Assets And Liabilities

Notice that some of the items of expenditure in the receipts and payments statement above (those marked *) are capital expenditure, not revenue expenditure, since they have resulted in the acquisition of capital assets (motorbike and radio), or of investments (payments to building society and index-linked SAYE). In properly constructed accounts such items would not have appeared in an income and expenditure account but in the balance sheet, which is a statement of all assets owned and liabilities owed. In this case the relevant balance sheet would look like the following, if we accept that the two capital assets purchased have lost value (depreciated) since their purchase by 20%. Relevant figures at the beginning of the year are shown in brackets for comparison.

Balance sheet at end of year

Liabilities £ Assets

HP debt Motorbike at

(4 x £40 cost £480

instalments - less Depreciation

160 (nil) at 20% £96 384 (nil)

Capital account Radio set at

opening cost £305

balance £3030

add Excess of

income over less Depreciation £7 28 (nil)

revenue expen- Building

diture society share

£552 882 (330) account 440 (200)

1,042 SAYE (index-linked) 100 (nil)

Balance at bank 90 (130)


Now we must reconstruct the receipts and payments statement and present it in the proper form of an income and expenditure account. Capital spending has been removed, and a charge for depreciation introduced.

Part Five - Financial Statements

Income and expenditure accounts and balance sheets

Personal accounts

It is a salutary exercise to work out your personal budget over a period of, say, a year. A budget is merely a list of all items of income to be received and cash to be paid - in other words, it is an estimate of what your receipts and payments account would look like at the end of a year. Planning a budget can be a very useful device for judging what you can and cannot afford to buy.

A young man or woman just starting work at 18 or 19 might rough out figures on the following lines. Although the figure... see: Part Five - Financial Statements

Personal And Business Finance 2018

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