UNIT 2: FINANCIAL STATEMENTS

5.1. Meaning of Financial Statement

They are final accounts prepared to find out the profit or losses made by the business at the end of the
financial or trading period. They are prepared after preparing a trial balance

It involves:
 The income Statement
 The balance sheet that shows the financial position of an enterprise
 The statement of Cash flow or Cash flow Statement
 Statement of owner’s equity

5.2. THE INCOME STATEMENT

It is a statement of the trading account and the profit and loss account. It is prepared before the balance
sheet. It is a lot of revenues and expenditures arranged so as to produce figures for gross profit and net
profit for a specific period of time.

It contains the trading account which shows the gross profit and the profit and loss account which shows
net profit of a business
 It shows the revenues (incomes) and expenditures (costs) of a business at a particular date.
 It helps to know if the business is making profit or losses
 It helps to the tax authorities to determine amount of corporate tax a business pays.

1. TRADING ACCOUNT

It is the account in which gross profit or loss on trading is calculated taking into account purchases and
sales. It is prepared after a trial balance

Gross profit: is the excess of sales over the cost of goods sold before paying off the operating expenses.
Gross profit= Net sales- Cost of goods sold
1. Components of the Trading Account

Opening Stock: Value of the unsold goods available in the business at the beginning of a new trading
period.
It may include: stock of raw materials, semi- finished goods and finished goods.
It is shown on the debit side of trading account
Purchases: refers to the purchase of finished goods for resale in the case of trading concern and the
purchase of raw materials in the case of manufacturing concern.
Page 1 of 40
It is shown on the debit side of trading account
Purchase Returns (Returns Outwards): Goods previously bought by the business or entrepreneur but
have been returned to the supplier. Net purchase= Purchase – Purchase returns
Direct Expenses added to the purchases:
 Carriage inwards: There are transport costs incurred to bring the goods in business. Carriage,
cartage and freight paid for bringing the goods are considered as carriage inwards.
They are added to the purchase in trading account
 Wages: Wages and salaries paid to workers may be treated as direct expenditures and debited to
trading account. They should not be debited to trading account.
 Duty and clearing: Import duty, excise duty, dock dues ,etc. paid on purchase of goods must be
debited to trading account.
 Other Direct expenses: These are expenses like factory expenses, factory rent, and factory
insurance, there are debited to trading account.
 Import duties charged on Purchases
Closing stock: Refer to the balance or stock of unsold goods remaining in the business at the end of
trading period. It is credited to the trading account or deducted on the debit side.

Sales: Value of goods sold by a business or revenue earned from selling.

Sales Returns/Returns inwards: Goods previously bought but brought back to the business by the
customers. Net sales = Sales- Sales Returns Presentation of Trading Account

Trading Account for the year ended as at 31 Dec ….

PARTICULARS Rwf Rwf

Income from Sales
XX
Sales X
Less: Sales returns XX
XX
Net Sales X
Cost of Sales
XX
Opening stock X
Add: Purchase XX
Less: Purchase returns XX
XX
Net Purchase X
Add: Direct expenses
Wages XX
Carriage inwards XX
Page 2 of 40
 Import duties XX
Cost of Goods Available for XX
Sale X
Less: Closing stock XX
Cost of Goods Sold/ Cost of XX
sales X
XX
Gross Profit X

On the debit side of trading account:

i. Opening balance;
ii. Purchase less returns;
iii. Direct expenses incurred on goods or production
Examples
1. From the following particulars relating to the firm of Raissa for year ending 31st December 2004,
prepare his trading account.
Sales 155,000
Sales returns 8,000
Purchase 140,000
Purchase returns 18,500
Carriage inwards 12,000
Warehouse Wages 10,000
Opening stock 1Jan 2004 55,000
Closing stock 31 Dec 2004 85,000

Solution
Trading account for the year ended as at 31 Dec 2004

Details / Particulars Rwf Rwf Rwf

a. Income from sales
Sales 155,000
Less: Sales returns (-) 8,000
Net sales or turnover 147,000
b. Less: Cost of Sales
Opening stock 55,000
Purchase 140,000
Add: Carriage inwards 12,000
152,000
Less: Purchase returns (-)18500

Page 3 of 40
 Net purchase 133,500
Total Goods Available for 188,500
sales
Add: warehouse wages 10,000
198,500
Less: closing stock (-) 85000
Cost of goods sold 113500
c. Gross profit 33,500

Example no 2
From the following information prepare a trading account for the year ended March 31, 2004.
Stock on 1st April 2003 20,000
Purchase 65,000
Return outwards 5,000
Sales 100,000
Return inwards 10,000
Stock on March 31, 2004 15,000
Carriage Inwards 6,000
Duty and clearing charges 4,000

Solution
Trading account for the year ended March 31 March 2004

Opening stock 20,000 Sales 100,000

add: Purchase 65,000 Less : returns inwards ( 10,000 )
Less: returns outwards (5,000) 90,000
80,000 Closing stock 15,000
Carriage inwards 6,000
Duty and clearing charges 4,000
Profit c/d 15,000
105,000 105,000
Profit b/d 15,000

EXERCISES
1. Rwanda Steel Ltd had the following information disclosed at the end of year 2013

