative characteristic of the financial statement or to elaborate on any of the following qualitative characteristic:


1.0 UNDERSTANDABLE & USEFUL

• Accounting information should be readily understandable to the intended users of the information.
• This is a function of both the intended users and the intended uses of the information. Accounting systems that define either the users or uses narrowly may justify more complex information requirements and standards. Accounting systems that envision a broad body of users and/or uses would tend towards less complexity in published information and standards.
• Typically the belief that, for information to be understandable, information contained in the various financial disclosures and reporting must be transparent (i.e., clearly disclosed and readily discernable).

2.0 RELEVANT

The information should be relevant to the decision-making users of the information. It should make a difference in their decisions. Typically, this means the information must
be:
• Timely
• Have predictive value
• Provide useful feedback on past decisions

3.0 RELIABLE

The information should be reliable and dependable. This usually includes the concepts of:

• Representational faithfulness - the information represents what it claims to represent. For example, if the reported value of a common stock holding purports to be the current market value, that value should be approximately what the stock could be sold for by the company holding it.

• Verifiability - another person or entity should be able to recreate the reported value using the same information that the reporting entity had.

• Completeness - the reported information should not be missing a material fact or consideration that would make the reported information misleading.

• The concept of neutrality is sometimes incorporated into the concept of reliability.

4.0 COMPARABLE AND CONSISTENT

• For accounting information to be usable, it must allow for comparisons across time and across competing interests (such as competing companies or industries).

• This leads to a need for some consistency, wherever such comparisons are to be expected. For example, comparisons of two companies would be very difficult and potentially misleading if one discounts all its liabilities while the other discounts none of its liabilities.

5.0 UNBIASED

• Information that is biased can be misleading.
• Biased information is not useful unless the users understand the bias, any bias is consistently applied across years/firms/industries, and the users can adjust the reported results to reflect their own desired bias.
• When faced with uncertainty, there is a need to either require reporting of unbiased values accompanied with sufficient disclosure, or require the reporting of biased (prudent or œconservative) values with the bias determined in a predictable, consistent fashion.

6.0 COST-BENEFIT EFFECTIVE

• General understanding that the development of accounting information consumes resources.

• As such, the cost of producing such information should be reasonable in relation to the expected benefit.

• Use the materiality accounting rule - may not have to be fully followed for immaterial items if full compliance would result in unwarranted higher costs.

Format Of Balance Sheet: The Horizontal And Vertical Presentation

A Balance Sheet is also called the Statement of Financial Position. It is a snapshot of a company's financial position at a particular point in time. The Accounting equation which is Assets=Liabilities+Stockholder's Equity is closely link to the Balance Sheet. Because of this accounting equation and the double entry system, the Balance sheet must always tally.

Append below are two format namely the Horizontal and Vertical Presentation to display the Balance sheet of a company.

(a)Format of A Balance Sheet: Horizontal Presentation

The horizontal presentation uses a format that present assets on the left and liabilities and equity on the right

XYZ Company

Balance Sheet As at December 31st 2008

Assets		Liabilities & Stockholders’ Equity
	$		$
Current Assets		Current Liabilities
Cash	10,000	Accounts payable	15,000
Accounts Receivable	20,000	Salaries Payable	9,000
Inventories	30,000	Total Current Liabilities	24,000
Deposits, prepayments	5,000	Bonds payable	20,000
Total Current Assets	65,000	Mortgages	35,000
		Total Liabilities	79,000
		Stockholders’ equity
Property, plant and equipment, net	55,000	Common stock	50,000
Intangible assets	10,000	Retained earnings	1,000
Total Assets	130,000	Total Liabilities and Stockholders’ equity	130,000

(b) The Vertical Presentation of The Format Of A Balance Sheet

The vertical presentation show the assets followed by liabilities and equity directly below the assets.

XYZ Company

Balance Sheet As At 31 st December 2008

Assets
Current Assets
Cash	10,000
Accounts Receivable	20,000
Inventories	30,000
Deposits, prepayments	5,000
Total Current Assets	65,000
Non Current Assets
Property, plant and equipment, net	55,000
Intangible assets	10,000
Total Non Current Assets	65,000
Total Assets	130,000
Liabilities & Stockholders’ Equity
	$
Current Liabilities
Accounts payable	15,000
Salaries Payable	9,000
Total Current Liabilities	24,000
Non Current Liabilities
Long Term Bonds payable	20,000
Mortgages	35,000
Total Non Current Liabilities	55,000
Total Liabilities	79,000
Stockholders’ equity
Common stock	50,000
Retained earnings	1,000
Total Liabilities and Stockholders’ equity	130,000