Tabular Statements notes
This involves looking at changes in a Balance sheet as a result of certain transactions. Remember that the Balance sheet is always meant to balance. This means that any changes to Assets must be matched with changes to Liabilities. Any changes to Incomes or Expenses affect the Balance Sheet by altering the Retained Profit in the Liabilities. Typical transactions include:
(1) Buying a new business. Remember that if the money paid for the new business is less than the value of the business, then there is goodwill (a new asset). (2) Buying/selling goods on credit or for cash. Stock goes down by the cost value, Debtors/cash go up by the sales value, and the rest is profit. (3) Returning goods previously sold. Reverse of (2).
(4) A debtor going bankrupt. Debtors go down by the value of the debt, bank goes up by the cash received and the rest is a bad debt (retained profit goes down). (5) A previously written off bad debtor decides to pay back their debt. Reinstate the debt (opposite of (4) ). (6) Revaluation of Fixed Assets. Cancel depreciation, increase the value of the Fixed Asset and the two amounts are added to Revaluation Reserve (liability). (7) Depreciation of Fixed Assets. Increase Provision (=minus a minus asset) and reduce Retained Profit. (8) Sale of Fixed Assets at a profit or loss. Cancel the depreciation written off over the years (=plus Provision), reduce the value of the Fixed Asset, increase the bank, and adjust the Retained Profit with the Profit or Loss. (9) Issuing shares at a premium. Increase the Issued Capital with the number of shares issued, increased the Bank with the money received, and add the premium to Share Premium account. (10) Direct debits and credit transfers for incomes and expenses including prepaids. Adjust the bank for the money paid/received, adjust the Retained Profit for the Incomes and Expenses incurred and create new prepaid Asset and/or Liabilites.
Please join StudyMode to read the full document