SCHOOL OF BUSINESS

SYNOPSIS REPORT ON:

“PREPARATION OF FINANCIAL STATEMENTS”
Academic project for MBA
Submitted By (Group 9):
Surbhi Tomar (23GSOB2010154)
Khushi Yadav (23GSOB2010155)
Dhiraj kr. Singh (23GS0B2010142)
Priyanshu Raj (23GS0B2010152)
Gopal Singh (23GSOB2010248)

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Submitted To: Prof. Dr. Ruchi ma’am
Project Title: Financial statement of a
imaginary company

Introduction:
This project involves simulating the establishment
and financial management of a imaginary company.
Students will immerse themselves in the chapters
related to the preparation of financial statements,
applying theoretical concepts to practical scenarios.

Business Form:
The selected business form is a printing press,
providing a niche service in the printing market.

Exploration and Research:

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Students are encouraged to visit a local printing
shop to gain insights into real-world expenses and
investments, considering factors such as furniture,
decor, lights, machines, and computers.

List of Items for Consideration:

Rent
Advance rent (approximately three months)
Electricity deposit, bill, and fittings
Water bill and connection security deposit
Telephone bill, security deposit, and instrument
Furniture
Computers and internet connection
Stationery
Advertisements and glow sign
Rates and taxes

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Wages and salary
Newspaper and magazines
Petty expenses, tea expenses, and packaging
expenses
Transport, delivery cycle, or purchased vehicle
Registration and insurance
Auditor's fee
Repairs & maintenance
Depreciation
Air conditioners, fans, lights, and interior
decorations
Refrigerators
Purchase and sales transactions
Practical Application:
Provide students with proformas for originality and
ledger, challenging them to complete these crucial

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financial documents based on the simulated
transactions of the cake shop.

Financial Statement Preparation:

Students are expected to progress to preparing a
trial balance and financial statements, applying the
accumulated data from their proformas.

Conclusion:
This project ensures students apply theoretical
knowledge in a practical setting, gaining a
comprehensive understanding of financial
management and statement preparation within the
context of a cake shop.

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 INTRODUCTION
Financial statements are comprehensive reports
that provide an overview of a business's financial
performance and position. They are essential tools
for investors, creditors, and other stakeholders to
assess the company's health and make informed
decisions. The three main types of financial
statements are the income statement, balance
sheet, and cash flow statement. Let's take a closer
look at each of them and their components:

1.Income Statement (Profit and Loss

Statement):
Revenue (Sales): The total amount of money
generated by the sale of goods or services.
Cost of Goods Sold (COGS): The direct costs
associated with producing goods or services.
Gross Profit: Revenue minus COGS.

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Operating Expenses: Costs incurred in the day-to-
day operations of the business, such as salaries,
rent, utilities, and marketing.
Operating Income (Operating Profit): Gross profit
minus operating expenses.
Other Income and Expenses: Non-operating items
such as interest and taxes.
Net Income: The final profit or loss after all
expenses, taxes, and interest have been deducted.
2.Balance Sheet:
Assets: Resources owned or controlled by the
company, including current assets (e.g., cash,
accounts receivable) and non-current assets (e.g.,
property, plant, equipment).
Liabilities: Obligations or debts owed by the
company, including current liabilities (e.g., accounts
payable, short-term debt) and non-current liabilities
(e.g., long-term debt).

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Equity: The residual interest in the assets of the
entity after deducting liabilities. It includes common
stock, retained earnings, and additional paid-in
capital.
3.Cash Flow Statement:
Operating Activities: Cash transactions related to
the day-to-day operations of the business, including
receipts from customers and payments to suppliers.
Investing Activities: Cash transactions for the
purchase or sale of long-term assets, such as
property, equipment, and investments.
Financing Activities: Cash transactions related to
the company's financing, including issuing or
repurchasing stock, and borrowing or repaying
debt.
Net Cash Flow: The sum of cash flows from
operating, investing, and financing activities,
indicating the change in the company's cash
position
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FINANCIAL STATEMENTS OF A COMPANY
Once all of the adjusting entries have been posted
to the general ledger, we are ready to start working
on preparing the adjusted trial balance. Preparing
an adjusted trial balance is the sixth step in the
accounting cycle. An adjusted trial balance is a list
of all accounts in the general ledger, including
adjusting entries, which have nonzero balances.
This trial balance is an important step in the
accounting process because it helps identify any
computational errors throughout the first five steps
in the cycle.
As with the unadjusted trial balance, transferring
information from T-accounts to the adjusted trial
balance requires consideration of the final balance
in each account. If the final balance in the ledger
account (T-account) is a debit balance, you will
record the total in the left column of the trial
balance. If the final balance in the ledger account

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(T-account) is a credit balance, you will record the
total in the right column.
Once all ledger accounts and their balances are
recorded, the debit and credit columns on the
adjusted trial balance are totaled to see if the
figures in each column match. The final total in the
debit column must be the same dollar amount that
is determined in the final credit column.
Let’s now take a look at the adjusted T-accounts
and adjusted trial balance for Printing Plus to see
how the information is transferred from these T-
accounts to the adjusted trial balance. We only
focus on those general ledger accounts that had
balance adjustments.

