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Balancing the balance sheet!

Why won't my balance sheet balance

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Hi all,

I'm currently in the first year of an accounting course - and stuck at the first stage.

I've got a company with £10,000,000 of initial capital.

Throughout the year, it loses a total £610216, and buys £10 worth of plant and machinery (included in this figure).

My balance sheet shows the cash current assets, along with the non-current assets of the plant/machinery.

But... it won't balance!! What am I doing wrong here!

I've attached the balance sheet - any help would be really really appreciated.screenshot_2020-02-14_at_14.43.49.png

Many thanks,

Tom

Replies (11)

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By Wanderer
14th Feb 2020 15:04

The £10 shouldn't be included in the £610,216, or more likely a £10 piece of plant & machinery wouldn't be shown as an asset in the balance sheet.

Thanks (1)
Replying to Wanderer:
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By Sandnickel
14th Feb 2020 15:03

Wanderer wrote:

The £10 shouldn't be included in the £610,216.

Or it shouldn't be in the fixed assets.

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Replying to Sandnickel:
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By Wanderer
14th Feb 2020 15:05

Yep, was making that point at the same time as your reply.

Thanks (1)
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By teejay091
14th Feb 2020 16:34

Thanks all. But if the £10 shouldn’t be in the retained earnings (which is the loss), then how will we account for the cash that was used to purchase it?

The way I see it is this:
We lost £610216 and £10 of that was the purchase price of the fixed asset. So the cash available is £610216 less. If I were to just add £10 to that figure, the retained earnings figure wouldn’t be right as £10 has been used to purchase a fixed asset?

Thanks (0)
Replying to teejay091:
Hallerud at Easter
By DJKL
14th Feb 2020 16:50

Because the expenditure of £10 is a Debit, Dr Something Cr Bank,it is either a Debit to fixed assets or a debit to expenses, but cannot be both at the same time.

You really need to get back to the five types of accounts and what debits and credits do to each type.

If you Debit Fixed assets £10 you have not debited expenses £10 or if all costs of £610,216 were first debited to expenses and we need to correct we Dr Fixed Assets £10 Cr expenses £10, so a credit to expenses reduces the expenses and therefore reduces the loss for the year.

Thanks (1)
Replying to teejay091:
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By TeeHassan
14th Feb 2020 16:50

You're double counting the £10.

it's either:

1) A fixed asset
CR Cash £10
DR Fixed Assets £10

or

2) It's an expense
CR Cash £10
DR P&L/Retained Earnings £10

Thanks (2)
By JPK
14th Feb 2020 16:38

The key to this is understanding the difference between capital and revenue transactions.

Thanks (1)
RLI
By lionofludesch
14th Feb 2020 17:42

Who capitalises £10 of fixed assets ?

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
14th Feb 2020 18:03

Textbook authors

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Replying to DJKL:
RLI
By lionofludesch
15th Feb 2020 17:54

Oh aye.

They do.

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By teejay091
15th Feb 2020 17:45

Hi all. Thanks so much for your answers, got it sorted now!

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