Opening stock 600

Purchase 1,200
Sales 2,020
Direct expenses 50
Purchases returns 200
Page 4 of 40
 Closing stock 750
Sales returns 20

Required: Prepare the trading account for Rwanda Steel Ltd for the year ended 31 .12 .2013
2.On January 01.2014 URWIBUTSO Enterprise had the following information

Opening stock 18,240

Purchase 138,290
Sales 150,000
Returns inwards 2,000
Returns Outwards 1,500
Closing stock 21,360
Wages 2,500
Carriage inwards 2,000

Required: Prepare the trading account for URWIBUTSO Ese for the year ended 31 .12 .2014

2. NKUSI Enterprise had the following information at the end of December 2015

Stock at 01.12.2015 10,000

Stock at 31.12.2015 5,000
Purchases during the
month 30,000
Sales during the month 60,000
Wages 500
Returns Outwards 1,700
Carriage inwards 1,100
Returns inwards 1,200

Prepare: NKUSI’s Enterprise trading account at the end of the month

2. PROFIT AND LOSS ACCOUNT

This is the account in which net profit and net loss on trading is computed. After ascertained the gross
profit in the trading account, we add any other incomes earned in the course of trading such as discount
received, rent received, interest received, etc. Operating expenses made in running the business are
deducted from the sum to arrive at the net profit.

Net profit is therefore the excess of gross profit plus other income, over the total expenses incurred in
operating the firm for the period under review.

Net profit = Gross profit (c /d) + other income – Operating expenses

Page 5 of 40
Operating expenses fall into three major categories namely:

 Administrative expenses: comprising of office salary, and wages, office rent and rates, office
lighting, electricity and power, office stationary, telephone, insurance, etc.…
 Selling and distribution expenses: comprising motor running expenses, advertisement,
showroom and warehouse operating expenses, salesman, salaries and expenses, carriage on sales.
 General and financial expenses: Comprising of interest charges on loan and overdraft, bank
charges, discount allowed sundry or general expenses.

Format of Prof and Loss Account

PARTICULARS Rwf Rwf

Gross profit (b/d) XX

Interest received /earned XX

Commission received /earned XX

Discount received /earned XX

Rent received /earned XX

Bad debtors recovery XX

Interest on drawings XX

Total Income/ Revenues XXX

Less: OPERATING EXPENSES

Salaries XX

Travelling expenses XX

Rent and taxes XX

Printing and stationary XX

Postage and telegrams XX

Telephone charges XX

Insurance XX

Discount allowed XX

Advertisement XX

Commission allowed XX

Page 6 of 40
 Carriage outwards XX

Bad debtors XX

Depreciation XX

Interest on capital XX

Total Operating expenses XXX

Net Profit (c/ d) XXX

The profit and loss account is a continuation of the trading account and thus the gross profit is carried
down to the credit side of the profit and loss account.

Like the trading account, the profit and loss account can be prepared in either vertical or horizontal
format. Vertical, which is the most recent and recommended format is shown below.

Examples:

1. From the following information relating to the business of Muzungu Ismael, for the year ended 30
Sept 2004, prepared his profit and loss account for the year ended.

Gross Profit 420,000

Salaries 14,000
Insurance 74,000
Rent and rates 27,000
General office expense 19,000
Carriage on sales 45,000
Printing and stationary 37,000
Electricity 12,000
Postage and telephone 8,000
Discount allowed 15,000
Bank charges 1,200
Advertisement 42,000
Interest on bank Loan 2,500
Salesman's commission 32,000
Discount received 5,000
Rent received 2,700

Solution:

Page 7 of 40
 1. MUZUNGU Ismael Profit and Loss Account for the year ended 30 Sept 2004

PARTICULARS Rwf Rwf

Gross profit brought down 420,000

Discount received 5,000

Rent received 2,700

Total Income/ Revenues 427,700

Less: Operating expenditures

Salaries 14,000

Insurance 74,000

Rent and rates 27,000

General office expense 19,000

Carriage on sales 45,000

Printing and stationary 37,000

Electricity 12,000

Postage and telephone 8,000

Discount allowed 15,000

Bank charges 1,200

Advertisement 42,000

Interest on bank Loan 2,500

Salesman's commission 32,000

( 328,700
Total Operating expenses )

Net Profit (c/d) 99,000

Page 8 of 40
2. Butare General Traders disclosed the following information at the year end of December 2011

5,00
Purchases 0
7,00
Sales 0
1,00
Stock at01.12.2011 0
1,20
Stock at 31.12.2011 0
Returns Outwards 500
Sales Returns 860
Wages and Salaries 500
Rent and rates 360
Postage and
telephone 120
Stationery and
Printing 160
1,20
Rent received 0
Required: Prepare the profit and loss account for Butare General Traders for the period ending 31.12.2011
Butare General Trader’s Profit and Loss account at the year end of December 2011
PARTICULARS Rwf Rwf
Sales 7,000
Less: Sales returns 860
Net Sales 6,140
Less: Cost of Goods Sold
Opening Stock 1,000
Purchase 5,000
Less: Purchase Returns 500
Net Purchase - 4,500
Cost of Goods Available for
Sale 5,500
Less: Closing stock 1,200
Cost of Goods Sold 4,300
Gross Profit (c/d) 1,840
Gross Profit (b/d) 1,840
Add: Miscellaneous income
Rent received 1200
Gross income 3,040
Less: Operating Expenses
Wages and Salaries 500

