ACCOUNTING O.L

Templates for the

Preparation of Financial Statements

Prepared By:

Maryam A. Ghazy

2

International standards – terminology

The list below is to help Centres become familiar with international

terminology which Cambridge uses in accounting syllabuses. Well-known

standards, which are relevant to the level of study, will be included in

question papers, mark schemes and associated documents.

It is recommended that Centres use this terminology in their teaching and

learning materials, however, candidates will not lose marks for using

different terms.

International usage

Previous Cambridge/UK usage

Statement of

financial position

Balance sheet

Bank (and other) loans

Interest bearing loans and

borrowing

Loans repayable after 12 months

Bank overdrafts and loans

Interest bearing loans and

borrowing

Loans repayable within 12 months

Capital or equity/shareholders’

equity

Capital

Cash (and cash equivalents)

Bank and cash

Cost of sales

Cost of goods sold

Current assets

Current assets

Current liabilities

Current liabilities Creditors: amounts due within 12 months

Finance costs

Interest payable

Finance income/investment

revenues

Interest receivable

Financial statements

Final accounts

Gross profit

Gross profit

Income statement

Trading and profit & loss account

Intangible assets

Goodwill, etc.

Inventory/inventories

(of raw materials and finished

goods)

Stock

Investment property

Investments

Non-current assets

Fixed assets

3

Non-current liabilities

Long-term liabilities Creditors: amounts falling due after more

than one year

Other operating expenses

Sundry expenses (administration and distribution)

Other operating income

Sundry income

Other payables

Accruals

Other receivables

Prepayments

Plant and equipment

Plant and equipment

Profit (before tax) for the year

Net Profit

Property

Land and buildings

Raw materials

Ordinary goods purchased

Purchases

Revenue

Sales

Share capital

Share capital

Trade payables

Creditors

Trade receivables

Debtors

Work in progress

Work in progress

4

Sole Trader

Income Statement for the year ended ……………

$ $ $ Revenue

Less Sales returns

Less Cost of Goods Sold Opening Inventory Purchases Less Purchases returns Less Goods for Own use Carriage inwards

Less Closing Inventory

Gross Profit

Add Other Income

Discount received

Rent received

Commission received *Profit on disposal of non-current (fixed) assets * Reduction in provision for doubtful debts

Bad debts recovered

Less Expenses Salaries/wages Rent Utilities Stationary Equipment Other operating expenses Interest on loans

Depreciation

* Loss on disposal of non – current assets

* provision for doubtful debts

Profit for the year

XXX

(XXX)

XXX

(XXX)

XXX

XXX

XXX

XXX

XXX

(XXX)

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

(XXX)

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

(XXX)

XXX

5

Sole Trader

Statement of Financial Position at …...................

$ $ $

Assets

Non-current assets

Cost Depreciation to

date

Book Value

Land and buildings XXX XXX XXX

Fixtures and fitting XXX XXX XXX

Office equipment XXX XXX XXX

Motor vehicles XXX XXX XXX

XXX XXX XXX

Current assets

Inventory XXX

Trade receivables XXX

Less Provision for doubtful debts (XXX) XXX

Other receivables XXX

Other receivables (accrued income) XXX

Bank XXX

Cash XXX

Total Assets XXXX

Capital and liabilities

Capital

Opening balance

XXX

**Plus Profit for the year XXX

XXX

Less Drawings (XXX)

XXX

Non-current liabilities

Loan XXX

Current liabilities

Trade payables XXX

Other payables XXX

Prepaid income XXX

*Bank overdraft XXX

XXX

Total Liabilities XXXX

6

Financial Statements of a Sole Trader – Service business

Sole Trader (Name) Income Statement for the year ended

………………………….

$

Fees received Commission received

Rent received

Discount received *Profit on disposal of non-current (fixed) assets

**Reduction in provision for doubtful debts

Less Expenses Wages and salaries

Office expenses

Rent and rates

Insurance Office expenses Motor vehicle expenses

Selling expenses Loan interest

Bad debts *Loss on disposal of fixed assets

**Provision for doubtful debts Depreciation of fixtures and

fittings Depreciation of office

equipment Depreciation of motor

vehicles ***Profit for the year (Net profit)

$ $

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx xxx

xxx

xxx

xxx

xxx xxxx xxxx

* If only one asset was sold during the year only one of these items will appear ** If the provision reduces the surplus amount is added to the gross profit: if the provision

increases the amount required is included in the expenses *** If the expenses exceed the gross profit plus other income the resulting figure is

described as a loss for the year (net loss)

The Statement of Financial Position of a sole trader in the service sector is presented in

the same format as the Statement of Financial Position of a sole trader involved in a

trading business.

