Page 168 - Plant design and economics for chemical engineers

142 PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGlNEERS

by banks or other loan concerns before credit is extended. From the data
presented in Fig. 5-2, the current ratio for the company on December 31, 1989
was
$490,798,000
$243,555,000 = 2*02
and the cash ratio was $93,879,000/$243,555,000 = 0.386.

THE INCOME STATEMENT
A balance sheet applies only at one specific time, and any additional transac-
tions cause it to become obsolete. Most of the changes that occur in the balance
sheet are due to revenue received from the sale of goods or services and costs
incurred in the production and sale of the goods or services. Income-sheet
accounts of all income and expense items, such as sales, purchases, deprecia-
tion, wages, salaries, taxes, and insurance, are maintained, and these accounts
are summarized periodically in income statements.
A consolidated income statement is based on a given time period. It
indicates surplus capital and shows the relationship among total income, costs,
and profits over the time interval. The transactions presented in income-sheet
accounts and income statements, therefore, are of particular interest to the
engineer, since they represent the facts which were originally predicted through
cost and profit analyses.
The terms gross income or gross revenue used by accountants refer to the
total amount of capital received as a result of the sale of goods or service. Net
income or net revenue is the total profit remaining after deducting all costs,
including taxes.
Figure 5-3 is a typical example of a consolidated income statement based
on a time period of 1 year. As indicated by Eq. (31, the total income
($345,155,242) equals the total cost ($302,600,732 + $18,854,000) plus the net
income or profit ($23,700,510).
The role of interest on borrowed capital is clearly indicated in Fig. 5-3.
Since the accountant considers interest as an expense arising from the particular
method of financing, the cost due to interest is listed as a separate expense.

MAINTAINING ACCOUNTING RECORDS
Balance sheets and income statements are summarizing records showing the
important relationships among assets, liabilities, income, and costs at one
particular time or over a period of time. Some method must be used for
recording the day-to-day events. This is accomplished by the use of journals and
ledgers.
A journal can be a book, group of vouchers, or some other convenient
computer printout in which the original record of a transaction is listed, while a
ledger is a group of accounts giving condensed and classified information from
the journal.