Chapter # 8

Financial Statements

Principles of Accounting – B.Com Part – I

Sameer Hussain

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Financial Statements
Chapter # 8

WHAT THE EXAMINER USUALLY ASK?

 Financial Statements:
o Income Statement.
o Balance Sheet.
 Adjusted Trial Balance.
 Closing Entries.
 Opening Entries.

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 Financial Statements
Chapter # 8

Chapter # 8
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Financial statement is a written report which quantitatively describes the financial health of a
company. This includes an income statement, balance sheet, cash flow statement and statement
of changes in equity. Financial statements are usually compiled on a quarterly and annually
basis. Financial statements consist of five statements:
1. Income Statement.
2. Balance Sheet.
3. Cash Flow Statement.
4. Statement of Changes in Equity.
5. Notes to the Financial Statements.

Financial
Statements

Income Balance
Statement Sheet

Owner's
Income Expenses Assets Liabilities
Equity

INCOME STATEMENT
Income statement shows the financial performance of the business. It shows the result of
operations for a period. It consists of revenue and expenses. When total revenues exceed the
total expenses, the resulting amount is net profit. When expenses exceed revenues, the resulting
amount is net loss.

Net Profit / Net Loss

First Step – 3rd Column
Total
Net sales – Cost of Goods Sold – Operating + Other Income
Expenses
Second Step – 2 Column
nd

Net Sales = Cost of Goods Sold

Sales – = Inventory (Beg) Sum of all Sum of all Other
Sales Return – + Net Purchases – Expenses Income
Sales Discount Inventory (End)
Third Step – 1st Column
Net Purchases =
Purchases +
Transportation –
Purchase Return –
Purchase Discount

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Financial Statements
Chapter # 8
In a retail environment, calculated by the formula beginning inventory
plus net purchases. This total represents the cost of all products
Merchandise Available
available for sale during the period. In a manufacturing business,
for Sale:
goods available for sale can be calculated as beginning-finished-goods
inventory plus goods completed during the accounting period.

Calculated by the formula beginning inventory plus net purchases less

ending inventory. This total is an expense on the income statement. In
a manufacturing setting, the cost of goods sold is the cost of direct
Cost of Goods Sold:
materials, direct labor, and overhead associated with the units sold. In
a retail setting, the cost of goods sold is the wholesale cost of the items
sold, plus any transportation cost to get the items to the warehouse.

The delivery cost associated with getting purchased inventory items

from the source to the company that will resell them. Freight-in is a
Freight – in:
cost that is included in inventory and is reflected in the cost of goods
sold.

The cost of delivering products to the buyer. Freight-out is classified as

Freight – out:
a selling expense.

Gross Profit: The difference between the sales revenue and cost of goods sold.

The total amount of sales revenue before adjusting for sales returns,
Gross Sales:
sales allowances, or sales discounts.

Total revenues and gains less total expenses and losses for the
Net Income:
accounting period.

In a business, the result of expenses and losses exceeding revenues and

Net Loss: gains. Contrast with net income, in which the reverse is true, and
revenues exceed expenses.

The value of a company’s inventory purchases during an accounting

period reduced by any returns, discounts, or other reductions of the
Net Purchases: price actually paid for the goods. Net purchases can be used to
calculate the cost of goods sold in businesses using periodic inventory
systems.

The value of sales made during an accounting period, reduced by any

Net Sales: returns made by customers, any discounts given to customers, and any
other reductions from the original selling price of the goods.

Costs associated with the regular business activities of an entity.

Operating Expenses: Operating expenses are listed on a multiple-step income statement
after the cost of goods sold.

Sales minus the cost of goods sold minus selling, general, and
administrative expenses. On the income statement, operating income
Operating Income: is found before the “other revenues, gains, expenses, and losses”
section. Operating income can also be calculated by starting with net
income and deducting taxes and interest.