7

Financial Statements of a partnership business

The Income statement of a partnership business follows the same format as that

of a sole trader. The only difference is that interest on a loan from a partner may

be included in the expenses of the profit and loss section. It is necessary to prepare an appropriation account to show the distribution of

the profit for the year (net profit) between the partners.

Partnership (Name) Profit and Loss Appropriation Account for the year ended ……………………….

$ $ $

Profit for the year xxxx

Add Interest on drawings – Partner A xxxx Partner B xxxx xxxx

xxxx Less Interest on capital - Partner A xxxx

Partner B xxxx xxxx Partner’s salary - Partner A xxxx xxxx

xxxx

*Profit shares - Partner A xxxx

Partner B xxxx xxxx * Residual profit is shared in the ratio stated in the partnership agreement

The first section of the Statement of Financial Position of a partnership is similar to a

sole trader. The second section shows the capital and current account of each partner.

Where the full details of the partners’ current accounts are not required the “Financed

by” section of a partnership Statement of Financial Position could be presented as

follows.

Partnership (Name)

Extract from Statement of Financial Position at ………………….

Financed by

Capital accounts *Current accounts

$

Partner A xxx

xxx

xxx

$ $

Partner B Total Xxxx xxxx

xxxx xxxx

xxxx xxxx

* Where a balance is a debit balance it is shown in brackets and deducted rather than added.

8

Where full details of the current accounts are required the “Financed by” section of a

partnership Statement of Financial Position could be presented as follows.

Partnership (Name) Extract from Statement of Financial Position at …………………..

Capital account Current accounts *Opening balance

Interest on

capital Partner’s

salary **Profit shares

Less Drawings

$

Partner A xxxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

$ $

Partner B Total xxxx xxxx

xxx

xxx xxx

xxx

xxx

xxx

xxx xxxx

xxxx

* Where a balance is a debit balance it is shown in brackets and deducted rather than

added

** Where there is a loss to share out it is shown in brackets and deducted rather than

added

9

Financial Statements of a manufacturing business A business which manufactures goods must prepare a manufacturing account to

show the calculation of the cost of manufacture, whatever the ownership of the

business. The manufacturing business could be a sole trader or a partnership.

Name of manufacturing business Manufacturing

Account for the year ended ………………………..

$ $ $

Cost of material consumed Opening inventory (stock) of raw material xxxx

Purchases of raw material xxxx

Carriage on raw material xxxx

xxxx Less Closing inventory (stock) of raw material xxxx xxxx

Direct wages xxxx

Direct expenses xxxx

Prime Cost xxxx

Add Factory overheads Indirect wages xxxx

Factory rent and rates xxxx

Factory insurance xxxx

Factory fuel and power xxxx

Factory general expenses xxxx Depreciation of factory machinery xxxx xxxx

xxxx Add Opening inventory (stock) of work in progress xxxx

xxxx Less Closing inventory (stock) of work in progress xxxx

Production cost of goods completed xxxx

The income statement of a manufacturing business follows the same format as that of any

other form of business, except that the trading account section includes the production cost

of goods completed. The profit and loss section includes only office, selling and financial

expenses

Name of manufacturing business Income Statement (Trading Account) for the year ended ………………………..

$ $ $

Revenue xxxx

Less Cost of sales Opening inventory (stock) of finished goods xxxx

Production cost of goods completed xxxx

Purchases of finished goods xxxx

xxxx Less Closing inventory (stock) of finished goods xxxx xxxx

Gross profit xxxx

The Statement of Financial Position of a manufacturing business follows the same

format as that of any other business; however there may be three stocks rather than

one.

10

Financial Statements of a non-trading organization

A summary of the cash book, known as a receipts and payments account, is

prepared by the treasurer of a non trading organization. All money received is shown

on the debit side and all money paid out on the credit side. It is balanced in the same

way as a cash account. A trading account may be prepared if a shop or café etc is

operated by the organization.