Page 9 of 40
 Rent and rates 360
Postage and telephone 120
Stationery and Printing 160
Total Operating Expenses 1140
Net Profit 1,900

EXERCISES

1. The following information was obtained from the business of KWITONDA as at 31.12.2012

Gross Profit 4,500

Discount allowed 120
Discount allowed 200
Interest received 900
Repairs 600
Salaries and wages 1,800
Rent income 700
Insurance Premium 560
Electricity Charges 100
Transport 340
Carriage outwards 250
Discount received 220

Required: Prepare KWITONDA’s Profit and loss account for the year ended 31.12 .2012
2. The following information were obtained from INYANGE Ltd Enterprise records as at November
2016
Sales 2,000,000
Sales Returns 800,000
Returns inwards 50,000
Wages 100,000
Carriage Outwards 80,000
Returns Outwards 60,000
Stock at start 440,000
Salaries 480,000
Transport 64,000
Depreciation on motor vehicle 30,000
Discount received 180,000

Discount allowed 70,000

Page 10 of 40
Rent income 110,000
Closing stock 590,000

Required: Prepare INYANGE Ltd ‘s Profit and loss account for the year ended 31.11.2016

PARTICULARS Rwf Rwf

2,000,00
Sales 0
Sales Returns/ returns inwards 50,000
1,950,00
Net sales 0
Less Cost of sales
Opening stock 400,000
Add: Purchase 880,000
Wages 100,000 900,000
1,300,00
0 ACCRUALS / OUTSTANDING
Less Returns Outwards 60,000 AND PREPAYMENT
Cost of Goods Available for 1,240,00 ADVANCES
sale 0
1. Accruals / Outstanding
Less: Closing stock 590,000
Areas
Cost of Sales 650,000
These are expenses due but
1,300,00
Gross Profit 0 not yet paid for. So they are
added to other expenses in the
Add: other Income
Profit and Loss account, and
Discount received 180,000 other expenses added to
Rent income 110,000 current liabilities in the
1,590,00 balances sheet.
Gross Income 0
2. Prepayment or Payments in
Less: Operating expenses Advance
Salaries 480,000
These are expenses paid for
Depreciation on motor vehicle 30,000
before the period for their
Transport 64,000
payment matures. For example,
Carriage outwards 80,000 salaries paid in advance. Payment
Discount allowed 70,000 in advance is an asset to the
Total expenses 724,000 business.
Net Profit 866,000
3. Depreciation:
It refers to the loss in value of
a fixed asset. It is considered as an expense and added to other expenses in the Profit and Loss
account.

Page 11 of 40
5.3. BALANCE SHEET

It also refers to a list of balances arranged by value of assets, capital and liabilities to show the financial
position on a specific date.

This is a list or sheet of the balance of all real and personal accounts that are not transferred to the trading
and profit account.

Balance sheet serves the following purposes:

 To ascertain the nature of assets, capital and Liabilities of an enterprise.
 To find out the financial solvency of the business enterprise. To be solvent, Assets must exceed
Liabilities
 It refers to a statement of assets, capital and liabilities of an enterprise at the end of a financial
period.
 The balance sheet equation assumes that: Assets = Capital + Liabilities # A= C+L
 Balance sheet is prepared after the trading, profit and loss account considering the remaining
balances in the trial balance.

1. Components of Balance Sheet

The main components that make up the balance sheet are explained below:

1. Assets:
These are resources or properties owned by the business used to generate income or facilitate business
operations.
They can be tangible (physical) like land, building, furniture, machinery and intangible (non physical) like
goodwill, patent right, trademarks, etc.
According to their nature, two major categories of are fixed assets and Current assets.
a. Fixed Assets
They are properties of permanent nature than can be used in business for many years (two, five or ten) and
not for sale. They cannot be converted into cash easily and quickly. They are listed first in the balance
sheet starting with those the business will keep the longest, down to those which will not be kept so long.
 Some are tangible
e.g: Land, buildings, plant, furniture, fixtures fittings, machinery, motor vehicles and equipment.

 Others are Intangible assets: Examples are:

- Goodwill: refers to reputation attached to a business
- Patents right: refers to privilege to use an invention for a number of years
Page 12 of 40
 - Copyright: publish a book or an article
- Trademarks.
Fixed assets look like the following:
Fixed or Non-Current Assets
Land and Building
Furniture, fixtures and fittings,
Plant &machinery,
Motor vehicles and equipment
Goodwill:
Patents/ Copyright:
Trademarks.

b. Current Assets:

These are properties which can be converted into cash within a short period of only 1 year. They include
items held for resale at a profit.
They are also called Circulating, Floating or fluctuating assets. For instance:
e.g: Stock/ inventory, debtors, cash at bank, cash at hand, raw materials, prepaid expenses, investments,
etc.
 They are listed in increasing order of liquidity: that is, starting with the assets furthest away from
being turned into cash, and finishing with cash itself.
Fixed assets look like the following:
Current Assets
Inventories
debtors: Account receivables
Cash at bank
Cash in hand
prepaid expenses,
Investments (temporary)

2. Liabilities:

They are debts or amount of money owned by business to other people. They are financial obligations or
claims of the enterprise that must be repaid.