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 Financial Statements
Chapter # 8
Format of Income Statement:

Name of Business
Income Statement
For the Period Ended _______
Sales XXX
Less: Sales discount XXX
Less: Sales returns and allowances XXX (XXX)
Net sales XXX
Less: Cost of Goods Sold:
Merchandise inventory (beg) XXX
Add: Net Purchases:
Purchases XXX
Add: Transportation in XXX
Delivered purchases XXX
Less: Purchase discount (XXX)
Less: Purchase returns & allowances (XXX)
Net purchases XXX
Merchandise available for sale XXX
Less: Merchandise inventory (end) (XXX)
Cost of goods sold (XXX)
Gross profit / loss XXX/(XXX)
Less: Operating Expenses:
Office salaries expense XXX
Insurance expense XXX
Advertising expense XXX
Utilities expense XXX
Supplies expense XXX
Bad debts expense XXX
Office rent expense XXX
Repair expense XXX
Depreciation expense XXX
Total operating expenses (XXX)
Profit/loss from operation XXX/(XXX)
Add: Other Income:
Commission income XXX
Income before income tax XXX
Less: Income tax expense (XXX)
Net profit/Loss XXX/(XXX)

CLOSING ENTRIES
Closing entries are made at the end of an accounting period to close off the revenue and expense
ledgers to the income summary account (expense and summary account or profit and loss
account). Revenue and expenses are temporary accounts for the period that why they are
required to be closed to get the net profit or loss.

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Financial Statements
Chapter # 8
Format of Closing Entries:

Name of Business
Closing Entries
For the Period Ended _____

 Entry to close all expenses:

Expense and revenue summary DR.
Merchandise inventory (beg) CR.
Purchases CR.
Sales return and allowances CR.
Sales discount CR.
Transportation – in CR.
Salaries expense CR.
Depreciation expense CR.
Bad debts expense CR.
Rent expense CR.
Office supplies expense CR.
Insurance expense CR.
Interest expense CR.
(To close the various expense account)

 Entry to close all revenue:

Sales DR.
Merchandise inventory (end) DR.
Rent income DR.
Commission income DR.
Purchase returns and allowances DR.
Purchase discount DR.
Expense and revenue summary CR.
(To close the various income accounts)

 Entry to transfer net profit to capital account:

Expense and revenue summary DR.
Capital CR.
(To record the transfer of net profit to the capital account)

 Entry to transfer net loss to capital account:

Capital DR.
Expense and revenue summary CR.
(To record the transfer of net loss to the capital account)

 Entry to close drawings account into capital account:

Capital DR.
Drawings CR.
(To close the drawings account)

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 Financial Statements
Chapter # 8

ILLUSTRATION # 1: (Income Statement & Closing Entries without Adjustments)

2001 Regular & Private – UOK
The following is an alphabetical list of the selected balances of Mirza Sports Shop on September
30, 2001:
Depreciation expense – Equipment 500
Inventory: October 1, 2000 22,500
Purchases 75,000
Purchase discount 1,500
Purchase return & allowances 2,500
Rent expense 6,000
Salaries expense 9,000
Sales 115,000
Sales discount 2,100
Sales return & allowances 3,900
Supplies expense 800
Transportation in 4,200
Ending inventory is valued at Rs.25,800.
REQUIRED
(i) Prepare a multi-step income statement.
(ii) Prepare closing entries.

SOLUTION # 1:
MIRZA SPORTS HOP
INCOME STATEMENT
FOR THE PERIOD ENDED 30 SEPTEMBER 2001
Sales 115,000
Less: Sales discount 2,100
Less: Sales returns and allowances 3,900 (6,000)
Net sales 109,000
Less: Cost of Goods Sold:
Merchandise inventory (beg) 22,500
Add: Net Purchases:
Purchases 75,000
Add: Transportation in 4,200
Delivered purchases 79,200
Less: Purchase discount (1,500)
Less: Purchase returns & allowances (2,500)
Net purchases 75,200
Merchandise available for sale 97,700
Less: Merchandise inventory (end) (25,800)
Cost of goods sold (71,900)
Gross profit 37,100
Less: Operating Expenses:
Depreciation expense 500
Rent expense 6,000
Salaries expense 9,000
Supplies expense 800
Total operating expenses (16,300)
Net profit 20,800

