Question-1
Ken Kennett Building Services is a local business operating in the housing industry. Ken Kennett has no formal accounting system and does not use financial statements for decision making. However, he is negotiating a contract with a supplier of building materials who wants to see his financial statements to ensure that Ken can meet his payments each month. Ken has asked you to prepare financial statements. Based on his last tax return and the content of his shoebox (where he keeps his invoices and receipts) for this year, you have recorded the following items:
| Cash in the shoebox (with the receipts and invoices) | $500 |
| Cash in the bank account | 3,800 |
| Building services provided | 550,000 |
| Amounts owed by customers | 80,000 |
| Wages paid to employees | 150,000 |
| Wages owed to the employees | 3,500 |
| Equipment | 68,000 |
| Building supplies used | 310,000 |
| Building supplies on hand | 18,000 |
| Amounts owed to suppliers | 30,000 |
| Motor vehicle | 32,000 |
| Motor vehicle expenses | 5,600 |
| Electricity and telephone expenses | 4,000 |
| Cash used by Ken for personal expenditure | 5,700 |
REQUIRED:
- Using the information above, prepare a statement of financial performance (income statement) and a statement of financial position (balance sheet) forKen Kennett Building Services.
- How would the financial statements you provide help the supplier of building materials decide whether or not to trade with Ken? What parts of the financial statements would be positive indicators that Ken Kennett Building Services would be able to pay for supplies on time and what items may cause some concern for the suppliers?
Question-2
Clive Calmer offers accounting services to the local small business owners! He has set up a sole proprietorship business named CC Accounting. Clive has collected the following information relating to his business activities at the end of financial year:
| Office supplies | $1,500 |
| Office supplies expense | 840 |
| Telephone expense | 255 |
| Motor vehicle expense | 330 |
| Accounts receivable | 1,500 |
| Bank loan | 7,500 |
| Accounts payable | 1,080 |
| Cash at bank | 8,445 |
| Computer equipment | 8,250 |
| Advertising expense | 510 |
| Accounting service income | 9,750 |
The following information was also disclosed from examining Clive’s bank statement:
| Accounting service income receipts | $8,250 |
| Initial contribution by Clive | 3,300 |
| Bank loan received | 9,000 |
| Payments to suppliers | 2,355 |
| Repayment of loan | 1,500 |
| Computer equipment purchase | 8,250 |
REQUIRED:
A. Without preparing formal financial statements, calculate the following:
- Profit/loss for the year
- Total assets at the end of the year
- Total liabilities at the end of the year
- Clive Calmer’s capital balance at the end of the year
- Net cash inflow/outflow for the year
B. If Clive had withdrawn $3,000 in cash during the year, what effect would this have (increase, decrease, no effect) on the figures you calculated in requirement A?