Acca f3 Financial Accounting (int) Study Text

Part C  The use of double entry and accounting systems

  6:  From trial balance to financial statements

107

If we go ahead and gather the three amounts together, the results are as follows. 

DRAWINGS 

$       

$

Cash at bank

1,500

Capital a/c

1,500

INCOME AND EXPENSE ACCOUNT 

$       

$

Purchases

5,000

Sales

12,500

Rent

3,500   

 

Bank loan interest

100

Other expenses

1,900   

 

Capital a/c

 2,000  

           

12,500

12,500

CAPITAL

$       

$

Drawings

1,500 Cash at bank

7,000

Balance c/d

7,500 I & E a/c

2,000

9,000

9,000

Balance b/d

7,500

Question 

Statement of financial position  

You can now complete Ron Knuckle's simple statement of financial position. 

Answer

RON KNUCKLE 

STATEMENT OF FINANCIAL POSITION AT END OF FIRST TRADING PERIOD 

Assets

$

Non-current assets

Shop fittings

2,000

Current assets

Cash at bank

6,500

Total assets

8,500

Capital and liabilities

Proprietor's capital

7,500

Non-current liabilities

Bank loan

1,000

Total capital and liabilities

8,500

When a statement of financial position is drawn up for an accounting period which is not the first one, 

then it ought to show the capital at the start of the accounting period and the capital at the end of the 

accounting period. This will be illustrated in the next example. 

In an examination question, you might not be given the ledger accounts – you might have to draw them up 

in the first place. That is the case with the following exercise – see if you can do it by yourself before 

looking at the solution. 

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108

6: From trial balance to financial statements   Part C  The use of double entry and accounting systems 

4 Balancing accounts and preparing financial

   statements 

The exercise which follows is by far the most important in this text so far. It uses all the accounting steps 

from entering up ledger accounts to preparing the financial statements. It is 

very important that you try 

the question by yourself: if you do not, you will be missing out a vital part of this text. 

At the 2009 ACCA Teachers' Conference, the examiner emphasised the need to practise full length 

questions in order to fully understand the techniques involved. 

Question

Financial statements 

A business is established with capital of $2,000, and this amount is paid into a business bank account by 

the proprietor. During the first year's trading, the following transactions occurred: 

$

Purchases of goods for resale, on credit 

4,300

Payments to trade accounts payable 

3,600

Sales, all on credit 

5,800

Payments from trade accounts receivable 

3,200

Non-current assets purchased for cash 

1,500

Other expenses, all paid in cash 

900

The bank has provided an overdraft facility of up to $3,000. 

Required

Prepare the ledger accounts, an income statement for the year and a statement of financial position as at 

the end of the year. 

Answer

The first thing to do is to open ledger accounts so that the transactions can be entered up. The relevant 

accounts which we need for this example are: cash at bank; capital; trade accounts payable; purchases; 

non-current assets; sales; trade accounts receivable and other expenses. 

The next step is to work out the double entry bookkeeping for each transaction. Normally you would write 

them straight into the accounts, but to make this example easier to follow, they are first listed below. 

Debit

Credit

(a)  Establishing business ($2,000) 

Cash at bank 

Capital

(b)  Purchases ($4,300) 

Purchases

Trade accounts payable 

(c)  Payments to trade accounts payable 

($3,600)

Trade accounts

payable

Cash at bank 

(d)  Sales ($5,800) 

Trade accounts receivable  Sales 

(e)  Payments from trade accounts receivable 

($3,200)

Cash at bank 

Trade accounts receivable 

(f)  Non-current assets ($1,500) 

Non-current assets 

Cash at bank 

(g)  Other (cash) expenses ($900) 

Other expenses 

Cash at bank 

Exam focus 

point

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Part C  The use of double entry and accounting systems

  6:  From trial balance to financial statements

109

So far, the ledger accounts will look like this. 

CASH AT BANK 

$       

$

Capital 2,000 

Trade accounts payable 

3,600 

Trade account receivables 

3,200  Non-current assets 

1,500

Other expenses

900

CAPITAL

$       

$

  Cash at bank 

2,000

 TRADE 

ACCOUNTS 

PAYABLE 

$       

$

Cash at bank 

3,600  Purchases 

4,300

PURCHASES

$       

$

Trade accounts payable 

4,300

 NON-CURRENT 

ASSETS 

$       

$

Cash at bank 

1,500

SALES

$       

$

  Trade accounts receivable 

5,800

 

TRADE ACCOUNTS RECEIVABLE 

$        

$

Sales 

5,800  Cash at bank 

3,200 

 OTHER 

EXPENSES 

$       

$      

Cash at bank 

900

The next thing to do is to balance all these accounts. It is at this stage that you could, if you wanted to, 

draw up a trial balance to make sure the double entry is accurate. There is not very much point in this 

simple example, but if you did, it would look like this. 

Dr

Cr

$

$        

Cash at bank

800

Capital

2,000

Trade accounts payable

700

Purchases

4,300

Non-current assets

1,500

Sales

5,800

Trade accounts receivable

2,600

Other expenses

   900

9,300

9,300

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