The layout of the Financial Statements

Uncleboobot

Hello everyone,

Is there any rhyme reason for the lay out of the Statement of profit or Loss and the Statement of Financial Position? If so, can anybody offer a reason for it's 3 column layout?

There doesn't appear (to me) to be any logical reasoning for it's layout. I have looked back through my course books but I don't seem to find anything specifically about the layout.

The layout on the SFP seems more logical but if I were to have to learn how to layout a SPL, I would struggle to understand why it's laid out in the way it is.

Thanks,


Stuart

Uncleboobot

So, here is an example. I am currently studying Level 3 Accounting and the image below is an extract from my text book. The question then, is how do I learn which figures are placed in which column and/or which calculations are made in which column? Hope this makes sense.

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Zoynal98

Doubt this is going to help much...

The proforma you are showing is very detailed, I tend to remember the main parts (see below):

Sales (Net sales) Remember to remove sales returns
Less: Cost of Sales ((Opening Inventory + Net purchases) - Closing Inventory)
= Gross Profit (Net Sales - Cost of Sales)
Add: Other Income
= Gross Profit + Other Income
Less: Expenses
= Net Profit ((Gross Profit + Other Income) - Expenses)

Then you can use logic to allocate each line item underneath the bold headings (shown above).

Let me know if anything is unclear.

Bertie

There isn't.

You will learn what goes where through practice.

You'll need to know what interacts with what.

Ultimately the extra column is there to calculate sub-totals of varying sections, after which you have you're ultimate totals.

To be honest I've never really thought of the question before.

Uncleboobot

Thanks for your help guys

Bertie said:

To be honest I've never really thought of the question before.

@Bertie I guess the older I become, the more inquisitive I get and the more I need an explanation.

@Zoynal98 - I get the equation, it's just the layout I struggle with - thanks anyway

Zoynal98

But what I've shown you is pretty much the layout no?

Mike Webster

The statement of profit or loss is actually two statements - the trading account (detailing the sales, cost of sales and resulting gross profit) and the profit and loss account which then factors in everything else (other income and expenses).

The statement of financial position groups like items together: non-current assets, current assets, non-current liabilities, current liabilities and equity. If you look at the layout used in Level 3, it's set out just like the accounting equation (Asset - Liabilities = Capital) with assets being listed in order of liquidity. At Level 4, the layout changes a little but the accounting equation is still there (Assets = Equity + Liabilities). Assets are still listed in the order of liquidity.

You mention the three column layout - that's used to make it easier to read the statements. In exams you could, in theory, be given one, two or three columns - do not get hung up on which columns things go in - you would be better served understanding the order of items. In the exams you can only put figures in certain cells so can't put things in the wrong column.

This may not answer your question, but may help you understand the layouts a little better.

Uncleboobot

Zoynal98 said:

But what I've shown you is pretty much the layout no?

@Zoynal98 - Yes you have and yes it is, and while I thank you for your help, you haven't really answered my question. My question wasn't, "How" it is laid out, but "Why" is it laid out in a 3 column format? Apologies for the confusion

@Mike

Mike Webster said:

do not get hung up on which columns things go in

I asked my tutor whether it mattered about the layout and was told it was, and I would be expected to lay it out correctly. Admittedly, he hasn't been able to answer my question either (brilliant!) and I raised the question before I sat my first exam. With the benefit of hindsight I now realise you are right about the layouts in exams.

Mike Webster said:

In the exams you can only put figures in certain cells so can't put things in the wrong column.This may not answer your question, but may help you understand the layouts a little better.

and yes I'm now satisfied that your answer is probably about as close as I'll get to a hard and fast reason as to the 3 column layout, thanks.

hal978

It is laid out in a 3-column format due to the sub-totals.
For example, the first column (to the left) is a total of cost of goods sold.
The third (right most) column is the main one.
There is an additional column for each set of sub-totals. It is easier to read that way.

MatthewS

I have this same query. The layout in my Avado books is utterly inconsistent for both SFP and SLP. THe SPL is usually 2 column but sometimes it's shown as a 3 coloumn. When it comes to the quiz questions, I have the right figures but don't know where they're supposed to go.
I can see some vague logic to the layout of SFP, with totals and sub-totals. The problem is that in the Avado books the figures for assets and liabilities are sometimes listed in the first column and sometimes in the second column, with the sub-totals in either. Very confusing.

Uncleboobot

I feel your pain Matthew. Avado was my learning provider too. I asked my tutor and received an utterly useless explanation.

I