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SayPro Course 56678B in Advance Microsof...
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SayPro Table of Contents
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b. Expenditure
For the purpose of this module, expenditure is defined as the costs that have been incurred within the time period of the statement. As with the concept of income, you should include expenditure in the period in which it was incurred even if no money was paid. This ensures that you have an accurate statement of income and expenditure of real expenditures incurred within the period.
For example, you were doing a household income and expenditure statement for end of September 2010 and you have not received the electricity bill nor paid it for September, you should nonetheless include it (or a reasonable estimate) in the income and expenditure statement for September.
c. Profit or loss
At the end of the income and expenditure statement, you should subtract Expenditure from income remaining with a proportion which enterprises call a profit or loss. If the income items are more than the expenditure items we call that profit but if the expenditures and more than the income then the difference is known as loss.
1.1.2 Purpose of Income and Expenditure Statement
• To clearly show how much money was made and how much was spent within a given time period
Legislation requires that when doing financial statements of a company, certain specific requirements regarding the disclosure of information must be met. According to Companies Act 61 of 1973 a company’s financial statements have to be drawn up in accordance with Generally Accepted Accounting Practice (GAAP).
CASE STUDY 1.1 The Income and Expenditure Statement of a private individual
Nothando is a private individual who works in an office as a consultant. She wishes to obtain a loan from FBC Bank to finance the purchase of a new car. Big Sharks has requested that Sunny produce an income and expenditure Statement to demonstrate to them that she has income necessary to meet the repayments of loan which amount to R1000 per month.
Sunny has drawn up the following statement:
Statement of Income and Expenditure for Sunny for the period 1 Jan 2009 to 31 Dec 2009
Income
Annual Salary After Taxation 100 000
Expenditure
Bond repayment on house 30 000
Food 20 000
Clothing 5 000
Funds remaining 26 000
From this statement, FBC Bank can easily see that Nothando has sufficient money left over after her expenses have been deducted to meet the loan repayments of (12 X R 1000= 12 000 per annum)
Normally an individual is only required to produce a statement like this either for, as in the case study, a bank loan or sometimes when completing a tax return. There is no requirement for an individual to produce the statement on an annual basis as required for companies by Companies Act 1973.
It is, however, a good personal management tool and wise person would compile such a statement and keep a good eye on it on a regular basis.
Case study 1.2: The Income and Expenditure Statement of a company Blue edge
Blue Edge LTD produces the chemical flavours used to flavour cakes. They have been in operation since 1940 and continue to run as family owned private business. Because they are incorporated as a company, they are required to produce clients Annual financial statements. Interested parties, such as the owners of the company, clients and suppliers who do business, with them and SARS (The receiver of Revenue) may review these financial statements and make decisions on the results accordingly.
Sales
1,500,000
Less purchase
700,000
Gross profit
Less: Expenditure
Accounting fees
1,200
Cleaning material
5,000
Computer expenses
20,000
Motor & travel
50,000
Rental of factory premises
200,000
Stationery
20,000
Staff refreshments
10,000
Salaries
400,000
Staff training
1,000
UIF
4,000
Workman’s compensation
4,000
Net profit
84,800
The accountant for Blue Edge LTD is responsible for ensuring that the figures contained in the Statement of Income and Expenditure are accurate and reflect a true position of the finances of the company. The Accountant must also produce these financial statements annually after the year end (which in Blue Edge case is the 31 October).
LEARNING ACTIVITY 1
Indicate how often income and expenditure statement are required for companies
1.2 SOURCES OF INCOME AND EXPENDITURE
Income and expenditure sources are as varied as the types of industries and business in operation. People too, derive their income and spend their money in all possible ways. The ways of income are many and varied; it is your task to identify these in the financial statements and be able to differentiate between the income and the costs.
Case study 1.3 Keys Company
Keys Company has a shop in a shopping mall. They sell toys, educational devices, and children’s party tricks. Keys the owner, has had the following statement of income and expenditure prepared for tax purposes.
In case study above, expenditure incurred in generating sales include the purchases of goods for sale, called purchases. Note that purchases in accounting terms have a specific meaning: it means the cost incurred in acquiring goods for resale. It does not include other costs, such as the ones listed in the Expenditure section. These must be disclosed separately.
The cost of sales calculation, which is opening stock plus Purchases less closing stock, is calculated and subtracted from sales to give Gross profit. Gross profit is an indication of the profitability of operations, not including other expenses and overheads.
Case study 1.4 Kelly’s Fast Food
Kelly’s Fast foods is a vendor of pies, chicken, cold drinks, fish, chips, coffee and sandwiches. They cater for break fast and lunch time crowd in a nearby office park.
Below is Kelly’s Fast Foods Income statement prepared by the accountant for tax purposes
Income Statement for Kelly’s Fast Foods for the period 1 March 2010 to 28 February 2010
Sales
350,000
Less: Purchases
80,000
Gross Profit
270,000
Less expenditure
Accounting Fees
1,500
Cleaning material
7,000
Motor & travel
4,000
Rental of shop
40,000
Wages (shop assistants)
80,000
Insurance
450
Stationery
200
133,150
Net profit
136,850
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Index