INCOME STATEMENT & BALANCE SHEET

1. Accounting/financial period: a fixed period for which the final accounts are
drawn up to calculate a profit/loss - this period should always be the same length
of time for comparison purposes.

2. Cost of sales: the cost of goods sold (Opening stock + Purchases – Closing
Stock = Cost of sales).

3. Gross profit: difference between sales and cost of sales.

4. Gross income: gross profit plus other income for a financial period

5. Net profit: gross income less expenses, when the income exceeds the
operating expenses of a business.

Net loss: gross income less expenses, when the expenses of a business
exceed its income

6. Financial Statements: Income Statement and Balance Sheet that gives an

overview of the result for a financial period and financial position at the end of the
financial period respectively.

7. Income Statement: A statement which shows the financial result for a specific
financial period.

8. Balance Sheet: A statement which shows the financial position of a business

on a specific date.
INCOME STATEMENT & BALANCE SHEET EXERCISE
The following Trial Balance appeared in the books of Finest Traders as at 28 February 2016.
Trial Balance of Finest Traders as at 28 February 2016
Fol Debit Credit
Balance Sheet Account Section
Capital GL1 282 350 00
Drawings GL2 20 000 00
Land and Buildings GL3 128 000 00
Vehicles GL4 56 000 00
Equipment GL5 50 500 00
Stock (1 March 2015) GL6 36 000 00
Debtors 2 000 00
Fixed deposit: Karas Bank GL7 40 000 00
Creditors 27 400 00
Loan: Caprivi Bank GL8 6 000 00
Bank CB2 10 000 00
Cash CB2 2 000 00
Petty cash PCB2 150 00
Cash float GL9 200 00
Nominal Account Section
Sales GL10 70 400 00
Sales Returns GL12 400 00
Interest on fixed deposit GL13 13 200 00
Bad debts recovered GL14 100 00
Purchases GL15 36 000 00
Purchases Returns GL16 800 00
Carriage on purchases GL17 600 00
Interest on loan GL18 4 400 00
Insurance GL19 11 700 00
Bad debts GL20 1 400 00
Telephone GL21 800 00
Discount allowed GL22 100 00
397 900 00 397 900 00

ADDITIONAL INFORMATION:

Closing stock on hand as at 28 February 2016, N$32 000.

REQUIRED:

(a) Prepare the Income Statement of Finest Traders for the year ended 28 February 2016.

(b) Draw up the Balance Sheet of Finest Traders as at 28 February 2016.

(a)

Income Statement of Finest Traders for the year ended 28 February 2016
(b)

Balance Sheet of Finest Traders as at 28 February 2016

 MEMO
INCOME STATEMENT & BALANCE SHEET EXERCISE

(a)

Income Statement of Finest Traders for the year ended 28 February 2016

Sales (70 400 – 400) 70 000 00

Less: Cost of Sales 39 800 00
Opening Stock 36 000 0
0
Add: Purchases (36 000 – 800) 35 200 0
0
Carriage on purchases 600 0
0
71 800 0
0
Less: Closing Stock 32 000 0
0
Gross profit 30 200 00
Add: Other income 13 300 00
Interest on fixed deposit 13 200 0
0
Bad debt recovered 100 0
0
Gross income 43 500 00
Less: Expenses 18 400 00
Interest on loan 4 400 0
0
Insurance 11 700 0
0
Bad debts 1 400 0
0
Telephone 800 0
0
Discount allowed 100 0
0
Net profit 25 100 00
(b)

Balance Sheet of Finest Traders as at 28 February 2016

CAPITAL EMPLOYED
Owners equity 287 450 00
Capital 282 350 00
Add: Net profit 25 100 00 307 450 00
Less: Drawings 20 000 00

Long term Liabilities 6 000 00

Loan: Caprivi Bank 6 000 00
293 450 00

EMPLOYMENT OF CAPITAL
Fixed assets 234 500 00
Land and Buildings 128 000 00
Vehicles 56 000 00
Equipment 50 500 00

Investment 40 000 00
Fixed deposit: Karas Bank 40 000 00

Working Capital 18 950 00

Current Assets 46 350 00
Stock 32 000 00
Debtors 2 000 00
Bank 10 000 00
Cash 2 000 00
Petty cash 150 00
Cash float 200 00
Less: Current Liabilities 27 400 00
Creditors 27 400 00
293 450 00