Liabilities may be long term liabilities or current liabilities

Page 13 of 40
 a. Long term Liabilities: are debts, financial obligations and items that have to be paid after a long
period of more than 1 year.
e.g: Long term bank loans, mortgages, bonds, debentures, etc.
b. Current liabilities: are debts, claims on the business by the outsiders that have to be paid in a short
time of only one year.
e.g: Loan of one year, trade creditors, bank overdrafts, VAT, interest rates, suppliers, accrued rent,
outstanding expense, bills payable, incomes received in advance, etc.
3. Capital: Money or resources invested in the business by the owner.

Owner’s Equity/Capital = Assets- Liabilities

C=A–L
The major types of capital include:
 Borrowed capital = Money in form of long term liabilities
 Working Capital = Excess of current assets over current liabilities
= Current assets - Current liabilities. This is also called “Net current assets”
 Liquid Capital = Total value of current assets in form of cash and near cash.
 Capital Employed = Fixed assets + working Capital, or
= Capital Owned + borrowed capital
 Goss Capital Employed = Fixed asset + Current Assets
 Net Capital Employed = Fixed Assets + Net Current Assets

2. Preparation of the Balance Sheet

Name of the Company

Balance Sheet
As at….End of date./…. /Year
Assets Rwf Liabilities
a. Fixed Assets a. Long term liabilities ( XX )
Bank loan of more than one
Land XX year XX
Building
s XX Mortgages XX
Furniture /Fixtures XX Bonds XX
Page 14 of 40
Motor Vehicles XX Debentures XX
Equipment XX Preference shares XX
Patent/ Copyright XX
Goodwill XX b. Current Liabilities (XXX)
Trademark XX Loan of one year XX
Discount on shares XX Trade creditors XX
Registration charges XX Bank overdrafts XX
VAT XX
b. Current Assets Incomes received in advance XX
Stock/ inventory XX
Debtors XX Owners' Equity/ Capital (XXX)
Cash at Bank XX Capital investment
Cash in hand XX Add: Net Profit
Bills receivables XX Less: Drawings
Prepaid expenses XX

TOTAL ASSETS XXX TOTAL OF C+ L XXX

Page 15 of 40
3. Worked Examples

1. The following information was obtained from the books of RUGINA as at 31st December 2011.
Net capital 117,500
Capital 150,000
Creditors 40,000
Plant and Machinery 75,000
Motor vehicle 50,000
Furniture and Fittings 25,000
Debtors 60,000
Cash at bank 45,000
Stock 35,000
Drawings 17,000
Required:
Prepare RUGINA’s balance sheet as at 31st December 2011
RUGINA Enterprise
Balance Sheet as at 31st December 2011

Assets Rwf Liabilities Rwf

a. Fixed Assets a. Long term liabilities
Plant& Machinery 75,000 Bank loan of more than one year XX
Motor Vehicle 50,000 Mortgages XX
Furniture&
Fittings 25,000
150,000 b. Current Liabilities
b. Current Assets Trade creditors 40,000
Owners' Equity/ Capital&
Stock/ inventory 35,000 Reserves
Debtors 60,000 Capital investment 150,000
Cash at Bank 45,000 Add: Net Profit 117,000
140,000 267,500
Less: Drawings -17,500
250,000

Total Assets 290,000 Total of C+L 290,000

Page 16 of 40
2. The following transactions on Assets, capital and liabilities were extracted from the book of KALISA
as at 31.12.011.
Capital 2,458,000
Land 1,600,000
Furniture 1,400,000
Stock (31st Dec.2011) 240,000
Debtors 800,000
Creditors 700,000
Cash at bank 190,000
Cash at hand 200,000
Bank loan (4 years) 1,000,000
Bank loan (2years) 800,000
Bank overdraft 320,000
Drawings 300,000
Net loss 548,000

Required
Prepare KALISA’s Balance sheet as at 31st Dec. 2011

KALISA’s Balance Sheet as at 31st Dec. 2011

Assets Rwf Liabilities Rwf

a. Fixed Assets Owners' Equity/ Capital

Land 1,600,000 Capital investment 2,458,000
Furnitur
e 1,400,000 Less: Net Loss 117,000
3,000,000 1,910,000
b. Current Assets Less: Drawings 300,000
Debtors 800,000 Net Capital (c/d) 1,610,000
Cash at hand 200,000
Cash at Bank 190,000 a. Long term liabilities
1,430,000 Bank loan( 4years) 1,000,000
Bank loan( 2years) 800,000
1,800,000
b. Current Liabilities
Trade creditors 700,000
Bank overdraft 320,000
1,020,000

Total Assets 4,430,000 Total of C+L 4,430,000

3. Below is a list of assets, liabilities and capital of Mr. MUHERWE as at 31 st December 2016

Page 17 of 40
 Capital ….?
7 year bank loan 200,000
Plant & machinery 70,000
Furniture and fittings 150,000
Buildings 100,000
Land 80,000
4years bank loan 50,000
Creditor 10,000
Bank overdraft 20,000
Debtors 90,000
Stock 40,000
Cash at hand 60,000
Cash at bank 55,000
Motor van 120,000
Office equipment 15,000

