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C hapter 9: The balance sheet

Contents of chapter
This chapter shows how to draw up a balance sheet from a list of balances. The display of the balance sheet,
with separate totals for fixed assets, current assets, capital and current liabilities, is shown.

Notes for teachers


Proper balance sheet display is very important in an examination. Marks will be deducted by the
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examiner if any of the following are omitted:
(i) Name of the company or the business owner
(ii) Title — i.e. balance sheet
(iii) Date — e.g. as at 31 December 2005
(iv) Heading of fixed assets
(v) Sub-total for fixed assets
(vi) Heading of current assets
(vii) Sub-total for current assets
(viii) Heading of current liabilities
(ix) Sub-total of current liabilities
(x) Full display of capital account (if a sole trader)
(xi) Figure shown as net current assets (when vertical style balance sheet is used).
It is therefore important for the students to always include the above in their answers.

Examiners also expect assets to be shown in their correct order, i.e. in order of liquidity:
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(i) Fixed assets — permanency
(ii) Current assets — stock
— debtors
— prepayments
— bank
— cash

Capital accounts — for sole proprietorships — are always shown in full. That is:
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$
Capital X
Add Net profit X
X
Less Drawings X
X

Compare this with other items where only the balance is shown. The reason for this is that the proprietor
will want to see exactly how his/her final capital figure is calculated.
The steps for preparing a balance sheet in horizontal style and vertical style are shown on p. 88 and p. 89,
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respectively.

Students should be able to prepare a balance sheet in both horizontal style and vertical style.
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Answers to MCQs and exercises
9.1 C 9.2 B 9.3 C 9.4 D 9.5 B

9.6
T Chen
Balance Sheet as at 31 December 20X7
Fixed Assets $ $ Capital $
Fixtures and fittings 4,700 Balance as at 1 January 20X7 10,000
Add Net profit for the year 5,690
Current Assets 15,690
Stock 4,210 Less Drawings 3,170
Debtors 1,290 12,520
Bank 3,130 8,630 Current Liabilities
Creditors 810
13,330 13,330

9.7X
T Long
Balance Sheet as at 31 December 20X8
Fixed Assets $ $ Capital $
Office equipment 8,000 Balance as at 1 January 20X8 25,000
Add Net profit for the year 5,910
Current Assets 30,910
Stock 12,410 Less Drawings 4,500
Debtors 4,190 26,410
Bank 3,060 Current Liabilities
Cash 40 19,700 Creditors 1,290
27,700 27,700

9.8
(Horizontal)
W Wong
Balance Sheet as at 30 June 20X4
Fixed Assets $ $ Capital $
Shop buildings 50,000 Balance as at 1 July 20X3 65,000
Shop fixtures 1,000 Add Net profit for the year 6,841
Vans 8,500 59,500 71,841
Less Drawings 2,400
Current Assets 69,441
Stock 4,150
Debtors 3,166 Current Liabilities
Bank 3,847 11,163 Creditors 1,222
70,663 70,663

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(Vertical)
W Wong
Balance Sheet as at 30 June 20X4
Fixed Assets $ $
Shop buildings 50,000
Shop fixtures 1,000
Vans 8,500 59,500
Current Assets
Stock 4,150
Debtors 3,166
Bank 3,847
11,163
Less Current Liabilities
Creditors 1,222
Net current assets 9,941
69,441
Financed by:
Capital as at 1 January 20X3 65,000
Add Net profit for the year 6,841
71,841
Less Drawings 2,400
69,441

9.9X
(Horizontal)
T Chuen
Balance Sheet as at 31 December 20X6
Fixed Assets $ $ Capital $
Premises 20,000 Balance as at 1 January 20X6 21,000
Office equipment 2,800 22,800 Add Net profit for the year 2,065
23,065
Current Assets Less Drawings 4,350
Stock 4,960 18,715
Debtors 4,090 Long-term Liabilities
Bank 7,375 Bank loan 15,000
Cash 950 17,375 Current Liabilities
Creditors 6,460
40,175 40,175

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(Vertical)
T Chuen
Balance Sheet as at 31 December 20X6
Fixed Assets $ $
Premises 20,000
Office equipment 2,800 22,800
Current Assets
Stock 4,960
Debtors 4,090
Bank 7,375
Cash 950
17,375
Less Current Liabilities
Creditors 6,460
Net current assets 10,915
33,715
Less Long-term Liabilities
Bank loan 15,000
18,715
Financed by:
Capital as at 1 January 20X6 21,000
Add Net profit for the year 2,065
23,065
Less Drawings 4,350
18,715

9.10X
(Horizontal) W Yeung
Balance Sheet as at 31 December 20X9
Fixed Assets $ $ Capital $
Office equipmnt 20,000 Balance as at 1 January 20X9 52,500
Current Assets Add Net profit for the year 57,000
Stock 9,600 109,500
Debtors 33,000 Current Liabilities
Bank 46,300 Creditors 6,900
Cash 7,500 96,400
116,400 116,400

(Vertical) W Yeung
Balance Sheet as at 31 December 20X9
Fixed Assets $ $
Office equipment 20,000

Current Assets
Stock 9,600
Debtors 33,000
Bank 46,300
Cash 7,500
96,400
Less Current Liabilities
Creditors 6,900
Net current assets 89,500
109,500
Financed by:
Capital as at 1 January 20X9 52,500
Add Net profit for the year 57,000
109,500

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