Non-trading Organization (Name) Shop Trading Account for the year ended …………………………

Revenue Less Cost of sales

Opening inventory

Purchases

Less Closing inventory (stock)

Cost of goods sold Add Shop expenses

Wages of shop assistant Shop

rent and rates Depreciation of

shop fittings

Profit on shop

$ $ $ xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx xxxx xxxx xxxx

xxxx

An income and expenditure account is also prepared - the equivalent of the profit

and loss account of a business. The expenses of the organization are deducted from

the revenue and the resulting figure is a surplus or deficit, rather than a profit or loss.

Non-trading Organisation (Name) Income and Expenditure Account for the year ended ……………

$

Income Subscriptions

Profit on shop Competition – entrance fees less

expenses Interest received

*Profit on disposal of non-current (fixed) assets

Expenditure General

expenses Rates and

insurance Repairs and maintenance

Loan interest *Loss on disposal of non-current (fixed) assets

Depreciation of equipment **Surplus for the year

$ $

xxxx xxxx xxxx xxxx

xxxx

xxxx

xxxx xxxx

xxxx

xxxx

xxxx

xxxx xxxx xxxx

xxxx * If only one asset was sold during the year only one of these items will appear ** If the expenditure exceeds the income the resulting figure is described as a deficit

11

The first section of the Statement of Financial Position of a non-trading

organization follows the same format as that of a sole trader. The second section of the

Statement of Financial Position has to be modified so that it shows the accumulated

fund and the surplus or deficit.

Non-trading Organisation (Name) Extract from Statement of Financial Position at …………………………..

$ $ $

Accumulated fund Opening balance xxxx

*Plus surplus for the year xxxx

xxxx * If there is a deficit this will be deducted from the accumulated fund

12

Financial Statements of a limited company

Many private limited companies are moving over to the IAS format used by a Plc

(public limited company which is traded on the stock exchange). However the

traditional format of an income statement of a limited company is given below as

this format is likely to continue to appear in textbooks and in the accounts of private

limited companies. The income statement of a private limited company (for a company which is not

traded on the stock exchange) follows the same format as for a sole trader, although

interest on debentures and directors’ remuneration may be included in the expenses

in the profit and loss section. It is necessary to prepare an appropriation account to show the distribution of the net profit.

Limited Company (Name) Profit and Loss Appropriation Account for the year ended ……………………….

$ $ $

Profit for the year (Net profit) xxxx

Less Transfer to general reserve xxxx Dividends – Preference paid xxxx

proposed xxxx xxxx

Ordinary paid xxxx xxxx

Retained profit for the year xxxx

Add Retained profit brought forward xxxx Retained profit carried forward xxxx

The first section of the Statement of Financial Position of a limited company is

similar to that of a sole trader. The second section of the Statement of Financial

Position needs to show the share capital and reserves.

Limited Company (Name) Extract from Statement of Financial Position at …………………………..

$

Share Capital x% Preference shares of $x each

Ordinary shares of $x each

Reserves General reserve Retained profit carried forward

Shareholders’ funds

$ $

Authorised Issued xxxx xxxx

xxxx xxxx

xxxx xxxx

xxx xxxx

xxxx

13

Limited Company

Statement of Financial Position at …................... $ $ $

Assets

Non-current assets

Cost Depreciation to

date

Book Value

Land and buildings XXX XXX XXX

Fixtures and fitting XXX XXX XXX

Office equipment XXX XXX XXX

Motor vehicles XXX XXX XXX

Intangible asets XXX

XXX XXX XXX

Current assets

Inventory XXX

Trade receivables XXX

Less Provision for doubtful debts (XXX) XXX

Other receivables XXX

Other receivables (accrued income) XXX

Bank XXX

Cash XXX

Total Assets XXXX

Shareholder’s equity and liabilities Authorized Issued

Equity $ $

Share capital

%, Preference share of ..$ each

Ordinary shares of …$ each

XXX

XXX

XXX

XXX

XXX XXX

Reserves

General reserves ( beg. Bal. + Amount transferred) XXX

Shareholders’ funds XXX

XXX

Non-current liabilities

% debenture XXX

Current liabilities

Trade payables XXX

Other payables XXX

Preference dividends proposed ( only) XXX

Interest on Debenture ( accrued) XXX

Prepaid income XXX

*Bank overdraft XXX

XXX

Total Liabilities XXXX