Financial Statements for Short Cuts: Income Statement and Balance Sheet

This document provides the statement of comprehensive income and statement of financial position for Short Cuts. It also discusses the main users of financial statements and the purpose of income statement and balance sheet. Additionally, it explains the meaning and relevance of accounting concepts like historic cost, money measurement, and prudence.

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Contents
SECTION 1......................................................................................................................................3
The statement of comprehensive income for Short Cuts for the year ending 30th September
2020........................................................................................................................................3
The statement of financial position for Short Cuts as at 30th September 2020.....................3
SECTION 2......................................................................................................................................4
SECTION 3......................................................................................................................................5
1. Main users of the financial statements...............................................................................5
2. General purpose of the two main final accounts / financial statements.............................6
3. Meaning and relevance for accounting practice for each of the following accounting
concepts..................................................................................................................................7
4. Double entry bookkeeping system follows the rules of the accounting equation..............7
REFERENCES................................................................................................................................8

SECTION 1
The statement of comprehensive income for Short Cuts for the year ending 30th September
2020.
Income statement of Pete ory on-30 september 2020
(A) Sale revenue: Gross sale 129,400.00
Discount received 1,840.00
less: Sale return -2,000.00 129,240.00
Net sale 129,240.00
(B) Cost of good sold
Opening stock 18,000.00
Add: Out purchases (75000-900) 74,100.00
Add: Direct expanses
Discount allowed 2,373.00
Less: Closing stock 20,000.00 74,473.00
(C) Gross profit (A+B) 203,713.00
(D) Operating expanses:
Salaries+accrued (32500+1050) 33,550.00
Less: General Expanses+ outstanding (3300+475) 3,775.00
Rents rates - prepaid (2000-200) 1,800.00
Profit for Depriciation- Fixtures(15000-8700)*10/100 630.00
Motor Vhicals(30000*25%) 7,500.00
Profit for doubtful debt (43000*10%) 4,300.00 51,555.00
(E.) Operating profit (C-D) 152,158.00
Less: Interest 1,127.00
Profit before tax 151,031.00
Add: Non Operating income
Rent Received 4,460.00 4,460.00
Net profit Before tax - 155,491.00
Less: Tax - -
Net profit After tax 155,491.00
The statement of financial position for Short Cuts as at 30th September 2020.
Balance sheet of Pete ory on-30 september 2020
1. Liabilities
(A) Capital: 27000 27,000.00
Less: Drawing 2000 2,000.00 25,000.00
(B) Reserve and surplus: Profit of the year 155,491.00
(C.) Non current liabilities

Loan: 5 year loan 32,000.00
Mortgage 38,000.00 70,000.00
(D) Current Liabilities
Provision for depreciation on fixtures (8000+700) 8,700.00
Provision for depreciation on motors (22500+7500) 30,000.00
Bank overdraft 5,100.00
Trade payables 35,000.00
Salaries accrued 1,050.00
General expanses Outstanding 475.00
Provision for doubtful debts 4,300.00 84,625.00
Total 335,116.00
2. Assets
(A) Non-Current assets
Fixed assets: Shop Premises 72,000.00
Fixtures 15,000.00
Motor Vehicle 30,000.00 117,000.00
Investments - -
Other noncurrent liabilities -
153716
-
(B) Current assets: Cash 1,200.00
Trade Receivables 43,000.00
Inventory 20,000.00
Prepaid rent & rates 200.00 64,400.00
Total 335116.00
SECTION 2
Ans:1 d. Assets – Liabilities = Capital
Ans:2 d. None of the above.
Ans:3 d. Corporation tax payable
Ans:4 d. Road tax
Ans:5 d. £47,000
Ans:6 b. Added to the asset’s current year depreciation expense charge on the SFP
Ans:7
d. Records bad debts without taking them out of the 'books' as an entity, thus showing the full
amount owed by debtors as a current asset.
Ans:8 b. An asset of the business
Ans:9 c. £320,000
Ans:1
0 b. £330,000
Ans:1
1 c. The amount of cash introduced by the owner at the commencement of business