Required:
a. Prepare Mr. MUHERWE’s Balance sheet as at 31st December 2016, and calculate the following:
b. Capital net worth/ owned
c. Working capital
d. Working capital ratio
e. Liquid funds
f. Liquid capital
g. Liquid capital ratio
h. Circulating capital
i. Capital employed
j. Borrowed capital

4. Preparing the Final Accounts from the Trial Balance

 Go through the trial balance and write on each item the final account in which each appears
 Tick or mark each figure used and each item appears in the final account only once.
 The end of the year stock or closing stock is not shown in the trial balance but shown as note/
additional information after.
 All balances for nominal accounts are used to prepare the trading, profit and loss account
 The gross profit or loss generated in the trading account is taken to the profit or loss account.
 Net profit is transferred to the balance sheet and added to the capital/ owner’s equity
 After preparation of the trading, profit and loss account, the remaining balances are transferred to
the balance sheet either as assets or Liabilities.
Examples
1. The following trial balance was extracted from MUKANKOMEJE‘s books as at 30th September 2014.

MUKANKOMEJE‘s Trial Balance as at 30th September 2011

Page 18 of 40
 Account Titles Debits(Rw) Credit( Rw)

Capital 298,000
Cash at hand 24,000
cash at bank 220,000
Stock( 1.10.2010) 420,000
Debtors 160,000
Creditors - 200,000
Returns inwards 10,000
Sales - 1,120,000
Purchases 410,000
Salaries 80,000
Water& Electricity 12,000
Postage 4,000
Drawings 18,000
Furniture & fittings 150,000
Motor van 700,000
Bank loan(4years) - 600,000
Rent received 34,000
Office rent - 24,000
2,242,000 2,242,000

Additional information:
Stock at 30 September 2011 was 540,000Rwf
Required:
Account
a. Prepare Titles
MUKANKOMEJE’ s Debits(Rw) Credit(for
trading , profit and loss account Rw)the year ended 30th September 2011
Stock at
b. Prepare 01.01.2011
MUKANKOMEJE’ s 50,000 298,000
Balance sheet as at 30 September 2011
Purchases 420,000
Sales 557,500
Shop expenses 6,200
Wages 33,500
Rent paid 750
Telephone expense 500
Interest paid 4,500 1,120,000
Travel Expenses 550
2. The following was extracted
Premises/ Equipment 200,000
Shop fittings 40,000 from the books of Alexis
Debtors 10,100 traders Ltd as at 31st
Bank 5,850
December 2011
Capital 75,000
Drawings 27,000
Bank loan 150,000
Page 19Creditors
of 40 14,500
VAT 2,000
799,000 799,000
Additional Information:
 Stock at 31st December 2011 was valued at 42,000Rwf.
Required: Using a Vertical format,
a. Prepare Alexis traders’ Ltd trading, profit and Loss account for the year ended 31 st December
2011.
b. Prepare Alexis traders Ltd Balance Sheet as at 31st December 2011.
3. The following balances stood in the ledger of YOLAMU Mulaki on 31. 12.2004

Cash in hand 10,800

Cast at bank 38,790
Petty Cash in hand 1,350
Stock on 01.01.2004 54,000
Motor Vehicles 270,000
Sundry Debtors 147,150
Sundry creditors 119,340
Purchases 351,900
Purchase returns 14,400
Sales 789,300
Sales returns 15,300
Carriage in 6,750
Carriage out 7,875
Discount received 15,750
Discount allowed 12,600
Rent and rates 36,000
Wages and salaries 162,000
Printing and Stationery 33,300
Drawings 22,500
Telephone and telegraph 5,625
Office equipment 90,000
Page 20 of 40
Furniture 67,500
Electricity bills 6,525
Water bills 1,575
Bank Charges 540
Insurance 16,200
Motor Expenses 25,200
General office expenses 19,350

Required:

a. Re arrange the balances in a trial balance on 31.12.2004

b. Prepare a trading, profit and loss account for the year ending 31.12.2004
c. Prepare a balance sheet as at 31.12.2004

Note: Closing stock 31.12.2004 was 102,150 Rwf

Solution:
YOLAMU MULAKI
Trial Balance on 31 December 2004

Account Titles Debit Credit

Cash in hand 10,800
Cast at bank 38,790
Petty Cash in hand 1,350
Stock on 01.01.2004 54,000
Motor Vehicles 270,000
Sundry Debtors 147,150
Sundry creditors - 119,340
Purchases 351,900
Purchase returns - 14,400
Sales - 789,300
Sales returns 15,300
Carriage in 6,750
Carriage out 7,875
Discount received - 15,750
Discount allowed 12,600
Rent and rates 36,000
Wages and salaries 162,000
Printing and Stationery 33,300
Drawings 22,500
Telephone and telegraph 5,625

Page 21 of 40
 Office equipment 90,000
Furniture 67,500
Electricity 6,525
Water 1,575
Bank Charges 540
Insurance 16,200
Motor Expenses 25,200
General office expenses 19,350
Capital - 464,040
1,402,830 1,402,830

