As MEMBA11 World Class Business Education Trainers (WCBET) continued its operations, we look at what were accomplished within the period of operation.
We looked at what we did in the first six months of the business. We set out to be selling knowledge, create and disseminate knowledge with the right ambience and attract the right focused audience. We look at ACCOMPLISHEMENT vs EFFORT during a period. Unlike a balance sheet that is at a point in time, what we looked at is during a period. For example, during a week, month, half year, or year.
In looking at ACCOMPLISHEMENT and EFFORT, which one do we want to be higher. We want ACCOMPLISHMENT to be higher. If we succeed in having more ACCOMPLISHEMENT, it will be said that we have made a gain. That gain we made is called PROFIT in accounting terminology or LOSS if EFFORT is more than ACCOMPLISHEMENT.
The accounting terminology for accomplishment is called REVENUE. It has other aliases like SALES, TURNOVER. It is what an entity gets from selling to its customers. The accounting terminology for effort is called EXPENSES. With these we can now write an equation.
PROFIT OR LOSS = REVENUE – EXPENSES
This explains the second financial statement. This is the statement of profit or loss or income statement. Recall when we formed MEMBA11 WCBET, we had discussed the balance sheet as the first financial statement. This second statement, the income statement has two accounts:
They are what the statement of profit or loss contains. When revenue and expenses are compared, we get PROFIT OR LOSS. There is profit when REVENUE is more than EXPENSES and there is loss when EXPENSES is more the REVENUE.
In six months MEMBA11 WCBET made a revenue of
N20Million, and expenses were N15.5Million. With these transactions, Profit or Loss becomes;
P or L = R – E
= 20M – 15.5M = 4.5M
We made a profit of
N4.5Million during the six months of operation after taking out all our expenses. The owners of the business is the owner of the N4.5Million. The profit that MEMBA11 WCBET made, they need to take a decision on it.
How much of it will they want to share? How much do they want to retain in the business? We, 39 shareholders contributed
N100,000 each. The net profit that is shared is called dividend policy, which is also a complement of retention policy. This is because what we share and what we retain will sum up to N4.5Milion. We decide to share 20% and retain 80% of the N4.5Milion.
Share 20% =
Retain 80% =
Then, we look at the third statement in the life of MEMBA11 WCBET, the statement of Change in Equity. It looks at how the owners equity is growing or how it is being destroyed. We have an opening balance of
N3.9M (Total equity from Shareholders). This is what is called Contributed Capital (CC).
During the six months, we decided to retain some of our earnings of
N3.6M. This is called retained earnings or earned capital.
At the end of the six months, we have a closing balance. Which means our equity has grown by
N3.6M from N3.9M to N7.6M. In reality, it is not only retained earnings that make equity to grow.
Statement of Change in Equity
Opening Balance =
N3.9M Contributed Capital (CC)
Retained Earnings =
N3.6M Earned Capital (EC)
Closing Balance =
MEMBA11 WCBET now have a third statement, Statement of change in equity. Which shows the movement of equity from the beginning of a period to the end of the period.
After six months of operation, we also looked at the items that have been involved in the operations of MEMBA11 WCBET business to determine which items are inflows, outflows, financing, investing, and operating to the business.
N3.9M contributed by the shareholders is an inflow.
N1.1M loan borrowed from the bank is an inflow.
N20M the business collected from the customers that came for training is an inflow.
N15.5M they paid to carry out different expenses is an outflow.
N5M they used to buy the tools required for the business is an outflow.
N3.9M they got from the shareholders is financing.
N1.1M loan borrowed from the bank is financing.
N20M they collected from customers is operating.
N15.5M they incurred in running the business is operating.
N5M they used to buy the tools required for the business is investing.
The table below summarizes what the items are for MEMBA11 WCBET business.
MEMBA11 WCBET, We Move.