Ans:1
2 d. A trial balance reveals whether double entry rules have been complied with
Ans:1
3 d. Overstating its performance as well as its assets
Ans:1
4 a. £52,000
Ans:1
5 a. the value of an asset at the end of the year
Ans:1
6 b. Faced with uncertainty an accountant should exercise a degree of caution
Ans:1
7 c. Receipt of cash from M. Smith
Ans:1
8 c. The amount still to be written off over its remaining life
Ans:1
9 b. Cash receipts and payments should be matched only to that period
Ans:2
0 c. Provide useful financial information to external users
SECTION 3
1. Main users of the financial statements
Accounting information participants usually involve: owners and investors, management,
suppliers, staff, customers all of these are defined below:
Owners and investors: Corporate major shareholders require account statements to assist them
in making judgements on how to go about their investment opportunities (stock shares), i.e.
holding, selling or buying more (Sroufe and Gopalakrishna-Remani, 2019). Individual customers
need data to assess the effect for achievement and value of the firm. Similarly, to assess whether
a company is financially viable or when to proceed, enhance or decline it, small businesses need
account statements.
Management: Leadership of smaller companies can involve the shareholders. That being said,
control is generally composed of professional attitude throughout huge organisations that are
charged with the task of running the business or even a company’s success. As operatives of the
proprietors, they behave and managers, as to if proprietors or decided to hire, frequently face
financial decisions many supplies are we going to buy? Have we got enough money? How much
really does last year end up making? Have we fulfilled our targets? All these and other issues and
management decisions, necessitate financial accounting assessment. Every period, the executive

team has to consider the company's efficiency, profitability, as well as working capital, because
it can right to collect operating and financing assessments.
Trade creditors or suppliers: Trade creditors as well as distributors are involved, like
borrowers, throughout the ability of the organization to spend immediate liabilities. Nevertheless,
they were also currently important throughout the financial condition of the firm: its capacity to
afford short-term responsibilities. Fund creditors like financial institutions are grateful for the
chance of the business to pay obligations (solvency) at longer maturities. In estimating the
lender's capacity to repay all borrowed assets and associated interest payments, an individual
banks lending to an institution may need income reports. In determining whether something is
safe to lend payment to either a company, vendors may need financial reports.
Employees: Employees have a desire to participate in the profit margins and sustainability of the
business. They are after funds used to finance salaries as well as provide advantages for staff. In
order to evaluate business expansion possibilities but instead promotion opportunities, they could
also be involved through its accounting policies. A business may opt to even provide workers
including its income statement, including a thorough description about what the documents
actually contain. This will be used to enhance the effectiveness of interest of workers in the
company and their comprehension (Vieira, Neves and Dias, 2019).
Customers: Whenever the business as well as its clients has a stronger or agreement, the clients
are becoming aware of the possibilities of the system to start its presence and retain operational
stability. In instances where even the clients rely heavily mostly on organisation, people's needs
is also increased. If a client chooses which manufacturer to pick for a big contract, they first want
to examine their financial records in determining a distributor's financial resources to continue in
operation long got to supply the current contract necessary products or services.
2. General purpose of the two main final accounts / financial statements
There are three main financial statements (balance sheet, cash flow statement and income
statement) which each company prepares within an accounting year in order to record entire
business or financial happening. The main purpose of two main financial accounts is discussed
underneath:
Statement of financial position (balance sheet): A balance sheet is defined as the a financial
statement even at a fixed moment in time records the assets, liabilities as well as stock value of a
corporation and creates a basis for calculating investment returns and assessing the cash position.

