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LECTURE NOTES

XI ENTREPRENEURSHIP

Code: 241506010111

TOPIC-BUSINESS FINANCE AND ARITHMETIC

SUB TOPIC- INCOME STATEMENT AND CASH FLOW PROJECTION

1. The motive of a business is to earn profits. Profit is the reward due to the entrepreneur
by virtue of which he/she undertakes risk and bears the uncertainty of operating a

business. Profit is basically an excess of revenue over expenses. This excess helps the
business to sustain and grow, but in case of loss, the motivation behind operating a
business is lost.
2. The statement that enables us to determine the profit over a period of time is known as
Income statement. It shows items of revenue nature and is generally prepared on
accrual concept, which means that revenue and expenses of a particular period will be
shown in this statement, whether they have been received/paid or not. It tells, whether
an organization is making profit or running at a loss. It does not show cash transactions
or cash flow.
3. Generic format of an income statement is given below :
Income Statement of ......for the Year Ended 31st March, 2016

Particulars Amount
I. Revenue from Operations .................
II. Other Income ...................
III. Total Revenue (I+II) ------------------
IV. Expenses
Cost of Materials Consumed .................
Changes in Inventories ...................
Employees Benefit Expenses ...................
Finance Costs ...................
Depreciation and Amortization Expenses ...................
Other Expenses .....................
Total Expenses ----------------------------
V. Profit before Tax (III-IV) .....................
VI. Tax Expense ........................
VII. Profit for the period (V-VI) ......................
4. Cash flow statement shows how cash has flowed in and out of a business during the
past year i.e. it is historical in nature and cash flow projection shows the cash that is