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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 EQUITIESCURRENT 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.

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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 300Non-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

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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.

Profit and loss statement

Different aspects of theProfit and Lossstatement are discussed earlier in this resource.

The Profit and Loss statement, drawn from the 10 column worksheet prepared on the previous page, ispresented below.

Profit and Loss satement for the six months ending 30 June

Revenue $ $ $

Cash sales 79 000

Credit sales 40 000

119 000

Less cost of goods sold 40 200

Gross profit 78 800

+ commission 400

79 200

Less operating expenses

Selling expenses

Advertising 3 000

Sales wages 22 000

Depreciation of motor vehicles 700

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25 700

Administrative expenses

Cleaning 500

Insurance 4 500

Office salaries 19 500

Depreciation of equipment 1 100

Rent 6 000

31 600

Finance expenses

Interest on loan 4 400

61 700

Net profit 17 500

In the preparation of the Profit and Loss statement the following errors are likely to occur:

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 treatmentof 'accounting fees' as finance rather thanadministrativeand the inclusion of 'legal fees' asadministrative, rather than finance

4. 'aliens' are items that do not belong. In the Profit and Loss statement the most common aliensare 'drawings', 'loan repayments' and the inclusion of a non-current asset which has been boughtduring 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'accumulateddepreciation' instead ofdepreciation

The trial balance

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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. Thedistinction between the two is easily seen when preparing the '10 columnworksheet', in the next topic.The post trial balance occurs after balance day adjustments.

The purpose of thetrial balanceis to compile all the ledger account totals and balances in order toconfirm the accuracy of the recording process. Assets and expenses are listed in then debitcolumn whilerevenue, liabilities and owners equity items are shown in thecreditcolumn. Negative items are alsoshown. Accumulated depreciation of non-current assets is shown on the credit side and drawings areshown 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 bedetected 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 havebeen 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 offinancial expense: Interest, income taxes, and other such expenditure incurred in

owning or renting an asset or property.

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