(i) Statement of Financial Performance
(ii) Statement of Financial Position
Each additional information affects at least 2 accounts, just like in journal entries.
The following videos show what to do for each type of additional information.
More challenging types of additional information are marked with *.
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Ending capital on statement of financial position
= Beginning capital
(given in the list of balances/ trial balance)
add Additional capital contributed during the year
add Profit for the year (or minus Loss for the year)
minus Total drawings for the year
Refers to amount paid in current accounting year but not incurred (used) in current accounting year.
Step 1: Minus prepaid amount from current accounting year's expense
Step 2: Prepaid expense = CA
Refers to amount incurred (used) in the current accounting year but not yet paid.
Step 1: Add amount payable to current accounting year's expense
Step 2: Expense payable = CL
(Note: Words that mean not yet paid are 'outstanding', 'owing', 'in arrears'.)
Step 1: Use amount of annual expense incurred on statement of financial performance
Step 2: The amount that had been incurred but not yet paid = Expense payable = CL
Step 1: Use amount of annual expense incurred on statement of financial performance
Step 2: The amount paid in excess of amount incurred = Prepaid expense = CA
Refers to amount received in current accounting year but business has yet to provide services in current accounting year.
Step 1: Minus amount received in advance from current accounting year's income
Step 2: Income received in advance = CL
Refers to amount earned in the current accounting year (i.e. business has provided the services) but business has yet to receive payment from customers
Step 1: Add amount receivable to current accounting year's income
Step 2: Income receivable = CA
(Note: Words that mean not yet received are 'outstanding', 'owing', 'in arrears'.)
Step 1: Use amount of annual income earned on statement of financial performance
Step 2: The amount that had been earned but not yet paid = Income receivable = CA
Step 1: Use amount of annual income earned on statement of financial performance
Step 2: The amount received in excess of amount earned = Income received in advance = CL
Step 1: Calculate annual depreciation expense using formula :
% x Cost
Step 2: Add annual depreciation expense to given accumulated depreciation to get final accumulated depreciation
Step 1: Calculate annual depreciation expense using formula :
(Cost - Scrap Value) / No of years of useful life
Step 2: Add annual depreciation expense to given accumulated depreciation to get final accumulated depreciation
Step 1: Calculate annual depreciation expense using formula :
% x Net book value
(Note: Net book value =
Cost - Accumulated Depreciation)
Step 2: Add annual depreciation expense to given accumulated depreciation to get final accumulated depreciation
Step 1: Use net realisable value on statement of financial position
Step 2: Difference between cost and NRV = Impairment loss on inventory on statement of financial performance
Correction: At 0.59, it should have been statement of financial position (not performance).
Step 1: Decrease in value of inventory = Impairment loss on inventory on statement of financial performance
Step 2: Minus impairment loss on inventory amount from cost of inventory to get final inventory for statement of financial position
Step 1: Record final amount estimated uncollectible as allowance for impairment of trade receivables on statement of financial performance.
Where final amount estimated uncollectible = % x Ending Trade Receivables
Step 2: Record increase in allowance for impairment of trade receivables as impairment loss on trade receivables on statement of financial performance.
Step 1: Record final amount estimated uncollectible as allowance for impairment of trade receivables on statement of financial performance.
Where final amount estimated uncollectible = % x Ending Trade Receivables
Step 2: Record decrease in allowance for impairment of trade receivables as reversal of impairment loss on trade receivables on statement of financial performance. Amount of decrease should be in bracket as it is a deduction against other expenses.
Step 1: Minus amount confirmed uncollectible from trade receivables and allowance for impairment of trade receivables.
Step 2: Record final amount estimated uncollectible as allowance for impairment of trade receivables on statement of financial performance.
Where final amount estimated uncollectible = % x Ending Trade Receivables
Step 3: Record increase / decrease in allowance for impairment of trade receivables as impairment loss on trade receivables / reversal of impairment loss on trade receivables on statement of financial performance.
This refers to a scenario where a credit customer was able to pay some of the amount owing but the remaining amount had to be written off.
Step 1: Minus amount confirmed uncollectible from trade receivables and allowance for impairment of trade receivables.
Step 2: Record final amount estimated uncollectible as allowance for impairment of trade receivables on statement of financial performance.
Where final amount estimated uncollectible = % x Ending Trade Receivables
Step 3: Record increase / decrease in allowance for impairment of trade receivables as impairment loss on trade receivables / reversal of impairment loss on trade receivables on statement of financial performance.
Step 1: Calculate interest expense incurred and use that on statement of financial performance as interest expense.
Interest expense incurred = x/12 x interest rate x Loan
x = no of months the business had the loan in the current accounting year (if question did not mention when business started borrowing, assume business had the loan for the entire accounting year)
Loan = Loan amount given in the trial balance / list of balances
Step 2: Compare interest expense incurred to interest expense paid (i.e. interest expense printed in trial balance/ list of balances)
If interest expense incurred > interest expense paid, record the difference as Interest Payable (CL).
If interest expense incurred < interest expense paid, record the difference as Prepaid Interest (CA).
Step 1: Record current portion of long-term borrowings (CPOLTB)
CPOLTB = Amount of loan/ mortgage that must be repaid in the next accounting year.
Step 2: Minus CPOLTB from loan/ mortgage amount to get long-term borrowings.
Step 1: Calculate the amount of dividends declared where,
dividends declared = total no of pieces of shares issued x dividend rate
Step 2: Minus amount of dividends declared when calculating ending retained earnings
Step 3: Record Dividends Payable (CL) if dividends was not yet paid at the end of the accounting year
Ending Retained Earnings on Statement of Financial Position
= Beginning retained earnings (given in the list of balances/ trial balance)
add Profit for the year (or minus Loss for the year)
minus dividends declared