(a) Harold Davies is the proprietor of a small building firm. He does not understand the term ‘balance sheet’ and asks you to explain to him whether the following items should be on his balance sheet. Indicate the nature of the items (e.g. current asset, longterm liability, not applicable, etc.) and give the reason for your answer.

(i) stock of sand and cement;

(ii) air compressor purchased for cash;

(iii) air compressor hired for three weeks;

(iv) wages paid to labourer;

(v) lorry used for transporting materials;

(vi) diesel fuel in lorry fuel tank;

(vii) washing machine bought for Mrs Davies;

(viii) bank overdraft;

(ix) petty cash in hand;

(x) £2,000 owing to an uncle who says Harold need not pay until five years have elapsed.

Explain what effect the following transactions will have on a balance sheet to which they are late: 

(i) Shareholders invest a further £20,000 in the company.

(ii) The company buys raw material for cash £1,200.

(iii) The company buys raw material on credit £4,000.

(iv) The company pays £5,000 to its creditors.

(v) The wages payable are paid £2,000.