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Financial Statements
Chapter # 8
MIRZA SPORTS SHOP
CLOSING ENTRIES
FOR THE PERIOD ENDED 30 SEPTEMBER 2001
Date Particulars P/R Debit Credit
1 Expense and revenue summary 124,000
Merchandise inventory 22,500
Purchases 75,000
Transportation in 4,200
Depreciation expense 500
Rent expense 6,000
Salaries expense 9,000
Supplies expense 800
Sales return and allowance 3,900
Sales discount 2,100
(To close the various expenses accounts)
2 Sales 115,000
Purchase discount 1,500
Purchase return and allowances 2,500
Merchandise inventory 25,800
Expense and revenue summary 144,800
(To close the income account)
3 Expense and revenue summary 20,800
Capital 20,800
(To close the expense & revenue summary account)

BALANCE SHEET
Balance sheet shows the financial position of business. It is listing of firm’s assets, liabilities and
owner’s equity on a given date. It is a quantitative summary of company’s financial condition at
a specific point in time, including assets, liabilities and net worth. The first part of balance sheet
shows all the productive assets a company owns, and the second part shows all the financing
methods (such as liabilities and owner’s equity).

Balance Sheet

Assets = Liabilities + Owner’s Equity

Current Assets + Current Liabilities + Capital +

Fixed Assets – Long Term Liabilities Net Profit –
Contra Assets Drawings

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 Financial Statements
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Format of Balance Sheet:

Name of Business
Balance Sheet
As on ________
ASSETS EQUITIES
Current Assets: Liabilities:
Cash XXX Current Liabilities:
Accounts receivable XXX Accounts payable XXX
Les: All. for bad debts (XXX) XXX Notes payable XXX
Merchandise inventory XXX Accrued expenses XXX
Prepaid expenses XXX Unearned income XXX
Office supplies XXX Total current liabilities XXX
Accrued income XXX
Total current assets XXX Long Term Liabilities
Mortgage payable XXX
Fixed Assets: Other long term liabilities XXX
Equipment XXX Total long term liabilities XXX
Less: All. for dep. (XXX) Total liabilities XXX
Total fixed assets XXX
Owner’s Equity:
Capital XXX
Add: Net profit XXX
XXX
Less: Drawings (XXX)
Total owner’s equity XXX
Total assets XXX Total equities XXX

OPENING ENTRIES
Opening entry is made to open a business. All the assets and liabilities must be entered into the
accounts, together with the owner’s equity. Opening entry is made on the first day of new
accounting period.

Format of Closing Entries:

Name of Business
Opening Entries
For the Period Opening _____
Cash DR.
Accounts receivable DR.
Merchandise inventory DR.
Office supplies DR.
Prepaid expenses DR.
Accrued income DR.
Fixed assets DR.
Accounts payable CR.
Accrued expenses CR.
Unearned income CR.
Allowance for bad debts CR.
Allowance for depreciation CR.
Other current liabilities CR.
Long term liabilities CR.
Capital CR.

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ILLUSTRATION # 2: (Balance Sheet & Opening Entries without Adjustments)

1995 Regular – UOK
Tariq & Company prepared a worksheet at June 30, 1995. Shown below is the balance sheet pair
of columns from that worksheet. Use these worksheet data to prepare a Classified Balance Sheet
as on June 30, 1995 and Opening Entries as on July 1, 1995.
Balance Sheet
Debit Credit
Cash 15,000
Accounts receivable 25,000
Allowance for bad debts 1,000
Furniture 20,000
Allowance for depreciation – Furniture 2,000
Prepaid insurance 2,000
Office supplies 1,500
Tariq Capital 44,500
Tariq Drawings 6,000
Accounts payable 24,000
Notes payable 2,000
Rent payable 1,000
Commission receivable 1,000
Merchandise inventory (30.6.95) 22,000
92,500 74,500
Net income 18,000
92,500 92,500

