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ACCOUNTING HELP - Balance sheet and Income Statement

Can someone EXPLAIN (not just give the answer) to me how to get the balance sheet and income statement from the following information
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also: The following information is relevant:
(1) Inventory at 30 September 2007 was valued at cost, £14,200.
(2) The provision for doubtful debts is to be increased to £2,100.
(3) Rent and rates prepaid at 30 September 2007 were £200.
(4) The fixtures and fittings were purchased on 1 October 2006. Depreciation is to be
provided at 10% per annum.
(5) Wages and salaries accrued at 30 September 2007 were £300.

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I'm particularly confused by what side the purchases (we've never used that term in class) go on the balance sheet - is it the Assets or the Claims (Equity+liabilty)?

Also i have absolutely NO idea how to start creating an income statement?

Do you put down sales and then deduct cost of sales from that and then deduct expenses? If so, how do i derive cost of sales?

Please can someone explain? I'm seriously confused!

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Reply 1

SamLowry

Please can someone help!

Reply 2

paperdollx

Hmm. That is a bit confusing. Im not sure what an income statement is.

Is this the profit and loss account? Cause the first thing I would do is to create one of those and then create the balance sheet.

The balance sheet should go like this:

Fixed Assets
I.e premises, land, vehicles etc.
So you add those up.

Then your
Current Assets:
Stock, debtors, provision for bad debts, bank[not loans], cash and prepayments.
You add those up and take away your current liabilities:
Creditors, accurals etc.

Then you add the number you get from the current assets-current liabilities to your fixed assets number and it gives you your working capital.

You then add your long-term liabilities such as bank loans and mortgages to give you your net assets.

You then have the section called 'Financed By'
You add capital and net profit and then take away drawings and dividends and it should balance with[be the same as] your net assets number.

Yeah, that's the way I was taught to do it, I dont know if that's any help!

Reply 3

SamLowry

that does help thanks. THe income statement IS the profit and loss acount.

could you give me a worked example?

Reply 4

paperdollx

Yeah sure. The profit and loss account should be along the lines of:

Sales
Opening Stock
+ Purchases
- Closing Stock
= Cost of Sales

Then you less cost of sales from sales which gives you gross profit. Also, above if you have returns inwards, you add them to sales and returns outwards are added to Purchases.

After that it goes:

Gross Profit [which is the number you get from sales - cost of sales]
Discounts Received
Any additional income [i.e rent received etc]

Less Expenses:
Things like, heat, light, electricity etc.
If you have any accurals, they must be added underneath the correct one, same with prepayments, except you take those away. For example:
Electricity - £100
Accural Electricity - £50
- Add the above together to get the actual number to use for electricity.
Heat - £100
Prepayment Heat - £50
You would take those away to use the final number for electricity.
Discounts Allowed, Provision for bad debts and bad debts written off are included as expenses also.

So you add all your expenses together and take them away from gross profit to give you net profit.

You then take away tax and interest to give you "Profit after tax and interest"
Then you less dividends and thats your Retained Profit.

Example:

Net profit
Less interest payable/recieveable
Profit after interest.
Less tax
Profit after interest and tax
Less Dividends
Retained profit.

Hopefully that helps somewhat! It's a bit rough, but it's the basic idea.
Good luck!
=]

Reply 5

SamLowry

Ok i have another question not related to this balance sheet.

What do you do in the case of repeated prepayments and accruals.

So what im saying is say in year one you had 1000 pounds in prepayments for rent. In the second year you also had 1000 pounds prepayment.

Does that mean that i dont have to make any changes to the rent? for eg. in yr 1. rent was 6000. 2 months prepayed was 1000. In year two that 1000 pounds was used, 5000 extra was charged (for ten months) and then again another 100 pounds in prepayments were accounted for. effectively youve done nothing (addedd 1000, reduced 1000) so can you skip this step?

I'm confused and need help.

Reply 6

Creole

Essentially yeah, you paid used the last prepayment, then prepaid another of the same amount. The amount charged in the P+L will be the £6000, and you will have £1000 prepayments in the balance sheet.

Reply 7

SamLowry

thanks for the response.

One last bit of help. Can someone explain to me how useful you financial statements are for a company whose shareholders are also the directors?

Reply 8

Coxy1

Just to revive an old thread, I have a few questions about accounts and would really appreciate some help from anybody!!

I've done an Income Statement (income and expenses), a cash account, and then there's the profit & loss account and the balance sheet, the format I have for each is:

Profit & Loss

a. Income & Sales - total is £20820
b. Cost of Sales - total is £2700

c. Gross Profit - (a-b) £18120

d. Expenses - total is £5570

Net profit - (c-d) £12550

Balance Sheet

a. Fixed Assets less depreciation - total is £6460

b. Current Assets - total is £1160

c. Current Liabilities - total is £1800
(no long term liabilities)

d. working capital - (b-c) £-640

4. Total net assets - ((a+b)-c) £5820

Equity
Capital (owners initial equipment purchase & travel expenses from own savings) - £5020
Profit from period - £12550
Less:
Drawings - £11890

Total Equity - £5680

I have £140 difference, and I don't really know if what I've done is correct anyway, I've gone through it all at least 7 or 8 times, scrapped it and started again and can't balance the Net Assets with the Equity figure, any ideas?

(By the way, thanks in advance for any pointers!)

Reply 9

KJ21

have you got the answer yet? I just finished my accoutancy degree, if you or anyone else needs any help please ask.

Reply 10

Coxy1

I haven't

Although I did only post my questions about an hour ago, I really don't know if I've done this right or not, but my figures don't balance this way anyway!!

Reply 11

anishrrs

please view the attached file and help

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Reply 12

anishrrs

the above is a university level q

Reply 13

iamdnp01

@Coxy1 hey did you make you trial balance? was that balancing?
thanks..

Reply 14

gabriel 41

Original post by SamLowry

Can someone EXPLAIN (not just give the answer) to me how to get the balance sheet and income statement from the following information
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Please can you tell me which examining body's past paper this is ? Are you studying at college? Any chance you are doing ABE?

Reply 15

iamdnp01

Purchases are expenses.

cost of sales : opening stock + purchases (remove any return) - closing stocks. = cost of sales.

sales - cos = gross profit..

gross profit - all other expenses = profit / (loss) for the yr.