Let’s imagine that you are setting up a grocery store.

You have Rs 100,000 to start your

operations and this money is provided by your bank as loan.

From this money, you spend Rs 70,000 to acquire furniture and fixtures. Then you buy Rs
20,000 worth of inventory. You keep the remaining Rs 10,000 for making change and such.

You open for business and make sales of Rs. 30,000/-. In a week’s time, half of the inventory
is gone. You order inventory worth Rs 5,000 but will pay later to the suppliers. Out of Rs
30,000 of sale, few customesr would pay you later. The amount these customer’s owe is Rs
10,000.

This is a transaction for a week. Create a balance sheet at the end of the week for your
business.
Solution

Assets
Cash Rs 30,000
+ Accounts Receivable Rs 10,000
+ Inventory Rs 15,000
+ PP&E Rs 70,000

Total Assets Rs 1,25,000

Liabilities
Accounts Payable Rs 5,000
Bank loan Rs 100,000
Retained Earnings Rs 20,000

Total liabilities Rs 1,25,000

 Cash includes Rs 10,000 initially and then Rs 20,000 from customers.

 Accounts receivable includes money owed to us i.e. customers who have to pay to
us.
 Inventory, we started with Rs 20,000, sold half of it and bought another Rs 5000,
that leaves us Rs 15,000.
 PP&E is furniture and fixtures. There is no change, it stays at Rs 70,000.
 Accounts payable is the amount owed by us i.e. inventory worth Rs 5000 ordered but
not paid.
 Bank loan stays at Rs 100,000.
 Retained earnings is the profit from the transactions. Find the calculation below.

Let’s build out P&L statement for the week is as follows -

Sales Rs 30,000
(-) COGS Rs 10,000
Net Profit Rs 20,000
Cost of goods sold (COGS) is half of the inventory cost that is used to make a sale of Rs
30,000.