Financial Reporting

Lecture 1 – Exercise XTC

Recording transactions and preparing financial statements

Solution

1
 Assets Liabilities Equity
Cash& Accounts Stock Non- Non- Accounts Acc. payable Loans Share Retained Profit
Banks Receivable current current Payable (advances payable Capital Profit (I/S)
assets assets from
(acc.depr.) costumers)
1 July +130,000 +130,000
3 July1
4 July +10,000 +10,000
5 July +20,000 +20,000
7 July -2,000 +2,000
11 July +5,000 +5,000
14 July +6,000 +6,000
16 July -12,000 -12,000
17 July2
19 July -5,000 -5,000
19 July -33 -33
23 July +20,000 +20,000
-13,000 -13,000
24 July +275 +275
26 July -1,000 -1,000
30 July -8,000 -8,000
31 July3 -1,000 -1,000

113,242 22,000 7,000 10,000 -1,000 18,000 6,000 0 130,000 0 -2,758

Transfer
-2,758 +2,758
ret.profit

1
Short-term bank account is part of “cash and banks”. Alternatively, transfer to “short-term investment”.
2
Note payable is part of “accounts payable”. Alternatively, transfer to “accounts payable-notes payable”.
3
Assume a one-year depreciation.

2
 Balance Sheet

Shareholders’ equity and

Assets
Liabilities

Fixed assets 10,000 Shareholders’ equity:

Acc.depreciation (1,000) Share capital 130,000
Retained profit (2,758)
Total fixed assets 9,000 Total shareholders’ equity 127,242

Current assets: Liabilities:

Inventory 7,000 Accounts payable 18,000
Accounts receivable 22,000 Accounts payable - advances 6,000
Cash and Banks 113,242
Total current assets 142,242
Total liabilities 24,000

Total Shareholders’ equity and

Total Assets 151,242 151,242
Liabilities

3
 Income statement

Sales revenues 20,000

Cost of sales (13,000)

Gross profit 7,000

Salaries expense (8,000)

Rent expense (1,000)
Depreciation expense (1,000)

Profit before interest (3,000)

Interest expense (33)

Interest income 275

Finance profit 242

Profit after interest (2,758)

Tax expense

Profit for the year (2,758)

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