This question requires you to prepare an Income statement, but then also brings in the preparation of the associated balance sheet. In this way it aims to integrate your study of Chapters 2 and 3. Note that any retained profit that you calculate in the Income Statement should appear in the Balance Sheet as ‘Reserves’, included immediately after share capital.

Use the following balances of Tayside Glass Ltd to prepare an Income Statement for its first year of trading, which ended on 31 March 20X9 and the associated balance sheet at that date. You will first need to identify which items relate to the income statement and which to the balance sheet.

There was no opening inventory, since this was the first year of trading. The closing inventory was valued at £4,200.

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Sales 80,007 Purchases 62,419 Debtors 1,215 Creditors 1,630 Rent Telephone Delivery van Wages 4,600 627 4,000 9,650 Share capital 10,000 Light and heat 1,629 Office expenses 1,127 Bank-positive balance 370 Shop fittings 6,000