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Financial Statements

4 dot points across 4 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do we decide whether spending is an asset or an expense?

Distinguish capital expenditure from revenue expenditure and explain the effect of getting it wrong
A simple answer to the N(A)-Level Principles of Accounts outcome on capital and revenue expenditure. The difference between the two, how each is recorded, and how a wrong classification affects profit and assets.
8 min answer →

How do we turn a trial balance and a list of adjustments into the two financial statements?

Prepare the financial statements of a sole trader from a trial balance with year-end adjustments
A simple answer to the N(A)-Level Principles of Accounts outcome on building the statements. Which trial balance items go to the income statement and which to the balance sheet, and how adjustments are applied to each.
10 min answer →

How do we work out the profit a sole trader made over a year?

Prepare the income statement of a sole trader, showing gross profit and profit for the year
A simple answer to the N(A)-Level Principles of Accounts outcome on the income statement. The cost of sales, gross profit, expenses and profit for the year, and how to lay the statement out for a sole trader.
10 min answer →

How do we show what a sole trader owns and owes at a single date?

Prepare the statement of financial position of a sole trader and show the capital section
A simple answer to the N(A)-Level Principles of Accounts outcome on the statement of financial position. How to set out non-current and current assets, liabilities, and the capital section with profit and drawings.
10 min answer →