This article provides an overview of the balance sheet and income statement, explaining their components and significance in assessing a company's financial health. It covers assets, liabilities, revenue, and expenses, and includes examples and explanations. Suitable for finance and accounting students.
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Answer to Part 1 Balance Sheet The Balance Sheet of the Company always given actual position of financial health as on specific date of the balance sheet. The main two constituents of the Balance Sheet include Assets and Liabilities. Assets includes all types of Fixed Assets, Current Assets including Sundry Debtors, Stock and Cash & Bank Balances. Stock, Cash and Bank balances are also termed as liquid assets having very short life of realization. Stronger the Current Assets of the company better it is, as it gives liquid strength to the company. Liabilities side gives us the picture as how the assets are funded, it mainly includes two shareholders equity and all other liability. All other liability would include secured, unsecured loans, Creditors and any other amount payable. Profit or Loss, as the case may be will be increase/ decrease the shareholder’s equity. Income Statement Income Statement gives us the profitability of the company for a particular period of time. It mainly contains two part Income and Expenses. The excess of Income over expenses will be termed as Profit and vice versa as Loss Income includes revenue that company generated for the particular period of time through ordinary course of business and indirect income earned from any other source. Expenses includes all the purchases, expenses incurred for generating above revenue such as salary, rent, depreciation, printing and office expenses etc. Net result of Income Statement i.e. Profit or Loss will be added with the shareholders fund. More the profit better will the position of the company. Answer to Part 2 (1) ABC Financial Consultant - Worksheet for the year ended 30 June 2017 Figures in $ Unadjuste d trial balance Adjustmen ts Adjusted trial balance Account TitleDebitCreditDebitCreditDebitCreditNarratives Cash at Bank 5,2005,200- Current Assets Accounts Receivable.9,2609,260- Current Assets GST Receivable 920 78 998- Current Assets Office Supplies 1,140 720 420- Current Assets Land 60,00060,000- Non Current Assets
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Building 1,52,00 0 1,52,00 0 - Non Current Assets Accumulated Depreciation – Building64,000 8,760 -72,760 Non Current Assets Office Equipment 23,400-23,400- Non Current Assets Accumulated Depreciation – Office Equipment6,420 2,140 -8,560 Non Current Assets Accounts Payable 7,960 858 -8,818 Current Liabilities Unearned Consulting Fees1,560 1,200 -360 Current Liabilities GST Payable 2,000-2,000 Current Liabilities Mortgage Payable 88,600-88,600 Non Current Liabilities C. Delaney, Capital71,490-71,490 Non Current Liabilities C. Delaney, Drawings52,780-52,780- Non Current Liabilities Consulting Fees Revenue1,56,86 0 1,200 -1,58,06 0 Revenue Insurance Expense 1,660- 195 1,855- Expense Salaries Expense 87,940 980 88,920- Expense Electricity Expense 760760- Expense Interest Expense 2,090 220 2,310- Expense Telecommunicatio ns Expense1,740 320 2,060- Expense Prepaid Insurance585 585- Current Assets Telecommunicatio ns Expense Payable 320 -320 Current Liabilities Office Supplies Expense 720 720- Expense Depreciation Expense – Buildings 8,760 8,760- Expense Depreciation Expense – Office Equipment 2,140 2,140- Expense Interest Payable220 -220 Current Liabilities Salaries Payable980 -980 Current Liabilities Total 3,98,89 0 3,98,89 0 15,19815,198 4,12,16 8 4,12,16 8
Notes Since the physical stock of office supplies is only $420 are on hand at 30 June as against 1140, the difference has now been booked as expense and stock count is bought as 420. Unearned Consulting Fees amounting $1200 received form customer as an advance, against which services have been rendered in the last week of June, therefore we booked revenue and reduced current liabilities. Depreciation Expense on the office equipment is $2140 and on the building $8760 is debited and also credited in accumulated depreciation of respective asset. Insurance policy worth $780 plus 10% GST of $78 was purchased on 1 April, therefore the GST input is been debited under the head GST receivables by $78, premium amount of 195 is amortised for the period of three month till June,30 and remaining amount of premium i.e. $780-195=585 has been considered as prepaid expense. Though June monthly mortgage payment of $900 has not been paid the interest of $220 has to be booked as expense under the head Interest Expense and shown in liabilities as Interest Payable. Telecommunications costs for $320 needs to booked as expense provisionally though Invoice is not received and shown in current liabilities as payable. Salaries of $980 owing to employees at 30 June 2017 needs to booked as expense as salary expense and shown as liabilities as salary payable. Answer to Part 2 (2) ABC Financial Consultant - Income Statement for the year ended 30 June 2017 IncomeAmount ($) Consulting Fees Revenue1,58,060 1,58,060 Expenses Insurance Expense1,855 Salaries Expense88,920 Electricity Expense760 Interest Expense2,310 Telecommunications Expense2,060 Office Supplies Expense720 Depreciation Expense – Buildings8,760 Depreciation Expense – Office Equipment2,140 1,07,525 Net Profit50,535 Note:Each line item is work sheet/trial balance as been categorized and presented in the above Income Statement after adjusting missing items. The Net Profit amounting $50535 is earned by the ABC Financial Consultant. ABC Financial Consultant - Bakance Sheet as at 30 June 2017
ParticularsAmount ($)Amount ($) Non Current Assets Land60,000 Building1,52,00079,240 Less:Accumulated Depreciation – Building-72,760 Office Equipment23,40014,840 Less: Accumulated Depreciation – Office Equipment-8,560 Current Assets Cash at Bank5,200 Accounts Receivable.9,260 GST Receivable998 Office Supplies420 Prepaid Insurance585 Total of Assets1,70,543 Sharehoders Equity Fund C. Delaney, Capital71,49069,245 C. Delaney, Drawings-52,780 Profit for the Period50,535 Non Current Liabities Mortgage Payable88,600 Current Liabities Accounts Payable8,818 Unearned Consulting Fees360 GST Payable2,000 Telecommunications Expense Payable320 Interest Payable220 Salaries Payable980 Total of Liabilities1,70,543 Note:Each line item is work sheet/trial balance as been categorized and presented in the above Balance Sheet as on 30thJune, after adjusting missing items. Statement of Changes in Equity for the year ended 30 June 2017 ParticularAmount ($) Balance at the beginning of the year71,490 Drawings during the year-52,780 Profit for the Period50,535 Balance at the closing of the year69,245 Note : As explained in Part1, Profit/Loss achieved is always added to the capital account hence profit of $50535 has been added in capital account. Drawings of $ 52780 will reduce the capital from the company. There fore the closing balance of capital stood at $69245.