This is a financial report that offers a description of what is owned and owed by a company, and
also the money paid by stakeholders. In comparison to other essential financial reports, including
the cash flow statement as well as the profit and loss account, the accounting information is
being used to do economic analyses or measure financial ratios. Assets, liabilities of the
company of investors each consists of many small loans which break the financial of a business's
details. Such accounts vary greatly by sector, and based on the size of the enterprise, the same
words may have various meanings. Broadly, even though there are number common elements
that shareholders are sure to appear through here. The balance sheet reports at a period in history
representing the interests of the financial situation of a business. It could not, on its own, convey
a sense including its patterns it over a prolonged duration is going to play out. The cash flow
must, for the purpose, be contrasted with that of earlier cycles. It can also be contrasted with
many other firms of the very same sector, as different sectors have particular funding methods
(Yu and Huo, 2019).
Income statement: This report shows the company's financial performance throughout a
predefined timeframe is really an income statement. This is also recognised as the statement of
income or document of earnings and expense, the income statement focuses mainly during a
specific time period mostly on profits and expenditure of the business. Net income seems to be
the total amount of both operational and non-profits, while secondary and tertiary actions involve
monthly expenditure. Revenues do not represent receipts I n the comprehensive income, money
is received and published. Receipts (obtained or paid-out cash) aren't really. This financial
statement offers useful visibility into the practises of a company, the success of its executives,
markets that are underachieving and its results compared to other firms dealing in same industry.
The declaration of income reflects on four main items: income, costs, profits and losses. It does
not discriminate between currency as well as non-cash transactions (cash transactions versus
credit sales) or currency and non-cash financing (cash transactions against trade payables). It
begins with the pricing data and then progresses down to measure the net profits and the
Earnings per Share (EPS) finally (Soewarno and Tjahjadi, 2020). Essentially, it gives an analysis
of how well the business's net income is turned into net income (statement of financial position).
3. Meaning and relevance for accounting practice for each of the following accounting concepts.
Historic Cost and its relevance: It is defined as the estimated value which is been used in the
accounting where the measurement of an asset is reported on the balance sheet with its actual

cost when attained by the company. The methods for historical costs is been utilized for the fixed
assets in US within the principles for accounting. It is also one of the most ordinary principles for
accounting formulated within the generally accepted accounting principles (GAAP). Under the
principle of historic cost is relevant in terms for accounting practices as within it most of the
assets are being reported on the balance sheet with their historic cost. For instance considering
the securities for markets are being recorded within their actual value of market on the balance
sheet, and then the unorganized assets are recorded from the historic cost to their assigned
market value (Gurski, Rethmann and Yilmaz, 2016).
Money measurement: The significance of money measurement signifies that the business must
only give a report on the accounts transaction if it is being considered with regard to money. It
means that the main objective of accounting transactions is on the quantity of the information
provided and rather than the quality of the information. Hence, there were no large counts of
products which were being viewed on the company’s accounting structure, which states that they
will never be reflected on the financial terms of the company. The fundamental flaw of the
concept of money measurement is that there are several parts which can process into the long
lasting changes in the financial statements of the business, but the relevance of money
measurement will enable it to be recorded in the financial position of the company.
Prudence: it is the prime concept of accounting which is based on the conservative appeal of
measuring the loses of expenses and the liabilities in a healthy manner and to measure the assets,
the profits and revenues in a contemplative manner so that the liabilities and the assets linked are
not understated and overstated. The concept behind prudence is that a company should not
identify a trade which is at a value that is much greater than the value which is estimated to be
rectified from its sale. The concept of prudence in accounting practice encourages which also
raises the liabilities for the statements that are being recorded in the financial positions of a
business. It also encourages that the final outcomes of a company must always warn while
reflecting any statements particularly which are laying the impact on the income and the
expenses (John and Eeckhout, 2018).
Going concern: The concept of going concern in the accounting practice is that it supplies a
guideline which enables the participants of business financial positions to make an estimate that
whether the business will keep on hold in operating to a large extent and to bring out its recent
obligations, its aims and the commitments. Going concern is an important concept of the

