Hey there Sign in to join this conversationNew here? Join for free

ACCOUNTING HELP - Balance sheet and Income Statement

Announcements Posted on
Study Help needs new mods! 14-04-2014
Post on TSR and win a prize! Find out more... 10-04-2014
    • Thread Starter
    • 0 followers
    Offline

    ReputationRep:
    Can someone EXPLAIN (not just give the answer) to me how to get the balance sheet and income statement from the following information
    --------------------


    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.


    -----------------

    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!
    • Thread Starter
    • 0 followers
    Offline

    ReputationRep:
    Please can someone help!
    • 1 follower
    Offline

    ReputationRep:
    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!
    • Thread Starter
    • 0 followers
    Offline

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

    could you give me a worked example?
    • 1 follower
    Offline

    ReputationRep:
    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!
    =]
    • Thread Starter
    • 0 followers
    Offline

    ReputationRep:
    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.
    • 0 followers
    Offline

    ReputationRep:
    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.
    • Thread Starter
    • 0 followers
    Offline

    ReputationRep:
    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?
    • 0 followers
    Offline

    ReputationRep:
    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!)
    • 1 follower
    Offline

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

    ReputationRep:
    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!!
    • 0 followers
    Offline

    ReputationRep:
    please view the attached file and help
    Attached Thumbnails
    Click image for larger version. 

Name:	page1 001.jpg 
Views:	164 
Size:	215.9 KB 
ID:	116461   Click image for larger version. 

Name:	page 2 001.jpg 
Views:	108 
Size:	248.1 KB 
ID:	116462   Click image for larger version. 

Name:	page 3 001.jpg 
Views:	72 
Size:	135.2 KB 
ID:	116463   Click image for larger version. 

Name:	page 4 001.jpg 
Views:	76 
Size:	149.1 KB 
ID:	116464   Click image for larger version. 

Name:	page 5 001.jpg 
Views:	116 
Size:	456.7 KB 
ID:	116465  
    • 0 followers
    Offline

    ReputationRep:
    the above is a university level q
    • 0 followers
    Offline

    ReputationRep:
    @Coxy1 hey did you make you trial balance? was that balancing?
    thanks..
    • 5 followers
    Offline

    ReputationRep:
    (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
    --------------------


    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.


    -----------------

    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!
    Please can you tell me which examining body's past paper this is ? Are you studying at college? Any chance you are doing ABE?
    • 0 followers
    Offline

    ReputationRep:
    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.

Reply

Submit reply

Register

Thanks for posting! You just need to create an account in order to submit the post
  1. this can't be left blank
    that username has been taken, please choose another Forgotten your password?

    this is what you'll be called on TSR

  2. this can't be left blank
    this email is already registered. Forgotten your password?

    never shared and never spammed

  3. this can't be left blank

    6 characters or longer with both numbers and letters is safer

  4. this can't be left empty
    your full birthday is required
  1. By completing the slider below you agree to The Student Room's terms & conditions and site rules

  2. Slide the button to the right to create your account

    Slide to join now Processing…

    You don't slide that way? No problem.

Updated: July 23, 2012
Article updates
Reputation gems:
You get these gems as you gain rep from other members for making good contributions and giving helpful advice.