( Cash in bank $2,050)

☆Classification of Assets and Liabilities

Assets: An asset is something owned or controlled by the business that will result in future economic benefits to the business. ( an inflow of cash or other assets.)

Such as:

Current assets:are assets owned by the business with the intention of turning them int o cash within one year (accounting period).

This definition allows inventory or receivables to quality as current assets, even if the y may not be realized into cash within 12 months.

Non-current asset: is an asset held for and used in operation(rather than for selling to customer), with a view to earning income or making profits from its use, for over more than one year ( accounting period).

Liability: is something owed by the business to someone else.

Current liability: These include the debts of the business that are repayable within the next 12 months.

Non-current liabilities: are liabilities that do not need to be settled for at least one ye ar. (excluding the current portion of the debt)

Capital: Capital is a type of liability. It represents the owner’s net investment in the business. Capital appears as a credit balance on the balance sheet.

Assets – Liabilities = PROPRIETOR’S CAPITAL

Net Assets =( Total )Assets –(Total) Liabilities

Capital (at SFP date) = Capital introduced + Profit – Drawings

Drawing: Drawings are any amounts taken out of the business by the owner for their own personal use. Drawings will reduce the capital balance reported on the balance sheet.

Include:

●Money taken out of the business

●Goods taken for personal use

●Personal expenses paid by the business

Income statement

Income statement:

Mr. W Xang

Income statement for the year ended 31 December 20X6

●Showing the financial performance of a business over a period of time.

●Reports revenue and expenses for the period.

●The sales revenue shows the income from goods sold in the year

●The cost of buying the goods sold must be deducted from the revenue

●The current year’s sales will include goods bought in the previous year, so this ope ning inventory must be added to the current year’s purchases.

●Some of this year’s purchases will be unsold at 31/12/20x6 and this closing invento ry must be deducted from purchases to be set off against next year’s sales.

●The first part gives gross profit. The second part gives net profit.

The I.S. prepared following the accruals concept.