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Textile Costing · Lecture 02
Financial Statements
Balance sheet, profit & loss account, the rules of debit and credit, the journal, the ledger and the trial balance.
Balance sheetP&LDebit & creditJournal & ledger
Two statements, two questions
- Profit & Loss account
- Shows the net profit or net loss resulting from transactions during a period — “how did we do this month?”
- Balance sheet
- Shows the financial position of the business on a fixed date — “what do we own and owe tonight?”
Both are built from the trial balance of Lecture 1. Change any blue figure and both statements update together — the balance sheet must still balance.
| A | B | C | |
|---|---|---|---|
| 1 | Sales | ||
| 2 | Operating expenses | ||
| 3 | Wages expense | ||
| 4 | Supplies expense | ||
| 5 | Depreciation expense | ||
| 6 | Rent expense | ||
| 7 | Utilities expense | ||
| 8 | Misc expense | 1,300 | |
| 9 | Net profit | 700 |
blue = input (edit me)grey = formula (click to see it)
| A | B | C | |||
|---|---|---|---|---|---|
| 1 | Assets | ||||
| 2 | Cash | ||||
| 3 | Supplies | ||||
| 4 | Equipment | ||||
| 5 | less accumulated depreciation | 17,200 | |||
| 6 | Total assets | 19,550 | |||
| 7 | Liabilities and capital | ||||
| 8 | Trade creditors | ||||
| 9 | Capital, start of month | ||||
| 10 | add profit for the month | ||||
| 11 | less withdrawals | 19,200 | |||
| 12 | Total liabilities and capital | 19,550 | |||
blue = input (edit me)grey = formula (click to see it)
Debit and credit — the only four rules you need
| Increase | Decrease | |
|---|---|---|
| Property (assets, expenses, drawings) | Debit | Credit |
| Right to property (liabilities, capital, income) | Credit | Debit |
Every entry has a debit and an equal credit. The journal records them in date order; the ledger collects them account by account (the “T-accounts”); the trial balance checks that total debits equal total credits.
Journal of Ahmed Inc. (December)
| Date | Description | Debit | Credit |
|---|---|---|---|
| Dec 1 | Cash Ahmed, Capital | 19,000 | 19,000 |
| b | Equipment Cash (kitchen equipment) | 17,400 | 17,400 |
| c | Supplies Trade Creditors (bought food supplies on credit) | 650 | 650 |
| d | Trade Creditors Cash | 300 | 300 |
| e | Cash Sales | 2,000 | 2,000 |
| f | Wages 550 / Rent 50 / Utilities 25 / Misc 75 Cash | 700 | 700 |
| 31 | Supplies Expense Supplies (monthly stock taking) | 400 | 400 |
| 31 | Depreciation Expense Accumulated Depreciation | 200 | 200 |
| 31 | Drawings Cash | 500 | 500 |
Ledger — the Cash T-account
| Debit side | |
|---|---|
| Dec 1 Ahmed, Capital | 19,000 |
| e Sales | 2,000 |
| Total | 21,000 |
| Jan 1 Balance b/d | 2,100 |
| Credit side | |
|---|---|
| b Equipment | 17,400 |
| d Trade Creditors | 300 |
| f Wages, rent, utilities, misc | 700 |
| 31 Drawings | 500 |
| 31 Balance c/d | 2,100 |
| Total | 21,000 |
The same posting is done for every account. The resulting trial balance in debit/credit form: Cash 2,100, Equipment 17,400, Supplies 250, expenses 1,300 and Drawings 500 on the debit side (21,550); Capital 19,000, Creditors 350, Sales 2,000 and Accumulated Depreciation 200 on the credit side (21,550).