Income Statement (Cambridge (CIE) O Level 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 income statement for a partnership will have one new addition, for the interest on a partner’s loan
A partner may choose to lend money to the partnership
If this is the case, interest on the loan is a finance cost and an expense to the business
The following do not appear on the income statement
Interest on partners' capital
Interest on partners' drawings
Partners' salaries
You may have to make adjustments to an income statement
This is the same idea as when preparing an income statement for a sole trader
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 | |
Less: 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 | 111 110 |
Loss from operations | (9 850) | |
Less: Loan interest (Pan) | 250 | |
Loss for the year | (10 100) | |
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