YOLAMU MULAKI
Trading and Profit and Loss account for the year ending 31 December 2004

Income Rw Rwf
Sales 789,300
Sales returns 15,300
Net income from sales 774,000
Less: Cost of sales
Openning Stock 54,000
Add: Purchases 351,900
carriage inwards 6,750
412,650
Purchase returns 14,400
Cost of Goods Available for
Sales 398,250
Less: Closing stock 102,150
Cost of goods sold 296,100
Gross Profit 477,900
Add: Other incomes
Discount received 15,750
Total income 493,650
Less: Operating expenses
Carriage out 7,875
Discount allowed 12,600
Rent and rates 36,000
Wages and salaries 162,000
Printing and Stationery 33,300
Telephone and telegraph 5,625

Page 22 of 40
Electricity 6,525
Water 1,575
Bank Charges 540
Insurance 16,200
Motor Expenses 25,200
General office expenses 19,350
Total Expenses 326,790
Net Profit 166,860

YOLAMU MULAKI
Balance Sheet as at 31 December 2004

ASSETS Rwf Rwf

Non- Current Assets
Furniture 67,500
Office equipment 90,000
Motor Vehicles 270,000
427,500
Current Assets
Closing stock 102,150
Debtors 147,150
Cast at bank 38,790
Cash in hand 10,800
Petty Cash in hand 1,350
300,240
LIABILITIES
Less: Current liabilities
Creditors 119,340
Net Current asses 180,900
Net Worth 608,400
Financed by :
Capital 464, 040
Add: Net Profit 166,860
630,900
Less: Drawings (-) 22500
Capital employed 608,400

4. The following information was extracted from the book of account of MUSONI Enterprise as at
31.12. 2016.

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 Cash at hand 62,000
Cash at bank 130,000
Buildings 600,000
Purchases 330,000
Sales returns inwards 5,000
Purchases Returns Outwards 4,500
Sales 50,000
Insurance 4,000
Rent 30,000
Creditors 95,000
Short term loan from Esther 20,000
Debtors 110,000
Stock (01.01.2016) 100,000
Furniture 130,000
Stock (31.12.2016) 10,000
Tax 23,000
Discount allowed 80,000
Discount received 100,000
Required:
a. Calculate:
i. Goods available for sale
ii. Cost of sales
iii. Gross profit
b. Determine the:
i. Fixed assets
ii. Current Assets
iii. Current Liabilities
c. Compute the:
i. Working capital
ii. Net profit
iii. Net profit to sales ratio

5. The following information is available from the books of Quick Services Enterprises Ltd for the year
ended 31st December 2015.

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 Capital 26,000
Opening stock 10,000
Debtors 9,000
Sales 48,000
Sales Returns 500
Purchases 30,500
Purchase Returns 600
Wages and Salaries 2,000
Carriage on purchases 100
Creditors 4,300
Closing stock 1,100
Rent 300
Electricity 120
Commission received 800
Discount Allowed 1,000
Cash in hand 8,000
Furniture 13,000
Bank Overdraft 6,000

Required:

a. Prepare Quick Services’ trading, Profit and Loss account

b. Extract the Balance sheet

c. Calculate the following:

i. Average stock

ii. Working capital

iii. Rate of stock firm
iv. Quick asset ratio
v. Gross profit ratio

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5.4. FINANCIAL ANALYSIS RATIOS

These are mathematical indicators calculated by comparing key financial information appearing in
financial statement and analyzing those to find out reasons behind the business’s current financial position
and its recent financial performance, a develop expectation about its future outlook/ life.

Financial ratio analysis is very useful tool because it simplifies the process of financial comparison of two
or more businesses. Ratios make the financial statement comparable both among different businesses and
a cross different periods of a single business.
1. Advantages Financial Ratio Analysis

Financial ratio analysis is a useful tool for users of financial statement. It has the following advantages:
1. It simplifies the financial statement
2. It helps in comparing companies of different size with each other.
3. It helps in trend analysis which involves comparing single company over a period.
4. It highlights important information sin simple from quickly. A user can judge a company by just
looking at few numbers instead of reading the whole financial statement.

2. Categories of Financial Ratios

The important categories of financial ratios include the following:

 Profitability ratio,
 Liquidity ratio,
 Efficient ratio /Debt to equity ratio,
 Asset management ratio,
 Efficiency ratios also called Assets Utilization ratios,,
 Cash flow ratios,
 Market valuation ratios
 etc

1. Profitability Ratio

They are financial metrics that are used to assess a business’s ability to generate earnings compared to its
expenses and other relevant costs incurred during a specific period of time.
It measures the ability of a business to earn profit for its owners and indicates the company’s performance

There are three main ratios that can be used to measure the profitability of a business:
 The Gross Profit Margin
 The net profit Margin
 Return on Capital Investment

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  Return on Sales/ROS
 Return on Equity/ ROE
 Return on Investment/ ROI
 Return on Assets

