DIT 302: FINANCIAL MANAGEMENT FOR IT
TOPIC 4: BASIC FINANCIAL STATEMENTS
KCA University — Exam Summary Notes
4.1 INCOME STATEMENT (Trading, Profit & Loss Account)
The income statement shows revenue earned and expenses incurred to determine profit or loss.
FORMAT — Income Statement:
Item Ksh Ksh Ksh
Sales/Revenue XXX
Less: Return Inwards (Sales (XX)
Returns)
NET SALES XXX
Less: Cost of Sales:
Opening Stock XX
Add: Purchases XX
Add: Carriage Inwards XX
Less: Return Outwards (Purchase (XX)
Returns)
Less: Closing Stock (XX) XX
GROSS PROFIT XXX
Less: Expenses:
Rent expense XX
Salaries & wages XX
Electricity XX
Insurance XX
Carriage Outwards XX
Depreciation XX XX
NET PROFIT / (LOSS) XXX / (XX)
Key Rules:
• Return INWARDS (Sales Returns) — deducted from Sales
• Return OUTWARDS (Purchase Returns) — deducted from Purchases in Cost of Sales
• Carriage INWARDS — added to cost of sales (cost of bringing goods in)
• Carriage OUTWARDS — treated as an EXPENSE in P&L section
• Discount ALLOWED — treated as an EXPENSE
• Discount RECEIVED — treated as INCOME (added to Gross Profit)
• Rent INCOME — treated as INCOME (added to Gross Profit)
4.2 STATEMENT OF FINANCIAL POSITION (Balance Sheet)
Shows the financial position of a business at a specific date using: Assets = Capital + Liabilities
FORMAT — Balance Sheet:
Item Ksh Ksh
NON-CURRENT ASSETS (Fixed Assets)
Land XX
Buildings (Less: Accumulated Depreciation) XX
Motor Vehicles (Less: Accumulated XX
Depreciation)
Equipment (Less: Accumulated Depreciation) XX
TOTAL NON-CURRENT ASSETS XXX
CURRENT ASSETS
Closing Stock/Inventory XX
Trade Receivables (Debtors) XX
Less: Provision for Bad Debts (XX)
Prepaid Expenses XX
Bank Balance XX
Cash in Hand XX XX
TOTAL ASSETS XXX
CURRENT LIABILITIES
Trade Payables (Creditors) XX
Accrued Expenses XX XX
NON-CURRENT LIABILITIES
Long-term Loan XX
TOTAL LIABILITIES XXX
FINANCED BY (Capital Section)
Opening Capital XX
Add: Net Profit XX
Less: Net Loss (XX)
Less: Drawings (XX) XX
TOTAL LIABILITIES + CAPITAL XXX
4.3 WORKED EXAMPLE — FROM TRIAL BALANCE
Trial Balance of Alden Traders (31 May 2025) — Figures in Ksh '000:
Item DR (Ksh '000) CR (Ksh '000)
Stock 1 May 2024 41,600
Carriage Outwards 2,100
Carriage Inwards 3,700
Return Inwards 1,540
Return Outwards 3,410
Purchases 188,430
Sales 380,400
Salaries & Wages 61,400
Warehouse Rent 3,700
Insurance 1,356
Motor Expenses 1,910
Premises 92,000
Motor Vehicles 13,400
Fixtures & Fittings 1,900
Debtors 42,560
Creditors 31,600
Cash at Bank 5,106
Drawings 22,000
Capital 68,843
TOTAL 484,253 484,253
Closing Stock at 31 May 2025: Ksh.44,780,000
INCOME STATEMENT:
Item Ksh '000 Ksh '000 Ksh '000
Sales 380,400
Less: Return Inwards (1,540)
Net Sales 378,860
Opening Stock 41,600
Add: Purchases 188,430
Add: Carriage Inwards 3,700
Less: Return Outwards (3,410)
Less: Closing Stock (44,780) (185,540)
GROSS PROFIT 193,320
Carriage Outwards 2,100
Salaries & Wages 61,400
Warehouse Rent 3,700
Insurance 1,356
Motor Expenses 1,910
Total Expenses (72,017)
NET PROFIT 121,303
BALANCE SHEET:
Item Ksh '000 Ksh '000
NON-CURRENT ASSETS
Premises 92,000
Motor Vehicle 13,400
Fixtures & Fittings 1,900
Total NCA 107,300
CURRENT ASSETS
Closing Stock 44,780
Debtors 42,560
Cash & Bank 5,106 92,446
TOTAL ASSETS 199,746
CURRENT LIABILITIES
Creditors 31,600
FINANCED BY
Capital 68,843
Add: Net Profit 121,303
Less: Drawings (22,000) 168,146
TOTAL LIABILITIES + CAPITAL 199,746
EXAM PRACTICE — TOPIC 4
Q1. Prepare an Income Statement and Balance Sheet from the following Trial Balance of
PEMWA Traders (31 Dec 2021):
DR: Inventory 1,816,000 | Purchases 6,918,500 | Carriage Inwards 42,000 | Carriage Outwards
157,000
DR: Salaries 1,024,000 | Rent 301,500 | Advertising 62,400 | Commission Expense 21,600
DR: Insurance 40,500 | Sundry Expense 31,800 | Buildings 2,000,000 | Debtors 1,432,000
DR: Fixtures 285,000 | Cash in Hand 11,500 | Bank 297,000 | Drawings 762,000
CR: Sales 9,234,000 | Return Outwards 64,000 | Rent Income 88,800 | Creditors 816,000 | Capital
5,000,000
Adjustments: (1) Closing stock Ksh.500,000 (2) Depreciation: Buildings 25% on cost; Fixtures 15%
on cost
(3) Rent income prepaid Ksh.800; Advertising prepaid Ksh.400; Sundry expenses accrued Ksh.200
(4) Bad debts written off Ksh.32,000 (20 marks)