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Difference between an income statement and a balance sheet

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ECONOMIC- AND MANAGEMENT SCIENCES

Grade 9

BUSINESS, CONSUMER AND FINANCIAL KNOWLEDGE AND SKILLS

Module 15

DIFFERENCE BETWEEN THE INCOME STATEMENT AND BALANCE SHEET

ACTIVITY 1:

To be able to distinguish between an income statement and a balance sheet

[LO 3.1]

Financial statements are documents which give information about finances of a business. The balance sheet and the income statements are two of these. They give a summary of the financial state of a business. It is important that financial statements are easy to set out and understand.

The information in financial statements makes it possible to plan and make good decisions for a business. All financial statements have to be drawn up according to the rules of Generally Accepted Accounting Practice.

The main purpose of the income statement is to show the profit or loss made over a particular period.

The main purpose of the balance sheet is to show the financial position of a business on a particular date. The balance sheet is divided into the following sections:

1. Assets - Non-current Assets and Current Assets.

2. Equity and Liabilities - Ownership Interest, Non-current Liabilities and Current Liabilities.

  • In your own words, describe the difference between an income statement and a balance sheet.

ACTIVITY 2:

To draw up income statements for a service enterprise and a commercial enterprise

[LO 3.1]

  • The following examples are Income Statements of a service enterprise and a commercial enterprise:

Z. ZulekiTrading as XYZ Plumbers Income Statement for the year ended 31 December 2003

Table 1
Current Income 55 000
Operating Expenditure (38 274)
Telephone 3 420
Water and Electricity 5 620
Rental 12 000
Fuel 3 730
Stationery 3 680
Wages 9 824
Net Income for the year 16 726

S. SolaniTrading as Solani Dealers Income Statement for the year ended 31 December 2003

Table 2
Sales 324 000
Selling costs (200 000)
Gross Profit 124 000
Other current income 14 400
Rental income 12 000
Interest income 2 400
Gross Current Income 138 400
Operating expenditure (32 800)
Salaries and Wages 23 000
Stationery 800
Insurance 2 400
Telephone 500
Advertising costs 600
Interest on bond 2 500
Rates and taxes 3 000
Net Profit for the year 105 600

ASSIGNMENT 1: Income Statement of a Service Enterprise

  • The accounting period of Fixit Plumbers (owner F. Fix) ends on 30 June every year. The trial balance below appears in their books on 30 June 2003. Use the information to draw up the Income Statement for the year ended 30 June 2003. (Paper will be provided.)

TRIAL BALANCE OF FIXIT PLUMBERS

Table 3
    Dt. Cr.
Balance Sheet section      
Capital B1   138 629
Withdrawals B2 15 800  
Land and Buildings B3 100 000  
Vehicles B4 28 000  
Equipment B5 12 740  
Bank B6 3 963  
       
Nominal Accounts section      
Cost of materials N1 6 084  
Insurance N2 531  
Advertisements N3 389  
Salaries N4 12 500  
Wages N5 4 715  
Current Income N6   52 871
Fuel N7 3 186  
Repairs N8 917  
Telephone N9 1 008  
Stationery N10 492  
Water and Electricity N11 1 175  
    191 500 191 500
       

ASSIGNMENT 2: Income Statement of a Commercial Enterprise

  • Use the information below to complete the Income Statement of Hendrikse Dealers (Owner: H. Hendrikse) for the year ended 30 June 2003. (Paper will be provided.)

TRIAL BALANCE OF HENDRIKSE DEALERS AS AT 30 JUNE 2003

Table 4
    Dt. Cr.
Balance Sheet section      
Capital B1   166 047
Withdrawals B2 6 320  
Land and Buildings B3 140 000  
Equipment B4 18 600  
Trading inventory B5 8 860  
Debtors control B6 11 224  
Bank B7 7 621  
Change B8 150  
Petty cash B9 110  
Creditors control B10   9 216
       
Nominal Accounts section      
Sales N1   83 706
Selling costs N2 55 804  
Rental income N3   3 200
Telephone N4 640  
Water and Electricity N5 760  
Salaries N6 8 900  
Wages N7 1 100  
Postage N8 120  
Stationery N9 680  
Packaging material N10 1 280  
    262 169 262 169
       

ACITVITY 3:

To draw up Balance Sheets for a service enterprise and a commercial enterprise respectively

[LO 3.1]

  • The following examples are Balance Sheets of a service enterprise and a commercial enterprise:

M. MuvaloTrading as Muvalo Hairdressing Salon Balance Sheet as at 28 February 2003

Table 5
Assets  
Non-current Assets  
Fixed Assets 1 49 700
Current Assets 2 840
Total Assets 52 540
   
Equity and Liabilities  
Ownership Interest 2 52 540
Current Liabilities −
Total Equity and Liabilities 52 540

M. MuvaloTrading as Muvalo Hairdressing Salon Notes to the financial statements for the year ended 28 February 2003

Table 6
1. Fixed Assets  
Vehicles 35 000
Equipment 14 700
  49 700
   
2. Ownership Interest  
Balance as at 28 February 2002/last day of previous year 45 000
Net Profit for the year 18 140
Additional capital contributed −
Withdrawals (10 600)
Balance as at 28 February 2003/ last day of current year 52 540
   