SOLUTION # 2:
TARIQ & COMPANY
BALANCE SHEET
AS ON 30 JUNE 1995
ASSETS EQUITIES
Current Assets: Liabilities:
Cash 15,000 Accounts payable 24,000
Accounts receivable 25,000 Notes payable 2,000
Les: All. for bad debts (1,000) 24,000 Rent payable 1,000
Merchandise inventory 22,000 Total liabilities 27,000
Prepaid insurance 2,000
Office supplies 1,500 Owner’s Equity:
Commission receivable 1,000 Capital 44,500
Total current assets 65,500 Add: Net profit 18,000
62,500
Fixed Assets: Less: Drawings (6,000)
Furniture 20,000 Total owner’s equity 56,500
Less: All. for dep. (2,000)
Total fixed assets 18,000

Total assets 83,500 Total equities 83,500

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 Financial Statements
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TARIQ & COMPANY
OPENING ENTRIES
FOR THE PERIOD OPENING 1 JULY 1995
Date Particulars P/R Debit Credit
July 1 Cash 15,000
1995 Accounts receivable 25,000
Merchandise inventory 22,000
Prepaid insurance 2,000
Office supplies 1,500
Commission receivable 1,000
Furniture 20,000
Allowance for bad debts 1,000
Allowance for depreciation 2,000
Accounts payable 24,000
Notes payable 2,000
Rent payable 1,000
Capital 56,500
(To open the various assets and equities account)

ILLUSTRATION # 3: (Income Statement & Balance Sheet with Adjustments)

2011 Private – UOK
The following is the pre-closing trial balance of Yasir & Co. on December 31, 2010:
Account Titles Debit Credit
Cash Rs.300,000
Accounts receivable 200,000
Merchandise inventory 100,000
Prepaid advertising 90,000
Cost of goods sold 700,000
Salaries expense 55,000
Supplies expense 15,000
Rent expense 40,000
Accounts payable Rs.100,000
Unearned commission 50,000
Yasir, Capital 250,000
Sales 1,100,000
1,500,000 1,500,000
Additional Information for Adjustments:
(a) Commission income is unearned to the extent of Rs.15,000.
(b) Supplies used during the year Rs.3,000
(c) Commission receivable for the year Rs.14,000.
(d) Prepaid rent Rs.25,000.
(e) Salaries payable for the year amounted to Rs.5,000.
(f) Advertising prepaid Rs.43,000.
REQUIRED
(1) Prepare Income Statement for the year ended on Dec. 31, 2010.
(2) Prepare Balance Sheet as on Dec. 31, 2010.

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SOLUTION # 3:
YASIR & CO.
ADJUSTING ENTRIES
FOR THE PERIOD ENDED 31 DECEMBER 2010
Date Particulars P/R Debit Credit
1 Unearned commission 15,000
Commission income 15,000
(To adjust the commission income)
2 Supplies 12,000
Supplies expense 12,000
(To adjust the supplies expense)
3 Commission receivable 14,000
Commission income 14,000
(To adjust the accrued commission income)
4 Prepaid rent 25,000
Rent expense 25,000
(To adjust the rent expense)
5 Salaries expense 5,000
Salaries payable 5,000
(To adjust the unpaid salaries)
6 Advertising expense 47,000
Prepaid advertising 47,000
(To adjust the prepaid advertising)

YASIR & CO.