generally accepted accounting principles, as without it the processes of business will be unable to
perform the accrued or the prepaid expenses. The going concern concept gives few clarification
to the accountants to enrol with the cost principle. The going concern is an accounting practice
for a company which is financially satisfied enough to meet with the obligations required and to
keep on doing the business for the future demands.
Business entity: The concept of business entity serves that the transactions related to the business
must be reported individually from those of its dealers or the other businesses. By following such
action it requires the usage of separate specific accounting reports for the association that
completely remove the assets and the liabilities of any other trade. If this concept is not applied,
the records of various entities would be impaired and mismatched, which makes it more
complicated to seek out the financial results of a specific business. The concept of business entity
is also very important as if the transactions of a business are intermingled with that of the owners
or the businesses then the information regarding the accounting with also lose its usability. This
concept can also be applied to every kind of business even when the law does not identify the
business and its owner as two different entities (Kostyukova and et.al., 2018).
4. Double entry bookkeeping system follows the rules of the accounting equation.
Double entry, a fundamental concept underlying present-day bookkeeping and accounting, states
that every financial transaction has equal and opposite effects in at least two different accounts. It
is used to satisfy the accounting equation is which is like this Assets= Liabilities + Equity.
In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit
in one account offsets a credit in another, the sum of all debits must equal the sum of all credits.
The double-entry system of bookkeeping standardizes the accounting process and improves the
accuracy of prepared financial statements, allowing for improved detection of errors.
The accounting equation is considered to be the foundation of the double-entry accounting
system. On a company's balance sheet, it shows that a company's total assets are equal to the sum
of the company's liabilities and shareholders' equity (Maas, Schaltegger and Crutzen, 2016). In
the company accounting equation is considered to be the foundation of the double-entry
accounting system. The accounting equation shows on a company's balance that a company's
total assets are equal to the sum of the company's liabilities and shareholders' equity. Assets
represent the valuable resources controlled by the company. The liabilities represent their
obligations. If company want to see the status of self, then it appears according to its balance

sheet. Both the assets and liabilities are part of the balance sheet, with the help of these, the
company decides. Owners’ equity, or shareholders' equity, is the third section of the balance
sheet. The accounting equation is a representation of how these three important components are
associated with each other. The accounting equation is also called the basic accounting equation
or balance sheet equation.
To get a good accounting equation, firstly find out the total assets of the company. A separate list
should be made of the total liabilities shown in the balance sheet (Parmenter, 2015). The number
of shareholders' equity should be ascertained and the total liabilities should be added. Total
assets will equal the sum of liabilities and total equity. As an example, let's say for the financial
year, leading retailer XYZ Corporation reported the following on its balance sheet: Total assets:
$170 billion, Total liabilities: $120 billion, Total shareholders' equity: $50 billion: If company
calculate the right-hand side of the accounting equation (equity + liabilities), we arrive at ($50
billion + $120 billion) = $170 billion, which matches the value of the assets reported by the
company. Characteristics of the double-entry system:
 Two parties: Every transaction consists of two parts, debit and credit. The amount of
credit can be debited and the amount of debit can be credit based on the main principles
of this system.
 Giver and receiver: There should be one giver and one giver in every transaction.
 Separate entity: Under the double entry system, the owner is considered separate from
his company, in which the owner separates and plays his role.
 Dual aspects: In this system, every transaction is divided into two parts. According to
this the left side of the transaction debit and the right side is credit.
 Results: Within a double entry system, the totality of the debit is equal to that of the
credit, making it easier to ascertain the results.
 Complete accounting system: This system is completely scientific and fully proven
(Robinson, 2016).

REFERENCES
Books and Journals
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performance: panel data evidence. International Journal of Productivity and
Performance Management.
Yu, Y. and Huo, B., 2019. The impact of environmental orientation on supplier green
management and financial performance: The moderating role of relational
capital. Journal of cleaner production, 211, pp.628-639.
Soewarno, N. and Tjahjadi, B., 2020. Measures that matter: an empirical investigation of
intellectual capital and financial performance of banking firms in Indonesia. Journal of
Intellectual Capital.
Gurski, F., Rethmann, J. and Yilmaz, E., 2016. Capital budgeting problems: A parameterized
point of view. In Operations Research Proceedings 2014 (pp. 205-211). Springer,
Cham.
John, L.K. and Eeckhout, L. eds., 2018. Performance evaluation and benchmarking. CRC Press.
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accounting. Research Journal of Pharmaceutical, Biological and Chemical Sciences.
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Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning
KPIs. John Wiley & Sons.
Robinson, M., 2016. Budget reform before and after the global financial crisis. OECD Journal
on Budgeting. 16(1). pp.29-63.