Back to: Financial Accounting
Good day, class.
This week, we continue our work on company accounts by learning how to prepare company financial statements, especially the Statement of Profit or Loss and the Statement of Financial Position, in line with accounting standards.
Company Financial Statements
1. Statement of Profit or Loss
This shows the company’s income and expenses over a period, resulting in either a profit or loss.
Format:
Revenue (Sales)
Cost of Sales
= Gross Profit
Operating Expenses
Selling and distribution expenses
Administrative expenses
Depreciation
Operating Profit
Finance costs (e.g. loan interest)
Profit Before Tax
Taxation
Profit After Tax
Dividends (interim + final)
Retained Earnings
2. Statement of Financial Position (Balance Sheet)
This shows the company’s financial position at a specific date.
Main sections:
Assets
Non-current Assets (e.g. property, equipment)
Current Assets (e.g. inventory, receivables, cash)
Equity and Liabilities
Share Capital (ordinary + preference)
Reserves (revenue and capital)
Non-current Liabilities (e.g. loans)
Current Liabilities (e.g. creditors, tax owing)
3. Illustrative Example (Simplified)
A company has:
Revenue: N2,000,000
Cost of sales: N1,200,000
Admin expenses: N200,000
Interest: N50,000
Tax: N150,000
Dividends: N100,000
Profit Before Tax = 2,000,000 – 1,200,000 – 200,000 – 50,000 = N550,000
Profit After Tax = 550,000 – 150,000 = N400,000
Retained = 400,000 – 100,000 = N300,000
This retained profit is added to the reserves in the balance sheet.
4. Key Differences from Partnership Accounts
Profit is not divided among partners but shared as dividends
Share capital and reserves are key parts of equity
Financial statements must follow legal requirements (e.g. CAMA in Nigeria)
More formal presentation and greater disclosure
Conclusion
Company accounts are more structured and involve more detailed reporting than sole trader or partnership accounts. Understanding their format and contents is essential for anyone working in accounting or finance.