F. Foxie Trading as Fox and Co. Balance Sheet as at 31 December 2003

Table 7
Assets  
Non-current Assets  
Fixed Assets 1 158 600
Current Assets 27 965
Trading inventory 8 860
Debtors 11 224
Cash 2 7 881
   
Total Assets 186 565
   
Equities and Liabilities  
Ownership Interest 3 177 349
Current Liabilities 9 216
Creditors 9 216
   
Total Equity and Liabilities 186 565

F. Foxie Trading as Fox and Co. Notes to the financial statements for the year ended 31 December 2003

Table 8
1. Fixed Assets  
Land and Buildings 140 000
Equipment 18 600
  158 600
2. Cash  
Bank 7 621
Change 150
Petty cash 110
  7 881
3. Ownership Interest  
Balance as at 31 December 2002 166 047
Net Profit for the year 17 622
Withdrawals (6 320)
Balance as at 31 December 2003 177 349

ASSIGNMENT 1: Balance Sheet of a Service Enterprise

  • Use the information of Activity 1.2 and draw up the Balance Sheet of Fixit Plumbers. (Paper will be provided.)

ASSIGNMENT 2: Income Statement of a commercial enterprise

  • The financial year of Orange Dealers (Owner: O. Sitro) ends on the last day of February every year.
  • The Trial Balance below appeared on their books on 28 February 2003.
  • Draw up the Income Statement for the business for the relevant accounting period.(Paper will be provided.)

ASSIGNMENT 3: Balance Sheet of a Commercial Enterprise

  • Draw up the Balance Sheet as at 28 February 2003. (Paper will be provided.)

TRIAL BALANCE OF ORANGE DEALERS AS AT 28 FEBRUARY 2003

Table 9
    Dt. Cr.
Balance Sheet section      
Capital B1   200 000
Withdrawals B2 4 700  
Land and Buildings B3 150 800  
Vehicles B4 36 200  
Equipment B5 29 000  
Trading inventory B6 16 700  
Debtors control B7 3 980  
Bank B8 2 550  
Change B9 660  
Petty cash B10 110  
Creditors Control B11   16 000
Nominal Accounts section      
Sales N1   192 557
Selling costs N2 115 440  
Rental Income N3   8 400
Rates and Taxes N4 2 720  
Wages N5 9 600  
Salaries N6 30 000  
Repairs N7 2 416  
Advertisements N8 819  
Insurance N9 2 690  
Water and Electricity N10 3 670  
Telephone N11 4 902  
    416 957 416 957
       

Assessment

Table 10
Learning Outcomes(LOs)
 
LO 3
MANAGERIAL, Consumer and Financial Knowledge and SkillsThe learner will be able to demonstrate knowledge and the ability to apply responsibly a range of managerial, consumer and financial skills.
Assessment Standards(ASs)
 
We know this if the learner :
3.1 completes a basic income statement and balance sheet for a service and retail business;
3.2 investigates the public relations, social responsibility and environmental responsibility strategies and actions of different businesses and organisations;
3.3 completes cash and credit transactions in the books of service and retail businesses;
3.4 uses keyboard skills and function keys in developing, storing, retrieving and editing business documentation;
3.5 analyses financial statements for decision-making at a basic level;
3.6 differentiates between the forms of credit purchases.

Memorandum

ACTIVITY 1

Difference between an income statement and a balance sheet. Accept the learners’ wording. The time aspect is important: over a period (income statement) and on a specific date (balance sheet).

ACTIVITY 2

ASSIGNMENT 1

Figure 1
Figure 1 (graphics1.png)

ASSIGNMENT 2

Figure 2
Figure 2 (graphics2.png)

ACTIVITY 2

ASSIGNMENT 1

Figure 3
Figure 3 (graphics3.png)

ASSIGNMENT 2

Figure 4
Figure 4 (graphics4.png)

ACTIVITY 3

ASSIGNMENT 1

F. Fix Trading as Fixit PlumbersBalance sheet as at 30 June 2003

Table 11
Assets  
Non-current assets  
Fixed assets 1 140 740
Current assets 3 963
Cash 3 963
Total Assets 144 703
Equity and Liabilities  
Ownership interest 2 144 703
Total Equity and Liabilities 144 703

F. Fix Trading as Fixit PlumbersNotes to the financial statements for the year ended 30 June 2003

Table 12
1 Fixed Assets:  
Land and Buildings 100 000
Vehicles 28 000
Equipment 12 740
  140 740
   
2 Ownership interest  
Balance as at 30 June 2002 138 629
Net Income for the year 21 874
Withdrawals (15 800)
Balance as at 30 June 2003 144 703

ASSIGNMENT 2

Figure 5
Figure 5 (graphics5.png)

ASSIGNMENT 3

Figure 6
Figure 6 (graphics6.png)

O. SitroTrading as Orange DealersNotes to the financial statements for the year ended 28 February 2003

Table 13
1 Fixed Assets  
Land and Buildings 150 800
Vehicles 36 200
Equipment 29 000
  216 000
   
2 Cash  
Bank 2 550
Petty cash 110
Change 660
  3 320
   
3 Ownership interest  
Balance as at 28 February 2003 200 000
Net Profit for the year 28 700
Withdrawals (4 700)
Balance as at 28 February 2003 224 000

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