Easy Way to Make a Comprehensive Income Statement and Balance Sheet

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• Zaheera

05/04/2023

Accounting

Financial Statements Exam Style Question & Answer

Subjects

Accounting

Easy Way to Make a Comprehensive Income Statement and Balance Sheet

The comprehensive income statement and balance sheet are crucial financial statements for businesses. This guide explains how to prepare these statements, including key components, formats, and adjustments for accruals and prepayments. It covers income statement format, statement of comprehensive income format, and balance sheet format, providing practical examples and formulas.

Comprehensive income statement includes revenue, expenses, and profit/loss calculation
Balance sheet shows assets, liabilities, and equity at a specific point in time
Accruals and prepayments are important adjustments for accurate financial reporting
Understanding these statements is essential for financial analysis and decision-making

05/04/2023

Financial Statements Exam Question & Answer
The following list of balances have been extracted by the bookkeeper of Southtown Supplies, a wh

Comprehensive Income Statement for Southtown Supplies

This page presents the detailed income statement format for Southtown Supplies, demonstrating how to calculate the profit or loss for the year.

The statement begins with sales revenue and follows the income statement formula:

Sales revenue
Less: Sales returns
Net sales
Less: Cost of goods sold
Gross profit
Add: Other income
Less: Operating expenses
Profit/Loss for the year

Key calculations:

Net sales: £414,000 (£420,000 - £6,000 sales returns)
Cost of goods sold: £285,500
Gross profit: £128,500
Other income: £4,400 (discounts received, rent income, commission income)
Operating expenses: £51,200
Profit for the year: £81,700

Example: The cost of goods sold calculation includes opening inventory (£70,000), purchases (£275,500), and closing inventory (£60,000).

Highlight: The statement includes adjustments for accruals and prepayments, such as commission income owing and electricity expenses owing.

Vocabulary: Gross Profit - The difference between revenue and cost of goods sold, before deducting operating expenses.

View

Balance Sheet for Southtown Supplies

This page demonstrates the balance sheet format for Southtown Supplies, showing the company's financial position as of December 31, 20-4.

The balance sheet follows the balance sheet formula: Assets = Liabilities + Equity

Key components of the balance sheet include:

Non-current assets (property and shop fittings)
Current assets (inventory, trade receivables, other receivables, and bank balance)
Current liabilities (trade payables and other payables)
Net current assets
Net assets
Capital employed (opening capital, profit for the year, less drawings)

Important calculations:

Total non-current assets: £165,000
Total current assets: £120,600
Total current liabilities: £49,900
Net current assets: £70,700
Net assets: £235,700

Example: The balance sheet includes adjustments for accruals and prepayments, such as income due (£600) and expenses due (£650).

Highlight: The capital employed section shows how the profit for the year (£81,700) is added to the opening capital, and drawings (£41,000) are deducted to arrive at the closing capital.

Vocabulary: Net Current Assets - The difference between current assets and current liabilities, also known as working capital.

Definition: Capital Employed - The total amount of capital used in the business, calculated as the sum of shareholders' equity and long-term liabilities.

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Subjects

Accounting

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5 Apr 2023

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3 pages

Easy Way to Make a Comprehensive Income Statement and Balance Sheet

• Zaheera

@zaheera_

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Comprehensive Income Statement for Southtown Supplies

This page presents the detailed income statement format for Southtown Supplies, demonstrating how to calculate the profit or loss for the year.

The statement begins with sales revenue and follows the income statement formula:

Sales revenue

Less: Sales returns

Net sales

Less: Cost of goods sold

Gross profit

Add: Other income

Less: Operating expenses

Profit/Loss for the year

Key calculations:

Net sales: £414,000 (£420,000 - £6,000 sales returns)

Cost of goods sold: £285,500

Gross profit: £128,500

Other income: £4,400 (discounts received, rent income, commission income)

Operating expenses: £51,200

Profit for the year: £81,700

Example: The cost of goods sold calculation includes opening inventory (£70,000), purchases (£275,500), and closing inventory (£60,000).

Highlight: The statement includes adjustments for accruals and prepayments, such as commission income owing and electricity expenses owing.

Vocabulary: Gross Profit - The difference between revenue and cost of goods sold, before deducting operating expenses.

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Balance Sheet for Southtown Supplies

This page demonstrates the balance sheet format for Southtown Supplies, showing the company's financial position as of December 31, 20-4.

The balance sheet follows the balance sheet formula: Assets = Liabilities + Equity

Key components of the balance sheet include:

Non-current assets (property and shop fittings)

Current assets (inventory, trade receivables, other receivables, and bank balance)

Current liabilities (trade payables and other payables)

Net current assets

Net assets

Capital employed (opening capital, profit for the year, less drawings)

Important calculations:

Total non-current assets: £165,000

Total current assets: £120,600

Total current liabilities: £49,900

Net current assets: £70,700

Net assets: £235,700

Example: The balance sheet includes adjustments for accruals and prepayments, such as income due (£600) and expenses due (£650).

Highlight: The capital employed section shows how the profit for the year (£81,700) is added to the opening capital, and drawings (£41,000) are deducted to arrive at the closing capital.

Vocabulary: Net Current Assets - The difference between current assets and current liabilities, also known as working capital.

Definition: Capital Employed - The total amount of capital used in the business, calculated as the sum of shareholders' equity and long-term liabilities.

Financial Statements: Comprehensive Income Statement and Balance Sheet

This page introduces the key components of financial statements, focusing on the comprehensive income statement and balance sheet for Southtown Supplies, a wholesaling business.

The comprehensive income statement, also known as the income statement, presents the company's financial performance over a specific period. It includes:

Revenue (sales)

Cost of goods sold

Gross profit

Operating expenses

Net profit or loss

The balance sheet, or statement of financial position, provides a snapshot of the company's financial position at a specific date. It consists of:

Assets (current and non-current)

Liabilities (current and non-current)

Equity (capital)

Vocabulary: Cost of Goods Sold (COGS) - The direct costs attributable to the production of goods sold by a company.

Example: For Southtown Supplies, the revenue (sales) is £420,000, while the cost of goods sold is £285,500.

Highlight: The notes at the end of the page provide important information about adjustments for accruals and prepayments, which are crucial for accurate financial reporting.

Definition: Accruals - Expenses or revenues recognized before they are paid or received.

Definition: Prepayments - Expenses paid or revenues received in advance of their due date.

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