1. Gross Margin or Gross Profit as Percentage of Sales

It measures and tells about the profitability of goods and services. It tells you how much it costs you
to produce the products. It is calculated by dividing Gross Profit by Net sales and multiplying quotient
by 100.
Gross Profit
Gross Margin = ∗100
Net Sales
Example:
1. Imagine that you run a company that sold $50,000,000 in running shoes last year and had a gross
profit of $7,000,000. What was your company’s gross Margin for the year?
Gross Profit $ 7,000,000
Gross Margin = ∗100= ∗100 = 0.14*100 = 14%
Net Sales $ 50,000,000
2. For the month ended March 31, 2011, company X earned revenue of $744,200 by selling goods
costing $503,890. Calculate the gross margin profit ratio of the company.
Gross Margin Profit ratio= ($744,200 - $503,890) / $744,200 = 0.32 or 32%

3. Calculate the gross margin ratio of a company whose cost of goods sold and gross profit for the period
are $8,754,000 and $ 2,423,000 respectively.
Solution:
The revenue is not provided, so:
Revenue = Gross profit + Cost of Goods sold = $8,754,000 + $ 2,423,000 = $ 11,177,000
Gross Margin ratio = $ 2,423,000/ $ 11,177,000 = 0.22 or 22%

Analysis:

 It means that for every dollar in shoe sales, you earned 14 percent in profit but spent 86 % to make it.
 For small retailers, it gives impression of pricing strategy of the business. Igher gross margin ration
means that the retailer charges higher prices on goods sold

2. Net Profit as Percentage of Sales

Net Profit
The formula is = ∗100
Sales

3. Return on Investment

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It measures the gain or loss generated on an investment relative to the amount of money invested. It is
calculated as net profit by total Assets
Net Profit Gains−Investment costs 100
ROI = *100 and Simple ROI = *
Total Asstes Investment costs

Examples:
1. If the net profit to an enterprise is $100,000 and its total assets are $300,000. What is the retun on
Investment?
Net Profit $ 100,000
ROI = ∗100 = = 0.33 or 33%
Total Asstes $ 300,000
2. An investor buys 1,000 worth of stock and sells the shares two years later for $1,200. The net
profit from the investment would be $200.
Net Profit $ 200
The ROI would be as : ROI = = *100 = 20%
Total Asstes 1000
 A good return on Investment is 5:1
 ROI is usually used for personal financial decisions, to compare a company’s profitability or to
compare the efficiency of different investments.
 Investors can use ROI to calculate a return on a stock

4. Return on Assets

It measures how efficiently the company produces income from its assets.
It is calculated as:
Net Income
Return on Assets = ∗100
Value of all Assets
Example: Imagine that you are the manager of a large company that manufactures steel. Last year ,
the company had net income of $25,000,000 and the total value of its Assets such as plant, equipment
and Machinery , totaled $135,000,000. What is the return on Assets last year?
Net Income $ 25,000,000
Return on Assets (ROA) = ∗100= ∗100 = 0.185*100 = 18.5%
Value of all Assets $ 135,000,000
This means that you generate 18.5 percent of income for every dollar your company holds in assets.

5. Return on Equity :

It measures how much a company makes for each dollar that investors put into it.
Net Income
Return on Equity = ∗100
Shareholders Investment

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Example: Imagine that your social medial company just went public last year, resulting in a total
investment of $ 100,000,000. Your company’s net income for the year was $10,000,000. What is the
Return on Equity?
Net Income
Return on Equity = ∗100
Shareholders Investment
$ 10,000,000
= ∗100 = 0.10* 100 = 10%
$ 100,000,000
Your company is generating a dime in profit for every dollar invested.

6. Return on Capital Employed “ROCE”

It shows the reasons why people invest their money in a business depend on adequate return on capital. It
is used to provide an overall picture of profitability.

Net Profit
ROCE = ∗100
Capital Employed

This ratio illustrates that what is important is not simply how much profit has been made but how well the
capital has been employed.

The business (X) has made far better use of capital, achieving a return of Rwf ……% net profit for
every Rwf 100 invested.
7. Return on Sales (ROS)
It tells you what percentage of income you generated from sales is available to retain as earnings for
future investment or for dividends to be redistributed to your shareholders.
Net Income
Return on sales = ∗100
Sales
2. Liquidity ratios

It asses a business’s liquidity or solvency, i.e. its ability to convert its assets to cash and pay off its
obligations without any significant difficult ( delay or loss of value). They explain the financial position of
an enterprise.

It includes these types: Current ratio, Quick or acid test ratio, Cash ratio, and Cash conversion cycle

1. Current ratio
It is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short term liabilities with
its current assets (cash, cash equivalent and marketable securities).

It compares current assets with current liabilities in the same period

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 Current assets
Current ratio =
Current Liabilities
This ratio is stated in numeric format rather than in decimal format
A company with larger amount of current cash will more easily be able to pay off current liabilities when
they become due without having to sell off long term, revenue generating assets.

Banks would prefer a current ratio of at least 1 or 2, so that all the current liabilities would be covered by
the current assets.

Analysis:
 It helps investors and creditors understand the liquidity of a company and how easily that
company will be able to pay off it current liabilities.
 i.e: a current ratio of 4 would mean that the company has 4 times more current assets than current
liabilities
 A higher current ratio is always more favorable that a lower current ratio as a company can more
easily make current debt payment.
 It also sheds light on the overall debt burden of the company. If the company is weighted down
with a current debt, its cash flow will suffer.

