Social Sciences

Lecture 3
Accounting for Business
Income Statement (Profit & Loss Account)
Income Statement is an international term while Profit & Loss is used mainly in the UK
(Structure of the module : Lecture – Reading – Practice – Tutorial)
Need to be able to prepare income statements as there is a test in 2 weeks

Analysis of revenue is looking at different types of expenses.   For example, a football club’s expenses could be; Wages/Salaries, Catering, Grounds maintenance, Equipment.
Depreciation – measuring use over the life of something eg car, equipment
PBIT (Profit before interest and tax)
Cost of sales – opening inventories, goods bought and closing inventories
Closing inventories classed as an asset.
Want to show cost of what we managed to sell.   Show stock in the beginning and then stock at year end.
Accrual (Estimated Liability) This would be added to Statement at Financial Position at year end.
Accounting for rent payable. Prepaid expense of £4000 is an asset (owed 1 more quarter of rent)
Accounting conventions are Materiality and Accruals/Matching
Materiality – if something is small it doesn’t matter eg £5 of £6005 would be considered and immaterial amount.
Depreciation – 4 factors
Cost (or fair value) of the asset
Useful life of asset
Residual Value (Disposable Value)
Depreciation Methods – Straight Line Deprecation & Reducing Balance

First in First Out – FIFO
Last in First Out – LIFO
Weighted Average Cost – AVCO
Value of Closing Stock
FIFO – What you have had longest you sell first
LIFO – Most recently bought, sell first
The higher the value attached to the closing stock, higher profit at close of year