Professional Documents
Culture Documents
HC1011/HF1008
Topic 2
Financial Statements and
Transactions Analysis
Introduction
This week we will cover the following:
Types of Business Entities
Basic financial statements
Assumptions made and characteristics
of information
Basic effects of transactions on the
accounting equation and financial
statements
Partnership
Owned by two or more partners
Company of corporation
Owned by shareholders
Separate legal entity
as at 30 June 2015
ASSETS
LIABILITIES
Cash at Bank
Or
$ 20,760
Accounts receivable
201,000
Inventory
14,610
221,760
Dressmaking Equipment
110,700
Land
Building
60,000 EQUITY
255,000 Marianas, Capital
$508,440
286,680
$508,440
ASSETS
Cash at Bank
Accounts receivable
Inventory
$ 50,340
17,790
14,610
Dressmaking equipment
Land
110,700
60,000
Building
255,000
$508,440
Less: LIABILITIES
Accounts payable
$ 20,760
Mortgage payable
201,000
ASSETS
LIABILITIES
= EQUITY
221,760
NET ASSETS
$286,680
EQUITY
Marianas, Capital
286,680
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$286,680
Asset Accounts
Liabilities
Present obligations of an entity arising from past
transactions or events, the settlement of which is
expected to result in an outflow of resources from the
entity
Equity
The residual interest of the owner/s in the assets
(less liabilities) of the entity
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Liability accounts
Equity accounts
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Income Statement
For the year ended 30 June 2015
INCOME
Dress making revenue
$442,500
EXPENSES
Advertising expense
$ 20,250
Materials expense
91,710
127,800
Rent expense
40,260
Telephone expense
20,190
47,940
PROFIT
348,150
$ 94,350
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Income
Expenses
Decreases in equity representing the consumption or
loss of economic benefits in the form of reductions
in assets or increases in liabilities other than
distributions to owners
94,350
$ 331,680
Less: Drawings
Mariana, Capital - 30 June 2014
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$ 237,330
45,000
$ 286,680
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Income statement
Balance sheet
as at beginning of year
as at beginning of year
A1 L1 = E1
I E = Profit
A2 L2 = E2
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In class exercise 1
Consider the list of accounts given and categorise them as an asset, liability or
shareholders equity item that would appear on the balance sheet or a revenue or expense
that would appear on the income statement by ticking the appropriate column.
Asset
$424,710
(342,000)
(315,000)
(110,700)
Equipment
Wages
expense
Wages
payable
(425,700)
Retained prots
201,000
Investment by owner
237,330
Drawings by owner
(45,000)
Accounts
receivable
Accounts
payable
Prepaid
insurance
393,330
50,340
Unearned
revenue
Accrued
wages
Inventory
Deprecia*on
$ 50,340
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In class exercise 2
Answer:
Liability
Share capital
Shareholders
Equity
Sales
Accounts
payable
14,000
Capital
Inventory
31,000
Unearned revenue
9000
Account payable
19,000
Prepaid insurance
6000
Wages expenses
13,000
Sales revenue
58,000
insurance expenses
3,000
110,000
Loan
25,000
Cash
20,000
REQUIRED:
Accrued wages
1.Prepare an income statement for the period between Jan to 30 June 2013.
2.Whats the amount of the initial capital that Peter invested in his business?
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Account receivable
Unearned revenue
Deprecia*on
Information:
Retained prots
Inventory
financial year, 30 June 2013. The business has the following account
Wages payable
Prepaid insurance
Peter started his small retail business in January 2013. At the end of the
Wages expense
Accounts receivable
Expense
Revenue
Loan
Sales
$ 82,710
Asset
Liability
Share capital
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Peters
Retail
Income
Statement
for
the
year
ended
at
30
June
2013
Sales
Expenses:
Wages
Insurance
13,000
3,000
Net Prot
$
58,000
16,000
42,000
Assets
Cash
Accounts
Receivable
Inventory
Prepaid
Insurance
Peters
Retail
Balance
Sheet
as
at
30
June
2013
$
Liabili;es
20,000
Accounts
Payable
Unearned
revenue
14,000
31,000
Loan
6,000
110,000
Total Assets
181,000
Equity
Capital
Total
L
+
E
$
19,000
9,000
25,000
53,000
128,000
128,000
181,000
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Relevance
Materiality
Comparability and consistency
Understandability
Reliability
Faithful representation
Substance over form
Neutrality
Prudence
Completeness
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Example
=
=
Liabilities
Equity
Gracie Jones, Capital
$35 000
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Example (cont.)
Example (cont.)
3. Gracie purchases inventory for $2,500 on
credit
Liabilities
+
Equity
Gracie Jones, Capital
$35,000
35,000
Assets
Cash at bank Shop-fittings
(1) $35,000
(2) -30,000 + 9,000 +
5,000 + 9,000 +
(3)
5,000 + 9,000 +
35,000
=
Vehicle Inventory
21,000
21,000
+ 2,500
21,000 + 2 500
Liabilities
+
Equity
Accounts payable
Gracie Jones, Capital
=
$35,000
=
=
=
35,000
+2,500
2,500
$37,500
35,000
$37,500
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Transaction Analysis
In class exercise 3
Jeffs Pool Repairs began operations on 1 August 2013 and completed the following
transactions during the first month.
1.Jeff Drain deposited $50,000 of his personal funds in a current account at a bank
opened in the name of the business
2.Pool repair equipment was purchased at a cost of $30,000, of which $20,000 was
paid in cash. A loan payable was given for the remainder of $10,000
3.Jeff collected $6000 from customers for repair services performed.
4.Rent was paid for the month of August, $2400.
5.Supplies amounting to $2740 were purchased on credit
6.Wages of $1000 were paid as well as an account for electricity, $540.
7.Jeff paid for the supplies purchased in (5) above
8.Supplies used during August amounted to $1280
Required:
a) Prepare transaction analysis and show the effects of each of the transactions on the
accounts listed. Indicate totals after each transaction
b) Prepare an income statement and a statement of changes in equity for the month
ended 31 Aug, and a balance sheet as at 31 Aug 2013.
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Answer:
Answer
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Answer
Answer
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DR
Tutorial
Reading: Chapter 1, 2 & 3
Tutorial:
Chapter 1
CR
Asset
Expense
Chapter 2
Liability
Discussion questions: 1, 7,
Problems: 2.1, 2.11,
Equity
Chapter 3
Discussion questions: 1, 3
Problem 3.1, 3.5, 3.7 & 3.15 pp. 131-140
Revenue
This will be further discussed in next weeks lecture
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