Let's see transactions going through the balance sheet. In this workout, Jonathan has started a business and the transactions below are for the first quarter of operations. Draft the balance sheet at the quarter end and the income statement for the quarter using the templates provided. So for instance, we've got Jonathan adds capital to the business of 11,560. What we've got underneath that is a balance sheet template. We can see at the beginning of the year or the quarter, we've got zero balances and then we've got each of the transactions going through in their own column. We've put the capital in already. So Jonathan introduced some capital. That means your cash goes up 11,560 and your share capital goes up 11,560. If I were to go to the right-hand side, you can see that once all of those transactions go in, the balance sheet for the end of the period will be produced, and we hope that it balances.

So let's now go to the loan. With the loan, we were told that a loan is received for repayment in 10 years of 6,358.

At this point, you may want to pause and have a go on your own and then come back for the debrief.

So the 6,358, how is that going to affect our balance sheets? Well, first of all, it's going to mean that your cash goes up by 6,358.

We then need to work out what's the other half of the balance sheet formula going to be? And it's going to be long-term debt. Our long-term debt will go up by the same amount. So assets go up, liabilities and equity go up. Now let's move on to machinery. The next one, machinery and vehicles were purchased for cash, 5,780. So that means my cash is going to go down and my property, plant, and equipment is going to go up. So cash goes down and my property, plant, and equipment goes up, not down. So asset down, asset goes up. The two of them offset. My balance sheet formula is still balanced. Let's look at the next one now. The next one is salaries. That's going to affect our income statements because salaries are an income statement expense. Salaries were paid in cash of 988.3. So I know that my cash is going to go down by 988.3.

I now need to find the other half of that transaction. As it's an income statement item, my expense on the income statement goes up, my profit on the income statement goes down. That means my retained earnings is going to go down as well. So again, assets go down 988.3 and retained earnings goes down 988.3. Onto commission, if we have a read of the commission, commission was paid of 98.2. We need that to go through, so first of all, we need to work out what's happened. My cash will certainly have gone down by the 98.2 and because again, that is an income statement item, that is an expense on the income statements. The same thing will happen here has happened with the salaries. Retained earnings goes down.

Now the next item refers to purchases. Let's see what's been said here. Products were purchased for cash, intended for resale. Well, I think that's going to be inventory. So we're going to have spent 5,202 of cash, cash goes down, but my inventory will go up 5,202.

My assets went down and went up. Balance sheet formula still balances.

The next item, products in the store were sold on credit. Fantastic, so if it's sold on credit, that means my accounts receivable will go up. But again, it's been sold. That's going to hit the income statements. That's going to be a positive on our retained earnings. Income statement sales go up. Income statement profits go up. Balance sheet retained earnings go up. The next item, it tells us that the product sold above, IE, the 8565.9, they originally cost 3,577.8. This means that some of my inventory has been sold. I need to reduce that inventory by 3577.8. Because it's been sold, where does it go? To the income statements. So my income statement expenses or cost of sales will have gone up. My income statement's profits go down. My retained earnings goes down as well. The next item is marketing and with marketing we've got a bill received and paid in cash of 306.3. So my cash will definitely go down 306.3. Marketing is an income statement item again, so my retained earnings will go down as well.

A similar thing happens with advertising. So if we have a look at our advertising, it says advertising expenses paid in cash. So again, cash will go down and my retained earnings will go down as well. Interest again is an income statement item. The amount was 329.4, so interest expense paid in cash. Again, a retained earnings item. And our last one, our tax expense, if we have a read through this, it's slightly different. The tax expense for the period, unpaid at the quarter end so it's not going to be cashed down. What we're going to have to do here is actually us owing some money and that's going to be our taxes payable. Taxes payable, so that's going to go up by 219.6 and if an expense goes up, that means our profits go down. So our retained earnings goes down. So liability went up, equity down, liabilities and equity overall offsets. If we now have a look at our finished balance sheet, we can see our total assets are 20,987.4. Total liabilities and equity is exactly the same figure and our balance sheet check at the bottom is a zero. All of the transactions have gone through. We made sure that balance sheet balanced for each transaction individually which means the balance sheet overall balances.

What we still need to do is the income statements. So let's scroll down. We see it here on the left-hand side. We're going to have to go and find all of these items such as sales, cost of sales, selling general admin from what we've done in the balance sheet further up the page. Let's do sales, so I'm in cell C44. I'm going to press equals and what I need to do now is go and find the item that was the sales. It's not capital, it's not the loan. But if we keep going across, we've got the product sales there. Now as a nice tip here, each of the items that go into the income statements are gonna come from the retained earnings line. So I'm going to put the 8565.9 into my income statements. So let's move on to the cost of sales. I press equals again. I need to go and find the correct category, so scroll up, have a quick look, and we've got product costs, quite literally the cost of sales. So I scroll down, find that item in the retained earnings line, got it. Now tip for you here for selling general and admin. We've got four items we need to include. So again, go back up to the various items.

I'm going to include here salaries, commission, marketing, and advertising. So let's add them all up, G36, H36. Scroll a little to the right. L36 and M36 as well.

Now to calculate my operating profit, I need to take my sales less my cost of sales less SG&A. They're already shown as negatives, so I can just sum them up.

A few more items. First one is interest. My interest is going to be all the way over in column N and just show that's the interest there, 329.4. My profit before tax is now operating profits less the interest expense, so again, I can just sum those two items. Taxes all the way over on the right-hand side in column O.

It was 219.6. And then my net income, again, the sum of the two items above. Now when we finished the balance sheet, we kind of knew it was correct because the balance sheet balanced or at least that's a really good indicator. But is there a similar check in the income statements? Well, with a relatively simple income statement like this, yes, there is. What I should see is that my retained earnings should change, in this case from zero, if I scroll all the way to the right to 2849.8.

Now that change should be exactly the same as our net income, and it is.