INCOME STATEMENT
FOR THE PERIOD ENDED 31 DECEMBER 2010
Sales 1,100,000
Less: Cost of goods sold (700,000)
Gross profit 400,000
Less: Operating Expenses:
Salaries expense (55,000 + 5,000) 60,000
Supplies expense (15,000 – 12,000) 3,000
Rent expense (40,000 – 25,000) 15,000
Advertising expense (90,000 – 43,000) 47,000
Total operating expenses (125,000)
Profit from operation 275,000
Add: Other Income:
Commission income (15,000 + 14,000) 29,000
Net profit 304,000

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YASIR & CO.
BALANCE SHEET
AS ON 31 DECEMBER 2010
ASSETS EQUITIES
Current Assets: Liabilities:
Cash 300,000 Accounts payable 100,000
Accounts receivable 200,000 Unearned commission 35,000
Merchandise inventory 100,000 Salaries payable 5,000
Prepaid advertising 43,000 Total liabilities 140,000
Supplies 12,000
Commission receivable 14,000 Owner’s Equity:
Prepaid rent 25,000 Capital 250,000
Total current assets 694,000 Add: Net profit 304,000
Total owner’s equity 554,000
Total assets 694,000 Total equities 694,000

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Chapter # 8

Practice questions
Question # 1: 1994 Regular & Private – UOK
Village Shop prepared a worksheet at December 31, year 5. Shown below is the income
statement pair of columns from that worksheet. To keep this exercise short, expense accounts
have been combined. Use these worksheet data to prepare a multi – step income statement for
the year ended December 31, year 5, and closing entries at the end of year 5.
Income Statement
Debit Credit
Inventory, December 31, year 4 90,000
Sales 120,300
Sales return and allowance 672
Purchases 97,200
Purchase returns and allowance 7,200
Transportation – in 2,400
Selling expenses 20,000
General and administration expenses 8,320
Inventory, December 31, year 5 108,000
218,592 235,500
Net income 16,908
235,500 235,500

Question # 2: 2010 Regular – UOK

Each of the six horizontal lines in the following table represent a separate set:
Beginning Net Ending Cost of Gross Profit Net Sales
Inventory Purchases Inventory Goods Sold (Loss)
1. 10,000 50,000 ? 40,000 ? 65,000
2. 12,000 ? 10,000 ? 20,000 70,000
3. ? 72,000 18,000 ? 20,000 95,000
4. ? 50,000 15,000 55,000 ? 50,000
5. 20,000 70,000 ? 82,000 (2,000) ?
6. 22,000 ? 18,000 72,000 28,000 ?

REQUIRED
Copy the above table and fill in the missing amounts, showing computations.

Question # 3: 2009 Private – UOK

The following extracts are related to Mr. Tariq after adjustments at June 30, 2009:
Sales 250,000 Salaries expense 10,000
Inventory beginning 10,000 Bad debts expense 3,000
Purchases 53,000 Purchase returns 1,000
Commission income 1,000 Depreciation expense 5,000
Sales discount 5,000 Utility expense 4,000
Allowance for bad debts 11,000 Inventory ending 15,000
Rent expense payable 11,000 Tariq Drawings 19,000
REQUIRED
(a) Necessary date closing entries.
(b) An Income Statement for the year ended June 30, 2009.

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Question # 4: 2008 Regular – UOK
The following are the incorrect closing entries, prepared by an in-experienced accountant at the
end of the year ended December 31, 2007:
Dec. 31 Sales 250,000
2007 Sales discount 5,000
Open inventory 10,000
Allowance for bad debts 6,000
Drawings 1,000
Purchases 53,000
Income summary 325,000
Income summary 26,000
Ending inventory 15,000
Commission income 1,000
Salaries expense 10,000
Depreciation expense 5,000
Utility expense 4,000
Bad debts expense 3,000
Allowance for depreciation 20,000
REQUIRED
(a) Prepare FOUR correct closing entries.
(b) Prepare an Income Statement for the year ended December 31, 2007.

