How to draw up the Financial statement?

When you know how to do the simple Statement of Financial Position, and Statement of Financial Performance on its own, it is time to put them together.

We will first combine the trading portion and the profit and loss portion together.

Question 1

Regina, a sole proprietor of Ethan Trading extracted the following balances from the books of the business on 31 December 2019.

Sales revenue	107 400
Sales returns	2 800
Cost of sales	22 550
Trade receivables	27 300
Trade payables	16 900
Other payables	12 090
Wages	10 300
Insurance	5 500
Rental income	1 850
Loan from bank (repayable in 31 July 2025)	25 000
Interest expense	1 450
Utilities	6 650
Motor vehicles	44 600
Fixtures and fittings	21 400
Drawings	1 940
Cash at bank	18 650
Inventory	13 800
Capital, 1 January 2019	13 700

 Required :

(i) Prepare the Statement of Financial Performance for the year ending 31 December 2019

(ii)Prepare the Statement of Financial Position as at 31 December 2019.

To work out the above question, 

Step 1 : we will first need to highlight or mark out the items relating to the trading portion of the statement of Financial Performance- which are the 3 items, 

Sales revenue, Sales returns and Cost of sales

Step 2 : we will need to check to see whether there is any income other than sales revenue

Rental income

Step 3: we will mark out all the expenses based on the Trial balance given 

Wages, insurance, Interest expense and utilities

Then we are ready to draw up the Statement of Financial Performance

Ethan Trading

Statement of Financial Performance for the year ended 31 December 2019

	$	$
Sales revenue		107400
less sales returns		2800
Net sales revenue		104600
less cost of sales		22550
Gross profit		82050
Add other income
Rental income		1850
less expenses
Wages	10300
Insurance	5500
Interest expense	1450
Utilities	6650
total expenses		23900
Profit for the year		60000

                                                                                                         (82050 + 1850 -23900)

To draw up  the statement of Financial Position, make sure you cancel items that already appear in the Statement of Financial Performance.  Like the one in smaller size which I highlighted in blue.

Sales revenue	107 400
Sales returns	2 800
Cost of sales	22 550
Trade receivables	27 300
Trade payables	16 900
Other payables	12 090
Wages	10 300
Insurance	5 500
Rental income	1 850
Loan from bank (repayable in 31 July 2025)	25 000
Interest expense	1 450
Utilities	6 650
Motor vehicles	44 600
Fixtures and fittings	21 400
Drawings	1 940
Cash at bank	18 650
Inventory	13 800
Capital, 1 January 2019	13 700

So we only left with 10 items above to put into the Statement of Financial Position.

Step 1 : We will first sieve out the Non Current Assets :- items that business OWNED and  will last for
                      MORE THAN 1 YEAR and NOT FOR SALES

              Motor Vehicles,   Fixtures and Fittings


 Step 2 : We will next check on the Current Assets : items that business OWNED and will last for
               LESS  THAN 1 YEAR        

              Cash at bank, Inventory, Trade Receivables

Step 3 : Check out for Non Current Liabilities : items that business OWED to Third Party and will last for 

         MORE THAN 1 YEAR 

        Loan from bank (repayable in 31 July 2025) 
        For this item, we will need to write it as LONG TERM BORROWING in the Statement

 Step 4 : We will next check on the Current Liabilities : items that business OWED and will last for
                LESS THAN 1 YEAR        

              Trade payables, Other payables

Step 5 :The Last to check on is that of the Equity : fund contributed by the owner to start a business.

             Capital, 1 January 2019,  Drawings      

What is drawings?

It is considered as a NEGATIVE EQUITY.  The amount of money, assets or other resources withdraw by the owner for his/her own personal use.

As it is a negative equity, it will be deducted from the capital of business.

One more item which will not be able to find in the Question of the extract of the
 TRIAL BALANCE is the PROFIT of the business.  You will need to get it from the Statement of Financial Performance that you have drawn up earlier.

In this question, the profit for the year  = $60000.

It is also part of EQUITY.  

Remember, the main purpose of the business is to make PROFIT.  Profit is a reward to the owner for doing well in the business.  So this will be added to the capital.  

However, if the business make a loss, it will be deducted from the capital.

Ethan Trading

Statement of Financial Position as at  31 December 2019

Assets	$	$
Non Current Assets
Motor Vehicles	44600
Fixtures and Fittings	21400
		66000
Current Assets
Cash at bank	18650
Inventory	13800
Trade Receivables	27300
		59750
Total Assets		125750
Equity and Liabilities
Equity
Capital  (13700+60000-1940)		71760
Non Current Liabilities
Long Term Borrowing		25000
Current Liabilties
Trade Payables	16900
Other Payables	12090
		28990
Total Equity and Liabilities		125750

Question 2

Bob and Bob Trading Enterprise has the following balances were extracted from the books at     30 June  2020.
		$
	Office Equipment	15 600
	Furniture and fittings	10 000
	Trade receivables	11 200
	Trade payables	7 860
	Capital 1 July 2019	41 000
	Cost of sales	165 500
	Sales revenue	196 850
	Sales returns	450
	Inventory	50 000
	Rent expense	10 000
	Cash at bank	2 600
	Loan from bank ( repayable 31 May 2024)	35 000
	Cash in hand	460
	Drawings	2 000
	Advertising	550
	Wages and salaries	5 000
	Discount allowed	800
	Discount received	1 000
	Delivery charges	2 930
	Commission income	2 500
	Utilities	7 120

Required :
(i) Prepare the Statement of Financial Peroformance for the year ended 30 June 2020
(ii) Prepare the Statement of Financial Position as at 30 June 2020
(iii) State the beginning and ending accounting period of the statement above.

Hint : For Statement of financial performance
         remember to sieve out the trading portion -- Sales revenue, sales returns and cost of sales
         then, the other income -- discount received and commission income
         last, expenses -- rent expense, advertising, wages and salaries, discount allowed, Delivery                                         charges , utilities

          For Statement of financial position
          remember to cancel all items appear in the financial performance first then pick out
          Non current assets -  Office equipment, furniture and fittings
          Current assets - Trade receivables, inventory,cash at bank , cash in hand
          Non current liabilities - Loan from bank
          Current liabilities - Trade Payables
       Equity - capital, drawings and do not forget to get the profit/loss from the statement financial performance.


Answer :
Bob and Bob Trading Enterprise
Statement of Financial Performance for the year ended 30 June  2020

	$	$
Sales revenue		196850
Less Sales returns		450
Net Sales revenue		196400
less cost of sales		165500
Gross Profit		30900
Add other income
Discount received	1000
Commission income	2500
		3500
less expenses
Rent expenses	10000
Advertising	550
Wages and salaries	5000
Discount allowed	800
Delivery charges	2930
Utilities	7120
total expenses		26400
Profit for the year		8000

Bob and Bob Trading Enterprise
Statement of Financial Position as at 30 June  2020

Assets	$	$
Non Current Assets
Office Equipment	15600
Furniture and fittings	10000
		25600
Current Assets
Trade Receivable	11200
Inventory	50000
cash at bank	2600
cash in hand	460
		64260
Total Assets		89860
Equity and Liabilities
Equity
Capital (41000+8000-2000)		47000
Non Current Liabilities
Long Term Borrowing		35000
Current Liabilities
Trade payables		7860
		89860

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