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    Hi guys,

    Could someone help me draw up an income statement with the following information:

    Tax to be paid on the profit for the year: £2,000
    Cash: £1,500
    Freehold factory: £90,000
    Sales revenue: £20,000
    Gross profit: £5,000
    Short-term bank loan: £4,000
    Stocks: £8,000
    Debtors: £3,000
    Long-term bank loan: £4,500
    Proposed dividend: £1,000
    Called up share capital: £80,000
    Interest for year paid: £1,000
    P/L a/c brought forward: £X

    I know I haven't progressed with this at all, but I'm looking through my notes and I just can't find how to do this.

    I'm starting out at the top of the page with "Sales revenue" and then subtracting "Stocks" in "Cost of sales", but that gives me a "Gross profit" of £12,000, but in the information provided I'm told "Gross profit" is £5,000. Please help!
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    (Original post by PeterParadox)
    Hi guys,

    Could someone help me draw up an income statement with the following information:

    Tax to be paid on the profit for the year: £2,000
    Cash: £1,500
    Freehold factory: £90,000
    Sales revenue: £20,000
    Gross profit: £5,000
    Short-term bank loan: £4,000
    Stocks: £8,000
    Debtors: £3,000
    Long-term bank loan: £4,500
    Proposed dividend: £1,000
    Called up share capital: £80,000
    Interest for year paid: £1,000
    P/L a/c brought forward: £X

    I know I haven't progressed with this at all, but I'm looking through my notes and I just can't find how to do this.

    I'm starting out at the top of the page with "Sales revenue" and then subtracting "Stocks" in "Cost of sales", but that gives me a "Gross profit" of £12,000, but in the information provided I'm told "Gross profit" is £5,000. Please help!
    The approach is to go through the data given and sort it into those items that are in the balance sheet and those in the profit & loss.





    As a hint the stock figure is in the Balance Sheet. Also note the current tax will be in both, a debit to the profit and loss and a credit to the balance sheet.

    The Gross profit is a resultant, the difference between it and sales is the cost of sales figure. You don't have opening stock so you can't express cost of sales as:

    Opening stock (DR)
    Purchases (DR)
    Closing stock (CR)

    In the profit and loss account.

    Instead you merely have Cost of sales as a single figure.

    Also look at that dividend, has it been paid, or does it still need paid?

    If you work out the balance sheet, the balance figure will be the total retained profits, both current year and brought forward.

    If you work out the Profit and Loss account, you will get the profit after tax and dividend for the year.

    Take this from retained to get b/fwd profit or do your profit and loss with profit for year, profit brought forward, profit carried forward equal to balance sheet.

    The key is don't look at your notes, work it out from your knowledge of which are debits and which credits, do a TB.

    I am guessing from the question you are at school, if this is correct talk to your teacher about your not understanding the question, it is really important you understand basic bookeeping before you go on to other topics, the whole edifice of accounts is built on:

    Every debit has a credit and recognising what are assets, liabilities, capital, income and expenses.

    Remember: Debit Credit

    Assets increase decrease
    Liabilities decrease increase
    Capital decrease increase
    Income decrease increase
    Expense increase decrease

    (very useful way to remember your book keeping, no idea if this is now taught this way. Write it on a card and know/memorise)

    Trust this helps re this question, but you really need to go over the basics to understand what you are doing, accounts cannot be done by rote, only by understanding.
 
 
 
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