Faculty of Engineering & Technology

Bachelor of Engineering

6MA011 Economic, Social, Ethical &

Environmental

KAPILA KHEMARATNE
Financial Statements
Accounting Equation:
Assets = Liabilities + Owner’s (Shareholders’) equity
1. Investment by owner
John begins business by depositing Rs. 200,000.00 in a bank accounting in
the name of Silva Consultancy Services. First Balance sheet of the new
company will show the cash assets as well as the investment (capital) of
the owner.
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Cash 200,000 John Silva, Capital 200,000
Liabilities:
(none) -----
----------- -----------
Total Assets 200,000 Total Liabilities
======= & Owner’s Equity : 200,000
=======
2. Purchase of an Asset for cash
John purchased a small plot of land for Rs. 50,000 & constructed a
building for Rs. 120,000.
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 200,000
Building 120,000
Cash 30,000 Liabilities:
(none) -----
----------- -----------
Total Assets 200,000 Total Liabilities
======= & Owner’s Equity : 200,000
=======
3. Purchase of an assets on credit
John next buys office equipment for Rs. 20,000 with an agreement to pay for
it in five equal installment of Rs. 4,000 each month. This transaction
increases both assets (equipment) and liabilities (accounts payable or debts
of the company).
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 200,000
Building 120,000
Equipment 20,000 Liabilities:
Cash 30,000 Accounts payable 20,000

----------- -----------
Total Assets 220,000 Total Liabilities
======= & Owner’s Equity : 220,000
=======
4. Payment of a liability
John paid the first installment for the equipment. This transaction
reduces both assets (cash) & liabilities (accounts payable).
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 200,000
Building 120,000
Equipment 20,000 Liabilities:
Cash 26,000 Accounts payable 16,000

----------- -----------
Total Assets 216,000 Total Liabilities
======= & Owner’s Equity : 216,000
=======
5. Sales of an asset for cash
Some of the equipment purchased costing Rs. 2,000 were found to be
unnecessary. These were sold off for Rs. 2,000 cash. This transaction
affects two assets, cash & equipment, but total assets remain
unchanged.
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 200,000
Building 120,000
Equipment 18,000 Liabilities:
Cash 28,000 Accounts payable 16,000

----------- -----------
Total Assets 216,000 Total Liabilities
======= & Owner’s Equity : 216,000
=======
6. Sale of an asset on credit
Another item of equipment costing Rs.3,000, was found to be
unnecessary. This was sold to a second hand equipment dealer for Rs.
3,000 who agreed to settle the amount in two equal installments.
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 200,000
Building 120,000
Equipment 15,000 Liabilities:
Account receivable 3,000 Accounts payable 16,000
Cash 28,000
----------- -----------
Total Assets 216,000 Total Liabilities
======= & Owner’s Equity : 216,000
=======
7. Collection of account receivable
The second hand dealer has settled the first installment of Rs. 1,500.
this transaction affects two assets, increase in cash & a reduction in
account receivable.
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 200,000
Building 120,000
Equipment 15,000 Liabilities:
Account receivable 1,500 Accounts payable 16,000
Cash 29,500
----------- -----------
Total Assets 216,000 Total Liabilities
======= & Owner’s Equity : 216,000
=======
8. Revenues
John Silva provides some consultancy services & collect Rs. 10,000 as
fees. This transaction increases both assets (cash) & owner’s equity (J.
Silva’s capital).
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 210,000
Building 120,000
Equipment 15,000 Liabilities:
Account receivable 1,500 Accounts payable 16,000
Cash 39,500
----------- -----------
Total Assets 226,000 Total Liabilities
======= & Owner’s Equity : 226,000
=======
9. Expenses
The company pays expenses of Rs. 3,000 incurred as wages for a typist
respect of the above consultancy work. This transaction decreases the
owner’s equity & asset (cash).
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 207,000
Building 120,000
Equipment 15,000 Liabilities:
Account receivable 1,500 Accounts payable 16,000
Cash 36,500
----------- -----------
Total Assets 223,000 Total Liabilities
======= & Owner’s Equity : 223,000
=======
10. Withdrawal by owner
John withdraws Rs. 6,000 from the business to pay his own living
expenses. Withdrawals have the effect of assets (cash) & owner’s
equity of Silva (capital).
Silva Consultancy services
Balance sheet as at DD,MM,YY
Assets: Rs. Owner’s Equity: Rs.
Land 50,000 John Silva, Capital 201,000
Building 120,000
Equipment 15,000 Liabilities:
Account receivable 1,500 Accounts payable 16,000
Cash 30,500
----------- -----------
Total Assets 217,000 Total Liabilities
======= & Owner’s Equity : 217,000
=======