Income Statement for Leak-Stoppers LLC for the Year Ended 31st December 2013 - Essay Example

 $ $Revenue (29,863+3,418) 33,281Materials (9600-580) 9020Rent (300/12*9) 225Salary 3000Rates (180/16*12) 135Yard amortization 488Plumbing equipment depreciation expense (4,800/5) 960Motor expenses 912Van Depreciation (3,600/4) 900General expenses (1349 + 295) 1644Insurance premium (800/16*12) 600Electricity expenses (1122/9*3) + 1122 1496Bad debts w/o (29,863-25,613)* 10% 425Accountancy Fees 250Loan interest 300Total operating expenses 20,355Net Profit/net income 12,926 Leak-Stoppers LLCBalance SheetAs at 31st December 2013 $AssetsCurrent Assets Accounts Receivable (29,863-25,613)*90% 3825 Cash at bank 6084 Cash at hand 123 Prepaid expenses (rent+ insurance, 200+75) 275 Closing inventory/unused materials 580 Total current assets 10,887Non-current Assets Asset Cost Acc.

Depreciation/Amortization Book value Van 3600 900 2700 Plumbing equipment 4800 960 3840 Lease 6500 488 6,013 Total non-current assets 12,553Total Assets 23,439LiabilitiesCurrent liabilities Accounts payable 714 Interest payable (10%*4000=400/12*9) 300 Accountancy fee 250 Accrued rates (180/16*12=135) 135 Accrued electricity (1122/9=124.6667*3=374) 374Total current liabilities 1,773Long term liabilities Loan/borrowings 4,000Total liabilities 5,773Owner’s equity 17,666Total owners equity 17,666 Total liabilities and owners equity 23,439 NotesCash AccountDrCrBalanceCash takings3,418-3418Banked -2600818Drawings-family grocery-400418General expenses-123295 Bank AccountDrCrBalanceCapital 6500-6500Drawings-weekly46801820Drawings-travel2801,540Lease-office and yard6500(4,960)Rent 300(5,260)Loan-uncle Mustafa4,000(1,260)Materials8,886(10,146)Plumbing equipment4,800(14,946)Electricity expenses1,122(16,068)Motor expenses912(16,980)General expenses1,349(18,329)Insurance800(19,129)Salary 3000(22,129)Takings25,6133,484Cash banked2,6006,084 Change in Owner’s Equity AED AEDOpening capital-bank6,500Opening capital-van3,600Total opening capital10,100Add; Net profit12,92623,027Less; DrawingsTravel280Weekly4,680Family grocery4005,360Closing capital17,666ReportEconomic entity conceptEconomic entity concept states that the recorded activity of the business must be kept separate from that of the owner and any other business. Mr. Mansoor has not followed this principle to the latter since he has used the business money as a holiday trip for his wife.

Going concern conceptThe principle states that the financial statements are prepared with the assumption that the business will continue in operation for the foreseeable future. The acquiring of the lease is a good example that demonstrates the going concern concept that the business will learn for the foreseeable future of more than ten years.Accrual conceptThe accrual concept states that revenue is recognized when it is earned and realized or realizable while expenses are recognized in the period in which the related revenue is earned.

In the case of Mr. Mansoor, the insurance premium expenses can only be realized when revenue is earned and therefore the prepaid premium of 200 is subtracted from 800 to obtain premium expense of 600. Also the interest expense for the cash borrowed from Mustafa is an example of accrued expense.Matching principleThe principle states that a company should report an expense on the income statement in the same period that the related revenue is earned. For instance, the depreciation expenses for the non-current assets such as plumbing equipment and van are only recognized to the current year i.e. at the end of 2013 when they might have earned revenue.

Prudence (conservatism) conceptThe prudence concept states that the transactions that the company is uncertain about should not be overstated or understated. Mr. Mansoor has exercised the prudence concept since he has created allowance for the doubtful debts that should be written off i.e. 10% of the accounts receivable.Performance of the company in regard to the income statementSince the company was able to record a net profit of $12,926, this shows that its currents expenses are less than its revenues/income.

Therefore, the company is able to meet its short-term financial needs. Additionally, the income statement shows that the company is liquid and can be able to meet its daily/short-term needs.Balance sheetThe balance sheet reflects a snapshot of the performance of the company on a single date; it’s usually on the last date of the financial year. Judging from the income statement, the company’s financial performance as at 31st Dec 2013, the company’s current ratio i.e. current assets/current liabilities, 10,887/1,773=6.

14 shows that the company is able to pay the bills. Therefore, as at 31st Dec 2013, the company was able to meet its demands.ReferencesHorngren, C. T., Harrison Jr, W. T., Johnston, J. A. L., Meissner, C. A., & Norwood, P. R. (2013). Accounting, Volume 1. Pearson Education Canada.