Building Services is a local business

Ken Kennett Building Services is a local business operating in the housing industry. Ken Kennett has no formal accounting system and does not use financial statements for decision making. However, he is negotiating a contract with a supplier of building materials who wants to see his financial statements to ensure that Ken can meet his payments each month. Ken has asked you to prepare financial statements. Based on his last tax return and the content of his shoebox (where he keeps his invoices and receipts) for this year, you have recorded the following items:

Cash in the shoebox (with the receipts and invoices)$500
Cash in the bank account3,800
Building services provided550,000
Amounts owed by customers80,000
Wages paid to employees150,000
Wages owed to the employees3,500
Equipment68,000
Building supplies used310,000
Building supplies on hand18,000
Amounts owed to suppliers30,000
Motor vehicle32,000
Motor vehicle expenses5,600
Electricity and telephone expenses4,000
Cash used by Ken for personal expenditure5,700

REQUIRED:

  1. Using the information above, prepare a statement of financial performance (income statement) and a statement of financial position (balance sheet) forKen Kennett Building Services.
  2. How would the financial statements you provide help the supplier of building materials decide whether or not to trade with Ken? What parts of the financial statements would be positive indicators that Ken Kennett Building Services would be able to pay for supplies on time and what items may cause some concern for the suppliers?

Question-2

Clive Calmer offers accounting services to the local small business owners! He has set up a sole proprietorship business named CC Accounting. Clive has collected the following information relating to his business activities at the end of financial year:

Office supplies$1,500
Office supplies expense840
Telephone expense255
Motor vehicle expense330
Accounts receivable1,500
Bank loan7,500
Accounts payable1,080
Cash at bank8,445
Computer equipment8,250
Advertising expense510
Accounting service income9,750

The following information was also disclosed from examining Clive’s bank statement:

Accounting service income receipts$8,250
Initial contribution by Clive3,300
Bank loan received9,000
Payments to suppliers2,355
Repayment of loan1,500
Computer equipment purchase8,250

REQUIRED:

A. Without preparing formal financial statements, calculate the following:

  1. Profit/loss for the year
  2. Total assets at the end of the year
  3. Total liabilities at the end of the year
  4. Clive Calmer’s capital balance at the end of the year
  5. Net cash inflow/outflow for the year

B. If Clive had withdrawn $3,000 in cash during the year, what effect would this have (increase, decrease, no effect) on the figures you calculated in requirement A?

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