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XSIQ * Accounting - The balance sheet example The balance sheet example Balance sheet as at 31 May CURRENT ASSETS

Bank 2 600 Petty cash 100 Prepaid advertising 500 Accrued rent 600 Stock of supplies 200 Debtors 6 100 Stock 31 May 4 200 14 300 NON-CURRENT ASSETS Equipment 10 000 - Accumulated depreciation of equipment 2 200 7 800 Motor vehicles 8 000 Accumulated depreciation of motor vehicles 1 800 6 200 14 000 TOTAL ASSETS 28 300 EQUITIES CURRENT LIABILITES Creditors 3 400 Accrued salaries 300 Prepaid rent 200 Loan 4 000 7 900 NON-CURRENT LIABILITIES Loan 16 000 OWNERS EQUITY Capital 10 000 + Net profit 300 10 300 - Drawings 4 900 5 400 TOTAL EQUITIES 29 300 The above reports are not fully inclusive. Previous | Next

The balance sheet example

Balance sheet as at 31 May

Current assets Bank Petty cash Prepaid advertising Accrued rent Stock of supplies Debtors Stock 31 May Non-current assets Equipment - Accumulated depreciation of equipment Motor vehicles - Accumulated depreciation of motor vehicles

2 600 100 500 600 200 6 100 4 200

14 300 10 000 2 200 7 800 8 000 1 800 6 200 14 000 Total assets Equities Current Liabilites Creditors 3 400 28 300

Accrued salaries Prepaid rent Loan Non-current liabilities Loan Owners equity Capital + Net profit - Drawings Total equities
The above reports are not fully inclusive.

300 200 4 000 7 900 16 000 10 000 300 10 300 4 900 5 400 29 300

Profit and loss statement

Different aspects of the Profit and Loss statement are discussed earlier in this resource. The Profit and Loss statement, drawn from the 10 column worksheet prepared on the previous page, is presented below. Profit and Loss satement for the six months ending 30 June

Revenue Cash sales Credit sales Less cost of goods sold Gross profit + commission Less operating expenses Selling expenses Advertising Sales wages Depreciation of motor vehicles

$ 79 000 40 000

119 000 40 200 78 800 400 79 200

3 000 22 000 700

25 700 Administrative expenses Cleaning Insurance Office salaries Depreciation of equipment Rent Finance expenses Interest on loan Net profit
In the preparation of the Profit and Loss statement the following errors are likely to occur:

500 4 500 19 500 1 100 6 000 31 600 4 400 61 700 17 500

1. buying expenses, such as:

carriage, cartage and freight inward duty and wharfage import duty insurance on stock will be treated as operating expenses

2. the total for cost of goods sold will be shown as gross profit 3. operating expenses will be classified incorrectly. The most common examples are the treatment of 'accounting fees' as finance rather than administrative and the inclusion of 'legal fees' as administrative, rather than finance 4. 'aliens' are items that do not belong. In the Profit and Loss statement the most common aliens are 'drawings', 'loan repayments' and the inclusion of a non-current asset which has been bought during that period 5. failure to classify operating expenses is a common error 6. treatment of items, such as petty cash, as an expense rather than a current asset 7. wrong titles, such as 'accumulated depreciation' instead of depreciation

The trial balance

At the end of the accounting period ledger accounts are closed off if they are revenue or expense items, and balanced if assets, liabilities or owners equity items. There are two presentations of the trial balance: the pre-trial balance and the post trial balance. The distinction between the two is easily seen when preparing the '10 column worksheet', in the next topic. The post trial balance occurs after balance day adjustments. The purpose of the trial balance is to compile all the ledger account totals and balances in order to confirm the accuracy of the recording process. Assets and expenses are listed in then debit column while revenue, liabilities and owners equity items are shown in the credit column. Negative items are also shown. Accumulated depreciation of non-current assets is shown on the credit side and drawings are shown on the debit side of the trial balance. It is possible for the trial balance to balance and yet be incorrect. Recording errors will not necessarily be detected by carrying out a trial balance. Examples of errors not detected by a trial balance:

a complete entry has been omitted from the ledger an amount has been placed in the wrong account. For example, $300 paid wages should have been included as cleaning expense a compensating error has been made. For instance, both sales and purchases have been overstated by $100 a money amount has been listed incorrectly debit and credit entries have been reversed. A debtor has paid us money, yet debtors are incorrectly debited and bank wrongly credited

Definition of financial expense: Interest, income taxes, and other such expenditure incurred in owning or renting an asset or property.