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For example, Interest Receivable is an adjusted
account that has a final balance of $140 on the
debit side. This balance is transferred to the Interest
Receivable account in the debit column on the
adjusted trial balance. Supplies ($400), Supplies
Expense ($100), Salaries Expense ($5,100), and
Depreciation Expense–Equipment ($75) also have
debit final balances in their adjusted T-accounts, so
this information will be transferred to the debit
column on the adjusted trial balance. Accumulated
Depreciation–Equipment ($75), Salaries Payable
($1,500), Unearned Revenue ($3,400), Service
Revenue ($10,100), and Interest Revenue ($140) all
have credit final balances in their T-accounts. These
credit balances would transfer to the credit column
on the adjusted trial balance. Once all balances are
transferred to the adjusted trial balance, we sum
each of the debit and credit columns. The debit and
credit columns both total $35,715, which means
they are equal and in balance

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 After the adjusted trial balance is complete, we
next prepare the company’s financial statements.

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 Once you have prepared the adjusted trial
balance, you are ready to prepare the financial
statements. Preparing financial statements is the
seventh step in the accounting cycle. Remember
that we have four financial statements to prepare:
an income statement, a statement of retained
earnings, a balance sheet, and the statement of
cash flows. These financial statements were
introduced in Introduction to Financial Statements
and Statement of Cash Flows dedicates in-depth
discussion to that statement.
To prepare the financial statements, a company
will look at the adjusted trial balance for account
information. From this information, the company
will begin constructing each of the statements,
beginning with the income statement. Income
statements will include all revenue and expense
accounts. The statement of retained earnings will
include beginning retained earnings, any net
income (loss) (found on the income statement), and

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dividends. The balance sheet is going to include
assets, contra assets, liabilities, and stockholder
equity accounts, including ending retained earnings
and common stock.

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 INCOME STATEMENT
An income statement shows the organization’s
financial performance for a given period of time.
When preparing an income statement, revenues
will always come before expenses in the
presentation. For Printing Plus, the following is its
January 2019 Income Statement.

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Revenue and expense information is taken from the
adjusted trial balance as follows:

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Total revenues are $10,240, while total expenses
are $5,575. Total expenses are subtracted from
total revenues to get a net income of $4,665. If total
expenses were more than total revenues, Printing
Plus would have a net loss rather than a net income.
This net income figure is used to prepare the
statement of retained earnings.

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 STATEMENT OF RETAINED EARNINGS
The statement of retained earnings (which is often a
component of the statement of stockholders’
equity) shows how the equity (or value) of the
organization has changed over a period of time. The
statement of retained earnings is prepared second
to determine the ending retained earnings balance
for the period. The statement of retained earnings
is prepared before the balance sheet because the
ending retained earnings amount is a required
element of the balance sheet. The following is the
Statement of Retained Earnings for Printing Plus.

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Net income information is taken from the income
statement, and dividends information is taken from
the adjusted trial balance as follows.

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The statement of retained earnings always leads
with beginning retained earnings. Beginning
retained earnings carry over from the previous
period’s ending retained earnings balance. Since
this is the first month of business for Printing Plus,
there is no beginning retained earnings balance.
Notice the net income of $4,665 from the income
statement is carried over to the statement of
retained earnings. Dividends are taken away from
the sum of beginning retained earnings and net
income to get the ending retained earnings balance
of $4,565 for January. This ending retained earnings
balance is transferred to the balance sheet.

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 BALANCE SHEET
The balance sheet is the third statement prepared
after the statement of retained earnings and lists
what the organization owns (assets), what it owes
(liabilities), and what the shareholders control
(equity) on a specific date. Remember that the
balance sheet represents the accounting equation,
where assets equal liabilities plus stockholders’
equity. The following is the Balance Sheet for
Printing Plus

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Ending retained earnings information is taken from
the statement of retained earnings, and asset,
liability, and common stock information is taken
from the adjusted trial balance as follows.

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Looking at the asset section of the balance sheet,
Accumulated Depreciation–Equipment is included
as a contra asset account to equipment. The
accumulated depreciation ($75) is taken away from
the original cost of the equipment ($3,500) to show
the book value of equipment ($3,425). The
accounting equation is balanced, as shown on the
balance sheet, because total assets equal $29,965
as do the total liabilities and stockholders’ equity.

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