Page 169 - Plant design and economics for chemical engineers

COST AND ASSET ACCOUNTING 143

XYZ CHEMICAL COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT FOR THE YEAR
ENDING DECEMBER 31,1989

Income
Net sales $341.822.557
Dividends from subsidiary and associated companies 798.483
Other 2.534.202
Total (or gross) income 5345155.242
Deductions
Cost of goods sold $243.057.056
Selling and administrative expenses 42.167.634
Research expenses 10.651.217
Provision for employees’ bonus 649.319
Interest expenses 3.323.372
Net income applicable to minority interests 143.440
Other 2.608.694
Total deductions $302.600.732
Income before provision for income taxes S 42.554.510
Less provision for income taxes 18.854.000
Net income (net profit) S 23.700.510
Earned surplus at beginning of year 90.436.909
Total surplus $114.137.419
Surplus deductions
Preferred dividends ($3.85 per share) $ 721,875
Common dividends ($2.50 per share) 13.148.300
Total surplus deductions $ 13,870,175
EARNED SURPLUS AT END OF YEAR $100.267.244

FIGURE 5-3
A consolidated income statement.

Debits and Credits
When recording business transactions, a debit entry represents an addition to
an account, while a credit entry represents a deduction from an account. In
more precise terms, a debit entry is one which increases the assets or decreases
the equities, and a credit entry is one which decreases the assets or increases
the equities.
Since accounting records must always show a balance between assets and
equities, any single transaction must affect both assets and equities. Each debit
entry, therefore, requires an equal and offsetting credit entry. For example, if a
company purchased a piece of equipment by a cash payment, the assets of the
company would be increased by the value of the equipment. This represents an
addition to the account, and would therefore, be listed as a debit. However, the
company had to pay out cash to obtain the equipment. This payment must be
recorded as a credit entry, since it represents a deduction from the account. At
least one debit entry and one credit entry must be made for each business