The equity of Paul’s business belongs to him because he is the sole owner of the business. Can you explain how the figure for equity by Thursday evening has arisen? You will need to look back at the events of Monday, Tuesday and Wednesday to do this.

Statement of cash flows for Monday

£

Opening balance (cash introduced)…………40

Cash from sales of wrapping paper ………...45

Cash paid to buy wrapping paper…………..(40)

Closing balance of cash……………………...45

Income statement (profit and loss account) for Monday

£

Sales revenue………………………………....45

Cost of goods sold (3/4 of £40)……………..(30)

Profit…………………………………………....15

Statement of financial position (balance sheet) as at Monday evening

£

Cash (closing balance)………………………..45

Inventories of goods for resale (1/4 of £40)...10

Total assets………………………………….....55

Equity……………………………………….......55

Statement of cash flows for Tuesday

£

Opening balance (from Monday evening)......45

Cash from sales of wrapping paper………....48

Cash paid to buy wrapping paper.................(20)

Closing balance.............................................73

Income statement for Tuesday

£

Sales revenue...............................................48

Cost of goods sold (£20 +£10).....................(30)

Profit..............................................................18

Statement of financial position as at Tuesday evening

£

Cash (closing balance)..................................73

Inventories.....................................................  –

Total assets....................................................73

Equity.............................................................73

Statement of cash flows for Wednesday

£

Opening balance (from Tuesday evening).....73

Cash from sales of wrapping paper...............32

Cash paid to buy wrapping paper.................(46)

Closing balance.............................................59

Income statement for Wednesday

£

Sales revenue...............................................32

Cost of goods sold (1/2 of £46)....................(23)

Profit................................................................9

Statement of financial position as at Wednesday evening

£

Cash (closing balance)..................................59

Inventories (1/2 of £46)..................................23

Total assets....................................................82

Equity.............................................................82