Please from this list,help sort out balance sheet.?

Question

To Kay Ltd for novelties to be sold £1,500

year profit £11,040

To Cas Limited for playing cards £400

To Mary for ‘disappearing lady’ apparatus £2,000

George’s drawings £11890

Cash balance at 31 December 2007 £560

Bank balance at 31 December 2007 £120

invoices received from Kay Ltd up to

31 December 2007

£1,700

Stock of unsold novelties at cost price at 31 December 2007 £80

Amount owing from customers for novelties £350

Other fixed assets still owned at 31 December 2007

Costume at cost 3,000

Magic books and equipment at cost £2,000

Owner’s capital (costume, magic books and equipment and

£20 initial travel expenses from owner’s savings)

£5,020.

Depreciation £ 500 for costume,books and equipment

Depreciation for apparatus £400

Owe wages to Mary of £100 and paid early bus tickets of £50.

Answer 1

Hi,

Is this all the data given for the question? Firstly you need to understand the accounting equation which is Assets = Liabilities + Owners Equity

Secondly that Accounting is based upon this equation and that as a result for every Debit entry there must be a corresponding Credit entry to balance the equation.

Thirdly, every financial transaction will involve at least two accounts. One account will have a debit entry while the other will have a balancing credit entry.

Fourthly that the accounts are kept for the business entity and that the value of all the assets of the business are owed either to creditors or the owners.

All financial transactions are firstly recorded in the Journal. Somebody doing this work will identify the accounts affected and make the appropriate debit and credit entries there. At any time the Journal will show that the total balances in the debit and credit columns are the same. At the end of any accounting period, In order to produce the Balance Sheet and Profit and Loss statements all the Journal entries for that period are 'Posted' to their respective Ledger accounts. The balances in each Ledger account is then transferred to the Balance sheet - this is done either directly or indirectly via the Profit and Loss statement. All Assets and Liabilities go directly to the Balance Sheet while the Revenue and Expense ledger balances will wind up in the balance sheet via the Profit and Loss statement. Now because each financial transaction was recorded using the accounting equation all the debit entries had corresponding credit entries, hence the total Ledger debit entries must equal the total Ledger credit entries. When all these Ledger balances are finally transferred to the Balance Sheet the Assets must then equal Liabilities plus Owners Equity. This is why it is called a Balance Sheet ( it has to balance).

In time you will be able to identify items as assets, liabilities and owners equity. Also you will identify items as revenue or expenses.

Assets are Cash, Inventory, Buildings, Equipment, Debtors (money owed to the business). Liabilities are Borrowed funds, Creditors (money owed for goods and services supplied to the business), money contributed by the owners of the business (Owners equity), retained profits/losses, mortgages, other loans made to the business, overdrafts. Revenue items are Sales, Interest earned on funds on deposit in bank accounts etc. Expenses include Rent, Insurance premiums paid, wages , salaries, cost of electricity, gas, motor vehicle running costs (petrol, oil, repairs and servicing, registration and insurance), stationery, advertising.

The Balance Sheet will usually show assets as

Current Assets

Cash on hand or in Bank

Inventory

Debtors

Non- Current Assets

Buildings

Office Furniture and Equipment

Motor Vehicles

Machinery

The Balance Sheet will usually show Liabilities as

Current Liabilities

Creditors

Bank Overdraft

Short Term Borrowings

Non- Current Liabilities

Mortgages

Owners Equity

Capital

Retained Profit (Loss)

The Profit and Loss statement has five main sections, they are:

Sales Revenue

Minus Cost of Goods Sold

Gross Profit

Minus Expenses

Net Profit(or Losss)