Below briefly explains the procedure: List all income and expenses from your trial balance on a page called "Income Statement". Calculate the gross profit as income less direct expenses (directly incurred to bring goods to the point of sale). Remember to include opening and closing stock values. Calculate the net profit as gross profit less administrative expenses (for general running of the business). You can list the administrative expenses on the face of the income statement or in a note to the accounts. Remember to include depreciation on fixed assets. Include interest paid that was included in your loan repayments. The capital portions of the loan repayments are not included in the income statement, but reduce liabilites in the balance sheet. Salaries are posted to the profit and loss account, whilst loans taken from the company or made to the company are recorded in the balance sheet. Add accrued expenses and deduct your prepaid expenses. These are invoiced costs that have to be allocated to the accounting periods according to the dates that services are performed as opposed to the dates that payments are made (called the accruals concept in preparation of accounts). Remember to include the cost of preparing the accounts. List the prior year income and expenses in a second column, obtained from the accounts prepared in the previous year. How well has your business performed compared with the prior year? Do you see anything that looks unusually large or small? Trace it back to the detail to see why it has changed. Prepare a tax computation and include the tax charge that will be due if a taxable profit has been made. By looking at the tax computation of the previous year, it is possible to estimate what expenses will be disallowed for the current year. An accountant needs to verify the final position as tax rules change year on year. Useful ratios P/E Ratio = current price per share/earnings per share Dividend Yield = dividend per share/current market price per share Dividend Cover = earnings per share/net dividend per share Earnings per share = net profit(loss) attributable to ordinary shareholders/weighted average number of ordinary shares outstanding during the period GP% = gross profit/sales x 100 NP% = net profit/sales x 100
Posted on: Sat, 06 Jul 2013 15:34:59 +0000