Income Statement (Edexcel IGCSE Accounting)
Revision Note
Written by: Donna Simpson
Reviewed by: Dan Finlay
Income Statement for Partnerships
What is the layout of the income statement of a partnership?
The income statement for a partnership is very similar to that for a sole trader
The following do not appear on the income statement
Interest on partners' capital
Interest on partners' drawings
Partners' salaries
The interest on a partner’s loan is included as an expense on the income statement
Worked Example
Tam and Pan are in partnership providing car repair services in their local area. The following is a list of their balances for the year ended 30 June 2023.
| $ |
Income from repair services | 101 260 |
Salaries of employees | 30 400 |
Electricity | 2 420 |
Telephone | 3 110 |
Rent and rates | 10 000 |
Trade payables | 12 190 |
Trade receivables | 14 220 |
Discount allowed | 1 400 |
Office expenses | 10 610 |
Supplies for repairs | 41 570 |
Irrecoverable debts | 1 200 |
Machinery and Equipment at cost | 52 000 |
Provision for depreciation on machinery and equipment | 20 800 |
Tam:
|
60 000 430 20 600 |
Pan
|
30 000 300 15 700 |
Bank | 21 750 |
Additional information 30 June 2023:
Depreciate the office equipment at 20% per year using the straight-line method
On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum
Pan is to receive an annual partnership salary of $12 000
Remaining profits and losses are shared as follows: Tan ⅔, Pam ⅓
5% interest is allowed on partners’ capital accounts
10% interest is charged on partners’ drawings
Prepare the income statement for Tam and Pan for the year ended 30 June 2023.
Answer
Identify which balances affect the income statement.
| $ | Income statement? |
Income from repair services | 101 260 | IS |
Salaries of employees | 30 400 | IS |
Electricity | 2 420 | IS |
Telephone | 3 110 | IS |
Rent and rates | 10 000 | IS |
Trade payables | 12 190 | |
Trade receivables | 14 220 | |
Discount allowed | 1 400 | IS |
Office expenses | 10 610 | IS |
Supplies for repairs | 41 570 | IS |
Irrecoverable debts | 1 200 | IS |
Machinery and Equipment at cost | 52 000 | |
Provision for depreciation on machinery and equipment | 20 800 | |
Tam:
|
60 000 430 20 600 | |
Pan
|
30 000 300 15 700 | |
Bank | 21 750 |
Deal with the additional information.
Depreciate the machinery and equipment at 20% per year using the straight-line method
Find the year's depreciation by multiplying the cost by 20%
$52 000 × 20% = $10 400
On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum
Find the year's interest by multiplying the loan amount by 5%
$5 000 × 5% = $250
Pan is to receive an annual partnership salary of $12 000
This does not affect the income statement
Remaining profits and losses are shared as follows: Tan ⅔, Pam ⅓
This does not affect the income statement
5% interest is allowed on partners’ capital accounts
This does not affect the income statement
10% interest is charged on partners’ drawings
This does not affect the income statement
Prepare the income statement using the required format. Note that it is a service business so will not have a trading section.
Tam and Pan Income Statement for the year ended 30 June 2023 | ||
$ | $ | |
Income from repair services | 101 260 | |
Expenses | ||
Supplies for repairs | 41 570 | |
Salaries | 30 400 | |
Offices expenses | 10 610 | |
Irrecoverable debts | 1 200 | |
Rent and rates | 10 000 | |
Electricity | 2 420 | |
Telephone | 3 110 | |
Discount allowed | 1 400 | |
Depreciation on machinery and equipment | 10 400 | |
Loan interest (Pan) | 250 | |
(111 360) | ||
Loss for the year | (10 100) | |
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