BA10_C08.

qxd 16/12/04 11:23 am Page 89

Chapter 8 l Balance sheets

Learning outcomes
You should now have learnt:
1 That all balances remaining on a trial balance after the trading and profit and loss
account for a period has been drawn up are displayed in a balance sheet dated
‘as at’ the last day of the period.
2 That the balance sheet is not part of double entry.
3 That the balance sheet starts with fixed assets at the top, then current assets,
then current liabilities, then long-term liabilities, then capital.
4 The meanings of the terms fixed asset, current asset, current liability, and long-
term liability.
5 That you list fixed assets in descending order starting with those that will remain
in use in the business for the longest time.
6 That you list current assets top to bottom in increasing order of liquidity.
7 That current assets less current liabilities is known as ‘net current assets’ or
‘working capital’.
8 Why net current assets is a very important figure.

Answers to activities
8.1 All these accounts should have been closed off when the trading and profit and loss account was
completed. Only accounts with balances appear in a trial balance.
8.2 A balance sheet is a financial statement that summarises the position at the end of a period. It con-
tains all the balances on the accounts held in the accounting books at that time. As it is prepared
after the Trading and Profit and Loss Account, all the accounts have already been balanced off. All
we do with the balance sheet is lift the balances carried forward from the accounts and place them
in an appropriate position in the statement.

Review questions
8.1 Complete question 7.1 by drawing up a balance sheet as at 31 December 20X6.

8.2 Complete question 7.2 by drawing up a balance sheet as at 30 June 20X8.

8.3A Complete question 7.3A by drawing up a balance sheet as at 31 December 20X8.

8.4A Complete question 7.4A by drawing up a balance sheet as at 30 June 20X8.

8.5 G. Hope started in business on 1 July 20X0, with £40,000 capital in cash. During the first year
he kept very few records of his transactions.
The assets and liabilities of the business at 30 June 20X1 were:
£
Freehold premises 76,000
Mortgage on the premises 50,000
Stock 24,000
Debtors 2,800
Cash and bank balances 5,400
Creditors 7,600 ‘

89
BA10_C08.qxd 16/12/04 11:23 am Page 90

Part 2 l The financial statements of sole traders

‘ During the year, Hope withdrew £9,000 cash for his personal use but he also paid £6,000 received
from the sale of his private car into the business bank account.

Required:
From the above information, prepare a balance sheet showing the financial position of the busi-
ness at 30 June 20X1 and indicating the net profit for the year.

8.6A The following information relates to A Trader’s business:

Assets and liabilities at 1 January 20X9 31 December 20X9
£ £
Fixtures 18,000 16,200
Debtors 4,800 5,800
Stock 24,000 28,000
Creditors 8,000 11,000
Cash 760 240
Balance at bank 15,600 4,600
Loan from B Burton 6,000 2,000
Motor vehicle – 16,000

During the year, Trader had sold private investments for £4,000 which he paid into the business
bank account, and he had drawn out £200 weekly for private use.

Required:
Prepare a profit and loss account for the year ending 31 December 20X9 and a balance sheet as at
that date.

You can find a range of additional self-test questions, as well as material to help you with
your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood

90