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Topic 5 of 6 · Form 3

Preparation of financial statements

Income statement (revenue, cost of sales, gross profit, other income, expenses, profit for the year) and statement of financial position (non-current assets, current assets, capital, non-current and current liabilities).

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Sole traders

Income statement (revenue, cost of sales, gross profit, other income, expenses, profit for the year) and statement of financial position (non-current assets, current assets, capital, non-current and current liabilities).

Worked example: Revenue 80 000; opening inventory 6 000; purchases 50 000; closing inventory 8 000; expenses 17 000. Find gross and net profit.

Cost of sales = 6 000 + 50 000 − 8 000 = 48 000; GP = 32 000; profit = 32 000 − 17 000 = US$15 000

Partnerships

Partnership agreement; appropriation account (interest on capital and drawings, partners' salaries, residual profit share); capital and current accounts; goodwill basics.

Limited companies

Share capital (ordinary and preference shares), reserves (retained earnings, general reserve), debentures, dividends; financial statements of limited companies.

Clubs and societies

Receipts and payments account, income and expenditure account, accumulated fund, subscriptions in arrears and in advance.

Manufacturing businesses

Manufacturing account: direct materials, direct labour, prime cost, factory overheads, work in progress and production cost.

Incomplete records

Statement of affairs; profit = closing capital − opening capital + drawings − capital introduced; finding missing figures with control accounts and mark-up/margin.

Worked example: Cost of sales US$60 000 with a mark-up of 25%. Find revenue.

60 000 × 1.25 = US$75 000

Exam tip: Learn the formats thoroughly – presentation marks are easy to gain and easy to lose.

Check yourself

  1. What is the capital of a club called?
  2. A partner receives interest on capital of 5% on US$40 000. How much?
  3. Margin is 20%. Revenue is US$50 000. Find gross profit.
Show answers
  1. The accumulated fund.
  2. US$2 000
  3. US$10 000
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