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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

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.)

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Source:  OpenStax, Economic and management sciences grade 9. OpenStax CNX. Sep 15, 2009 Download for free at http://cnx.org/content/col11074/1.1
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