Question # 5: 2006 Regular – UOK

The selected normal balances taken from the books of Faruqui & Co. for the period ended was as
under:
Cash 50,000 Transportation – in 8,000
Faruqui’s Capital 200,000 Commission income 9,000
Sales 180,000 Rent expense 12,000
Purchase 100,000 Depreciation expense 3,000
Merchandise inventory (1.1.05) 30,000 Accounts receivable 40,000
Sales return 15,000 Accounts payable 30,000
Purchase return 18,000 Salaries expense 12,000
Sales discount 5,000 Bad debts expense 2,500
Purchase discount 2,000 Merchandise inventory (31.12.05) 45,000
REQUIRED
On the basis of above data, prepare closing entries for the period ended December 31, 2005.

Question # 6: 2012 Regular – UOK

Amjad & Co. shows the balances of the following accounts at December 31, 2011:
Advertising expense Rs.30,000; Wages expense Rs.5,750; Supplies expense Rs.7,500; Bad debts
expense Rs.1,000; Allowance for depreciation – Equipment Rs.20,000; Utilities expense
Rs.1,400; Insurance expense Rs.15,000; Interest expense Rs.300; Income tax expense Rs.28,000;
Commission income Rs.275,000 which includes Rs.50,000 as advance commission; Drawings
Rs.5,000; Accrued expenses Rs.5,000 and Accrued income Rs.3,000.
REQUIRED
Prepare closing entries in General Journal.

Question # 7: 2012 Regular – UOK

Hassan Trading Co.’s sales during the year Rs.200,000; the net income is 10% of sales; operating
expenses of the Co. allocated as 20% selling expenses and 16% administrative expenses of sales
and remaining as cost of goods sold.
REQUIRED
Prepare closing entries in General Journal.

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Question # 8: 2007 Private – UOK
On January 5, 2005, Zafar started a business with cash investment of Rs.200,000 and equipment
worth Rs.50,000. He completed the following transactions during the year 2005:
(a) Purchased merchandise on account Rs.60,000.
(b) Merchandise returned to supplier Rs.5,000.
(c) Cash paid to supplier Rs.20,000.
(d) Purchased merchandise for cash Rs.25,000.
(e) Sold merchandise on credit Rs.90,000.
(f) Merchandise returned from customer Rs.10,000.
(g) Cash collected from customer Rs.15,000.
(h) Sold merchandise for cash Rs.60,000.
(i) Purchased equipment for Rs.10,000 and furniture for Rs.20,000 by paying Rs.6,000 cash
and a promissory note for the remainder.
(j) Salaries expenses paid for Rs.25,000.
(k) Commission income collected Rs.15,000.
Supplementary Data for Adjustments on 31.12.2005:
(a) Depreciation on furniture was estimated at Rs.3,000 and on equipment at Rs.4,500.
(b) Prepaid salary was Rs.4,000.
(c) Unearned commission Rs.2,500.
(d) Merchandise inventory is valued at Rs.10,000.
REQUIRED
(a) Set up necessary T accounts & show effect of the transactions &adjustments in the account.
(b) Prepare an Income Statement for the year ended on December 31, 2005.

Question # 9: 2004 Regular – UOK

Rehan & Co. prepared a work sheet on December 31, 2003. Shown below are the income
statement and balance sheet columns of that work sheet:
Income Statement Balance Sheet
Debit Credit Debit Credit
Cash 25,000
Accounts receivable 20,000
Inventory, January 1, 2003 20,000
Office equipment 80,000
Allowance for depreciation – Equipment 4,000
Rehan – Capital 100,000
Rehan – Drawings 60,000
Sales 300,000
Sales returns & allowance 10,000
Purchase 150,000
Purchase return & allowance 5,000
Salaries expense 25,000
Transportation – in 5,000
General expense 5,000
Insurance expense 3,000
Depreciation expense – Equipment 1,000
Salaries payable 5,000
Prepaid insurance 10,000
Inventory, Dec. 31, 2003 30,000 30,000
219,000 335,000
Net income 116,000 116,000
Rs. 335,000 335,000 225,000 225,000
REQUIRED
From the above data prepare an income statement & a classified balance sheet as on Dec. 31, 03.

