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
| 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
| 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
| 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.)