Diploma of Higher Education in Accounting

ACCA F3 – Financial Accounting

Session 1a – Introduction and the Balance Sheet Equation

Lecture – Discussion points:

 Business and the financial reporting environment

 Capitalism (Assets, wealth and income)

 Economic reality:
(Trade – buying and selling – Economic supply and demand - Competition)
 Government and legal aspects

 Financial report users – Stakeholders – The requirement for information

 Owners
 Managers / employees
 Customers / suppliers / banks
 Government / Accounting supervisory bodies
 Analysts / the public / you and me
 Clear communication is vital

 Accountants are people as well

 Motivation and behaviour

 The X factor
 The practice of accounting – Lecturers and students

 Financial reports – Balance sheet equation:

 Balance sheet
(Fundamental financial report – The entity principle and money measurement convention)
 Assets
 Liabilities
 Capital
 C=A–L

SDQ 1.1:

a. If A = £14,650 and L = £5,170, establish C

b. If C = £8,000 and L = £4,500, calculate A

c. If A = £25,000 and C = £15,000, calculate L

d. Explain the financial aspects of the data provided and your solution to SDQ 1.1 c. above

ACCA F3 (01a) – Page 1

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation

 Fundamental Financial reports – The balance sheet analysis (sole trader):

 Assets (Fixed and current)

 Liabilities (long – term and current)
 Capital (B/fwd + profit – drawings)
 Financial reporting (Importance of report titles)

Andrews
Balance sheet as at 31st March
£ £
Fixed assets 10,000
Current assets:
Stock 1,250
Debtors 3,250
Bank 800
Cash 40
5,340
Current liabilities:
Creditors 2,340
(2,340)
Working capital: 3,000
Total assets less current liabilities: 13,000
Long - term liabilities:
Long - term loans (3,500)
Net Assets: 9,500

Andrews - Capital Account

Balance B/d 7,500
Add net profit 4,000
Less drawings (2,000)
Balance c/d: 9,500

 Debits and Credits (Balances on account):

 Debits (Assets and expenditures)

 Credits (Incomes, liabilities and capital)

ACCA F3 (01a) – Page 2

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation

SDQ 1.2:

From the data provided below, construct the balance sheet of Charles as at 30th September

Dr Cr
£ £
Stock 3,200
Cash 80
Charles capital account (Balance B/d) 20,000
Net profit for the period 8,000
Trade creditors 4,700
Bank 1,800
Fixed assets 24,000
Long – term loans 8,000
Trade debtors 7,620
Drawings for the period 4,000
40,700 40,700

Note:
You may use the format / layout below for your solution to SDQ 1.2
Do not forget to clearly title your financial report

£ £
Fixed assets
Current assets:
Stock
Trade debtors
Bank
Cash

Current liabilities:
Trade creditors
Bank overdraft

Working capital:
Total assets less current liabilities:
Long - term liabilities:
Long - term loans
Net Assets:

Charles - Capital Account

Balance B/d
Add net profit
Less drawings
Balance c/d:

ACCA F3 (01a) – Page 3

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation

SDQ 1.3:

The information below relates to the business of Fallows as at 31st December

 Customer account outstanding balances receivable are £18,000 and the business bank account
is overdrawn by £4,200

 The business has long – term assets (not for resale purposes) that are valued at £80,000

 The business has long – term debts of £20,000 and Fallows’ capital account balance at the
start of the period was £60,000

 Supplier account balances due and payable are £12,500 and business has a cash account
balance of £200

 For the period under review, the business made profits of £30,000 and Fallows withdrew
£18,500 for her own private use

 Short – term assets immediately available for resale are valued at £10,000

Required:

From the information provided above, construct the balance sheet of Fallows as at 31st December

Note:
You should use the formats previously provided for your balance layout.
Remember the importance of clearly communicating financial information

ACCA F3 (01a) – Page 4

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation

Tutorial exercise:

The asset and liability data below relates to the business of Stephens as at 31st October

Dr Cr
£ £
Net profit for the period 14,000
Cash 200
Stock 5,500
Bank account 2,500
Stephens capital account: Balance B/d 28,000
Trade debtors 10,500
Stephens: Drawings for the period 8,000
Fixed assets 37,500
Trade creditors 5,200
61,700 49,700

Required:

From the data provided, construct (in a good presentational style) the balance sheet of Stephens as at
31st October.

Important note:
The business also has a long – term bank loan that has been omitted from the list. You should derive
this value using the equation C = A – L

Note – Included in ALL tutorial work:

 Read around relevant chapters in text book

 Attempt all text book questions
 Discuss any issues / problems arising with lecturers

ACCA F3 (01a) – Page 5

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation

SDQ 1.3 – solution:

Fallows
Balance sheet as at 31st December
£ £
Fixed assets 80,000
Current assets:
Stock 10,000
Trade debtors 18,000
Bank 0
Cash 200
28,200
Current liabilities:
Trade creditors 12,500
Bank overdraft 4,200
(16,700)
Working capital: 11,500
Total assets less current liabilities: 91,500
Long - term liabilities:
Long - term loans (20,000)
Net Assets: 71,500

Fallows - Capital Account

Balance B/d 60,000
Add net profit 30,000
Less drawings (18,500)
Balance c/d: 71,500

ACCA F3 (01a) – Page 6

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation
Tutorial exercise – Stephens – solution:

Stephens
Balance sheet as at 31st October
£ £
Fixed assets 37,500
Current assets:
Stock 5,500
Trade debtors 10,500
Cash 200
16,200
Current liabilities:
Trade creditors 5,200
Bank overdraft 2,500
(7,700)
Working capital: 8,500
Total assets less current liabilities: 46,000
Long - term liabilities:
Long - term loans (12,000)
Net Assets: 34,000

Stephens - Capital Account

Balance B/d 28,000
Add net profit 14,000
Less drawings (8,000)
Balance c/d: 34,000

ACCA F3 (01a) – Page 7

 Diploma of Higher Education in Accounting
ACCA F3 – Financial Accounting
Session 1a – Introduction and the Balance Sheet Equation

£ £
Fixed assets
Current assets:
Stock
Trade debtors
Bank
Cash

Current liabilities:
Trade creditors
Bank overdraft

Working capital:
Total assets less current liabilities:
Long - term liabilities:
Long - term loans
Net Assets:

Capital Account
Balance B/d
Add net profit
Less drawings
Balance c/d:

ACCA F3 (01a) – Page 8