Summary
SUMMARY OF INCOME STATEMENT AND CASHFLOW
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- Institution
This document provide the information in the income statement and cash flow step by step.
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Page 1 of 17PREPARED BY MR NS MTHOMBENI cell no. 0710355194
Buildthefuture916@gmail.com
ACCOUNTING STUDY
GUIDE
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Table of Contents
Short way to summarize of income statement ....................................................................................... 3
Adjustment ............................................................................................................................................. 4
ALL ACCRUED MUST BE ADDED BACK TO THE INCOME STATEMENT. ..................................................... 4
ACCRUED EXPENSE ................................................................................................................................. 5
income received in advanced/ deferred income ..................................................................................... 5
Prepaid expense ..................................................................................................................................... 6
Explanation of adjustment...................................................................................................................... 7
income received in advanced.................................................................................................................. 7
prepaid expense ..................................................................................................................................... 8
income and expenses videos .................................................................................................................. 8
UNDERSTANDING CASHFLOW STATEMENT ............................................................................................ 9
The main purpose of preparing cashflow statement .............................................................................. 9
Calculation of net profit before tax......................................................................................................... 9
Calculation of income tax ..................................................................................................................... 10
calculate net profit before tax and net profit after tax (NPAT) ............................................................. 10
Change in working capital. .................................................................................................................... 11
cash generated note. ............................................................................................................................ 13
Example 1 ............................................................................................................................................. 13
Solutions ............................................................................................................................................... 14
Calculating income paid in four ways ................................................................................................... 14
Workings in the cashflow...................................................................................................................... 15
Example 2 ............................................................................................................................................. 15
Example 3 ............................................................................................................................................. 16
Example 4 ............................................................................................................................................. 17
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Short way to summarize of income statement
➢ Firstly, learners must remember the reason of preparing income statement.
• The reason of preparing income statement is to see the performance
of the business or we want to see whether the entity is operating at a
profit/loss.
• To see that, we need to compare income and expenses.
• If income is greater than expenses than we say an entity is operating
at a profit.
• If expenses are greater than income than we say an entity is operating
at a loss
❖ Learners must understand when we recognize income and expenses in the
entity/business at a given period. (Note that the business record income and
expenses for 12 months.)
• Income- we recognize income whenever we have rendered a service
to our customers regardless of whether we received payments from
customers or not.
• Expense- we recognize expense whenever we have received a service
and used the service from our suppler regardless of whether we have
made the payment for the service received to our suppler or not.
❖ Now let us look what cause us to adjust in the income statement.
❖ The reason why we adjust in the income statement it’s because some
of our clients/customers they make payments less than 12 months
sometimes more than 12 months. And, us as the entity sometimes we
make payment less/more than 12 months. Remind you that the entity
must record for only 12 months at a given financial period, e.g., if we
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