Intermediate Worked Examples: Financial Statements of a Sole Proprietorship without Adjustments

Example 1: Example 1: Trading Account (T-form)

Question

Solution plan

Net purchases = Purchases - Purchases returns = 45,000 - 2,000 = 43,000.

Net sales = Sales - Sales returns = 72,000 - 3,000 = 69,000.

Debit side (costs): opening inventory 8,000, net purchases 43,000, carriage inwards 1,500.

Credit side: net sales 69,000 and closing inventory 10,000.

Gross profit c/d is the balancing figure on the debit side, then brought down (b/d) to the Profit and Loss Account.

Answer

Cost of sales = 8,000 + 43,000 + 1,500 - 10,000 = RM42,500. Gross profit = 69,000 - 42,500 = RM26,500. Both sides of the account total RM79,000.

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Example 2: Example 2: Profit and Loss Account (T-form)

Question

Solution plan

Credit side: gross profit b/d 30,000 and all other revenues (discount received 800, commission received 1,200).

Debit side: all expenses (salaries, rent, utilities, insurance, discount allowed, general expenses).

Net profit = total revenue - total expenses, and is the balancing figure 'net profit c/d' on the debit side before being transferred to the Capital Account.

Answer

Total revenue = 30,000 + 800 + 1,200 = RM32,000. Total expenses = 9,000 + 6,000 + 1,500 + 1,000 + 500 + 700 = RM18,700. Net profit = 32,000 - 18,700 = RM13,300, transferred to the Capital Account.

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Example 3: Example 3: Trading and Profit and Loss Account (statement format)

Question

Solution plan

Net sales = 150,000 - 5,000 = 145,000.

Net purchases = 88,000 - 3,000 = 85,000.

Cost of goods available for sale = 12,000 + 85,000 + 2,000 = 99,000.

Cost of sales = 99,000 - 15,000 = 84,000.

Gross profit = 145,000 - 84,000 = 61,000.

Add other revenue (discount and interest received) then deduct expenses to get net profit.

Answer

Gross profit = RM61,000. Total income including gross profit = RM63,500. Total expenses = RM37,500. Net profit = 63,500 - 37,500 = RM26,000.

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Example 4: Example 4: Capital Account and Statement of Financial Position

Question

Solution plan

Capital Account: the credit side has balance b/d 80,000 and net profit 26,000; the debit side has drawings 12,000 and balance c/d (closing capital).

Closing capital = 80,000 + 26,000 - 12,000 = 94,000.

SOFP: Non-current Assets + Current Assets = Total Assets. Owner's Equity + Non-current Liabilities + Current Liabilities must equal Total Assets.

Answer

Closing capital (owner's equity) = RM94,000. Total Assets = RM134,000, equal to Total Equity and Liabilities = 94,000 + 25,000 + 15,000 = RM134,000. The statement balances.

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Example 5: Example 5: Closing Journal Entries

Question

Solution plan

Accounts with debit balances (purchases, carriage inwards, sales returns) are closed by CREDITING them and debiting the Trading Account.

Accounts with credit balances (sales, purchases returns) are closed by DEBITING them and crediting the Trading Account.

Closing inventory is recorded: Dr Inventory, Cr Trading Account.

Expenses (salaries, rent) with debit balances are transferred to the debit of the Profit and Loss Account; revenue (discount received) with a credit balance is transferred to the credit of the Profit and Loss Account.

Answer

Total debit = total credit = RM228,600. Expense and revenue accounts return to a nil balance; closing inventory of RM8,000 is recorded as an asset. Real accounts (assets, liabilities, capital) are not closed.

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Example 6: Example 6: Trial Balance to Complete Financial Statements

Question

Solution plan

Identify the Trading/Profit and Loss items (revenue and expenses) and the Statement of Financial Position items (assets, liabilities, capital).

Gross profit = net sales - cost of sales. Net profit = gross profit + other revenue - expenses.

Closing capital = opening capital + net profit - drawings.

Total Assets must equal Total Equity and Liabilities.

Answer

Gross profit = RM80,000; net profit = RM46,000. Closing capital = 60,000 + 46,000 - 14,000 = RM92,000. Total Assets = RM137,000 = Total Equity and Liabilities (92,000 + 30,000 + 15,000). The statement balances.

Where marks are usually lost