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Question # 10: 2007 Regular – UOK
The following is the pre-closing trial balance of Tanveer Company on June 30, 2007:
Title of Account Debit Credit
Cash 25,000
Merchandise inventory 20,000
Accounts receivable 80,000
Allowance for bad debts 2,000
Supplies 10,000
Prepaid insurance 15,000
Furniture 40,000
Allowance for depreciation 12,000
Accounts payable 40,000
Unearned commission 15,000
Tanveer Capital 100,000
Tanveer Drawings 12,000
Sales 200,000
Sales returns & allowance 8,000
Purchases 140,000
Purchase discount 5,000
Salaries expense 15,000
Rent expense 5,000
Total 372,000 372,000
Additional Data for Adjustments:
(1) Merchandise inventory on June 30, 2007 was valued at Rs.25,000.
(2) Salaries expense for the year Rs.20,000.
(3) Insurance expired Rs.5,000.
(4) Depreciation on furniture for the year Rs.3,000.
(5) The allowance for bad debts was estimated @of 5% of the year-end accounts receivable.
(6) Unearned commission at Rs.5,000.
REQUIRED
(1) Prepare adjusted trial balance for the year ended 30.6.2007.
(2) Prepare Income Statement for the year ended 30.6.2007.
(3) Prepare classified Balance Sheet as on 30.6.2007.

Question # 11: 1995 Regular – UOK

The following is the pre-closing trial balance of Uzair & Company on June 30, 1995:
Title of Account Debit Credit
Cash 20,000
Accounts receivable 30,000
Allowance for bad debts 2,000
Office supplies 3,000
Merchandise inventory (1.7.1994) 12,000
Prepaid insurance 6,000
Sales equipment 30,000
Allowance for depreciation – Sales equipment 10,000
Accounts payable 35,000
Uzair – Capital 33,000
Uzair – Drawings 3,000
Sales 180,000
Sales return and allowance 13,000
Sales discount 2,000
Purchases 105,000

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Transportation – in 5,000
Purchase return and allowance 3,000
Purchase discount 5,000
Commission income 4,000
Salaries expenses 20,000
Rent expense 18,000
Advertising expenses 5,000
272,000 272,000
Additional Data for Adjustment:
(a) Merchandise inventory on June 30, 1995 was valued at Rs.7,000.
(b) Salaries expense for the year amounted to Rs.27,000.
(c) Expired insurance Rs.3,500.
(d) Provide depreciation on sales equipment for the year Rs.2,000.
(e) The allowance for bad debts was estimated @ of 8% of the year end accounts receivable.
(f) Commission income includes an amount received in advance Rs.1,000.
(g) Rent expense for the year amounted to Rs.16,000.
(h) An item of purchase returns of Rs.1,000 was wrongly credited to sales account.
REQUIRED
(i) Prepare Income Statement for the year ended on June 30, 1995.
(ii) Prepare Classified Balance Sheet as on June 30, 1995.

Question # 12: 2012 Regular – UOK

The following financial statements for the year ended December 31, 2011 was drawn by an
inexperienced accounts clerk:
Naeem Shipping Ltd.
Income Statement
For the Year Ended December 31, 2011
Revenues:
Chartering revenues 344,000
Expenses:
Depreciation expense 35,000
Fleet expenses 252,000
Vessel fleet 54,000
Insurance expense 7,000
Stores and spares parts 2,000
Accrued salaries 10,000 (360,000)
Net loss (16,000)

Naeem Shipping Ltd.

Balance Sheet
December 31, 2011
Assets Liabilities & Equity
Cash 40,000 Advertising and publicity 10,000
Workshop equipment 25,000 Unearned chartering revenue 5,000
Diesel fuel, lubricants & maintenance 56,000 Capital 123,000
Official machinery & appliances 1,000 Less: Net loss (16,000) 107,000
122,000 122,000
REQUIRED
There are number of errors that you are required to check out and produce the corrected
Financial Statements.

www.a4accounting.weebly.com Sameer Hussain

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