Financial Accounting

Financial Accounting

Table of Contents
Question 1....................................................................................................................................................3
Income statement ...................................................................................................................................3
Balance Sheet ........................................................................................................................................3
Assumptions used in preparation of financial statements.......................................................................4
Question 2....................................................................................................................................................4
Cash flow statement ...............................................................................................................................4
Memo ....................................................................................................................................................5

Question 1
Income statement
Particular Amount (£)
Sales 214000
Less: Cost of production
Purchase 144000
Opening stock 14000
Closing stock (15000) (143000)
Gross Profit 71000
Less: Expenses of the year
Audit and Accountancy 500
Advertising 900
Director remuneration 5500
Electricity 3000(2800+200)
Insurance 1400 (1700-300)
Depreciation:
Furniture and Fixture 8000
Motor Vehicle 365 8365
Rent and Rates 7500
Wages and salaries 15000
Bank Interest 400
Office expense 5700 (48265)
Net Profit 22735
Balance Sheet
Balance Sheet (as on
31st December, 2020)
Liabilities Amount Assets Amount
Creditor 8900 Bank 1500

Provision for electricity 200 Debtor 41350
Advance Insurance 300
Stock 15000
Capital
25000
Opening profit
13200
Closing profit
22735
60935
Fixture and Fitting 40000
Less:Accumulated
depreciation (24000) 16000
Long Term Loan 7400 Motor Vehicle 5000
Less:Accumulated
Depreciation (1715) 3285
77435 77435
Assumptions used in preparation of financial statements
 Economic entity assumption
 Monetary unit assumption
 Time period assumption
 Going concern assumption
 Constraints such as materiality and conservatism
 Qualities such as reliability, relevance, consistency, comparability and cost benefits.
Question 2
Cash flow statement
Cash Flow Statement Amount (£)
Opening cash balance 1000

Add: Inflow of cash
Investment sold 10000 10000
Less: Cash outflow
Inventory 7000
Loan payment 7000 -14000
Closing cash balance -3000
Memo
Memorandum
To: Spark Limited
Date: 29 January, 2021.
The cash flow statement prepared denote that cash is overused by the organization. Cash is over
utilized that could somehow challenge the liquidity position of the business entity. IN every
organization liquidity is among the major factor that strengthen the overall operational
effectiveness of the business entity.