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Financial Accounting Exercise Answers

Week 1

Cash Flow


£


Opening Balance

100

£50 invested by Lee and £50 bank loan

Add cash from sales of planners

105

30 @ £3.50 each

Less cash paid

(100)

The cash Lee paid for the planners

Closing Balance

105


Profit & Loss


£


Sales

105

30 @ £3.50 each

Cost of goods sold

(60)

Note it is only the cost of the 30 planners actually sold that appears here

Profit

45


Balance Sheet


£


Cash (closing balance)

105


Stock

40

The planners not sold yet – 20 @ £2 each. Note that the stock is valued at the amount it cost to buy and not what it will be worth if it is sold

Debt

(50)

The amount borrowed to start the business

Total business worth

95

£45 retained profit and £50 capital originally invested by Lee

At the end of week 2 Lee’s total profit is £75. Of course in this case you do not need financial statements to work this out since it is obvious that if Lee spent £100 and sells all the planners at £3.50 each total income will be £175 and therefore profit £75.

However for completeness the week 2 statements are as follows. Note these are just for week 2 and not for the total period weeks 1 & 2.

Cash Flow


£


Opening Balance

105

The cash Lee had at the end of week 1

Add cash from sales of planners

70

20 @ £3.50 each

Less cash paid

-

No more planners are bought

Closing balance of cash

175


Profit and Loss


£


Sales

70

20 @ £3.50 each

Cost of goods sold

40

Note it is only the cost of the 20 planners actually sold that appears here

Profit

30


Balance Sheet


£


Cash (closing balance)

175


Stock

-

No planners left to sell

Debt

(50)

The amount borrowed to start the business

Total business worth

125

£75 of retained profit and original capital investment of £50