Financial Statements

The Financial Statements

 THE STATEMENT OF FINANCIAL POSITION ( BALANCE SHEET)

This is a financial statement which shows the financial position of a business at a particular time. It is basically a summary of the assets, liability, and capital of a business. It can be prepared in two different formats.

1.      Horizontal Presentation or

2.      Vertical Presentation (recommended format)

Horizontal Presentation

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER, 2008
	¢		¢
Capital	***	Fixed  Assets:
Add Net Profit	***	Land and Building	***
	***	Plant and Equipment	***
Less Drawings	***	Furniture and Fittings	***
	***
		Current Assets:
Long  Liability:		Stocks	***
Long-term Loan	***	Debtors	***
		Prepaid Expenses	***
Current Liabilities:		Cash at bank	***
Trade Creditors	***	Cash on hand	***
Expenses Owing	***
	***		***

The Income Statement (Trading and Profit and Loss Account) is a statement that shows the financial performance of a business during a particular period, usually one year. It is a summary of the income and expenses occurring during a particular period and the profit or loss made in that period.

Expenses have as the decreases in economic benefits during the accounting period in the form of outflows or depletion of assets or incurrence of liabilities those results in decreases in equity, other than those relating to distributions to equity participants.

Income can be defined as increases in economic benefits during the accounting period. This is in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

The Income Statement can be prepared in two different formats.

1.      Horizontal Presentation or

2.      Vertical Presentation (recommended format)

Example 1

Show the effects of the following transactions, one after the other, on the statement of financial position:

Jan 1: John started a business with cash of $1,200.

Jan 2: Bought goods worth $450 on credit for resale from Hews Enterprise.

Jan 5: Bought goods for with cash $500.

Jan 11: Sold goods with a cost of $320 on credit for $900.

Jan15: Paid wages and salaries by cash $220.

Jan 20: Received a loan of $2,000 from a bank.

Jan 30: Purchase a motor vehicle costing $1,300 by cheque.

Jan 31: Sold goods with a cost of $700 for cash $1,800

Jan 31: Repaid part of the loan $800.

Example 2

The following transactions occurred in the records of Alex Enterprise. Show the effect of each transaction at the end of the day on the statement of financial position.

Mar 1: Alex started a business with the following:

                                      $

            Inventory          550

            Motor vehicle 2,300

            Cash in hand     920

            Cash at bank  2,800

Mar 5: Bought goods on credit from Appiah $100

Mar 11: Sold goods costing $200 for $800 on credit to Amah.

Mar 15: Returned some of the goods bought on March 5 $300

Mar 20: Sold goods costing $50 for cash $760.

Mar 28: Paid electricity expenses by cheque $800.

Mar 30: Alex, the proprietor, withdrew $700 for his personal expenses.

Mar 31: Amah returned part of the goods sold to him on March 11. The selling price was $600.

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