Example:
Dalia is applying for loans to help her dream of building a boutiques selling shop. The bank asks her the
balance sheet so that they can analyze the current debt levels. According to Dalia’s balance sheet, she
reported: current liabilities of $100,000 and only current Assets of $25,000.

Current assets $ 25,000

Dalia current ratio is calculated as Current ratio = = Current ratio = =
Current Liabilities $ 100,000
0.25

Dalia only has enough current assets to pay off 25 percent of her current liabilities. This shows that Dalia
is highly leveraged and highly risky. Since Dalia‘s ration is so low, it is unlikely that she will get
approved for her loan.

2. Quick Asset ratio or Acid Test ratio

It shows that, provided creditors and debtors are paid at approximately the same time, whether the
business has sufficient liquid resources to meet its current liabilities.
Current Assets
Acid Test ratio =
Current Liabilities
Cash+ cash equivalent + short term investment +receivables
= =
Current Liabilities
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If quick assets are not given/ unknown nor detailed in balance sheet:
Current Assets−inventory− prepaid expenses
 Quick Asset ratio =
Current Liabilities
 Higher quick ratios are more favorable for companies because it shows that there are more quick
assets than current assets.

Example:
1. a) Let assume MUKIRE clothing store is applying for a loan to remodel the storefront. The bank asks
MUKIRE for a detailed balance sheet, so it can compute the quick ratio. MUKIRE’s balance sheet
included the following accounts;
 Cash $10,000
 Receivables $5,000
 Inventory $5,000
 Stock investment $ 1,000
 Prepaid taxes $ 500
 Current Liabilities $15,000

The bank can compute MUKIRE’s quick ratio like this:

Current Assets
Quick ratio=
Current Liabilities
Cash+ cash equivalent + short term investment +receivables
= =
Current Liabilities
$ 10,000+ $ 5,000+1,000
= 1.07
$ 15,000
 Quick ratio of 1 indicates that quick assets equal current assets.
 An acid ratio of 2 shows that the company has twice as many quick assets than current liabilities.

b) Instead MUKIRE’s balance sheet only included these accounts:

 Inventory $5,000
 Prepaid taxes $ 500
 Total current assets $ 21,500
 Current liabilities $ 15,000

The bank can compute his quick ratio like this:

Current Assets−inventory− prepaid expenses
Acid Test/ Quick ratio = =
Current Liabilities
$ 21,500−$ 5,000−$ 500
= 1.07
$ 15,000
Analysis:

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It is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come
due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or
in the short term such as cash, cash equivalents, short term investment, or marketable securities and
current account receivables.
It measures the liquidity of a company by showing its ability to pay off its current liabilities with quick
assets without having sold of any long term or capital assets.

3. Asset Management Ratios or Turnover ratios

It attempts to measure the firm’s success in managing its assets to generate sales. It assesses the efficiency
of operations of a business. They try to find out how effectively the business is converting inventories into
sales and sales into cash, or how it is utilizing its fixed assets and working capital. They are good
indicators of proper inventory management.

It key ratios include:

 Inventory turnover ratio

 Fixed asset turnover ratio
 Working turnover ratio
 Days sales in inventory
 Receivables/ payables turnover ratios, etc.

1. Assets Turnover ratio

It is an efficiency ratio that measures a company’s ability to generate sales from its sales by comparing net
sales with average total assets. This ratio shows how efficiently a company can use its assets to generate
sales.

It is the ratio of the value of a company’s sales or revenues generated relative to the value of its assets.

Net Sales
Assets Turnover ratio =
Average Total Assets

Average total assets are usually calculated by adding the beginning and ending total asset balance s
together and dividing by two based on a two year.

Analysis

 A higher ratio is more favorable: It means that a company is using its assets more efficiently.
 Lower ratio means that a company is not using its assets efficiently and most likely has
management or production problems
 It gives investors and creditors an idea of how a company is managed and uses its assets to
produce products and sales.
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  A ratio of 1 means that the net sales of a company equal the average total assets for the year.
Example:
POSITIVO’s tech company is a tech startup company that manufactures a new tablet computer.
POSITIVO is currently looking for new investors. The investor wants to know how well POSITIVO uses
its assets to produce sales, so POSITIVO has to show financial statements. Here is what financial
statement reported:

 Beginning Assets $50,000

 Ending assets m$100,000
 Net sales $25,000
Net Sales $ 25,000
The total Assets turnover ratio = = = 0.33
Average Total Assets ( $ 50,000+ $ 100,000)/2
POSITIVO’s ratio is only 0.33. This means that for every dollar in assets, POSITIVO only generates
33 percent. In order words, POSITIVO’s start up is not very efficient with its use of assets.

2. Inventory turnover ratio

It is a ratio showing how many times a company’s inventory is sold and replaced over a period of time.
Cost of goods sold
 Inventory Turnover ratio =
Average inventories
 Cost of goods sold = Beginning inventory + Cost of Goods manufactured – Ending inventories
It is calculated as sales (or Cost of goods sold) divided by average inventory
Example:
1. Calculate inventory turnover and days inventories outstanding for AB, inc. based on the information
given below:
Opening inventories $25,00
Closing Inventories $30,00
Cost of Goods manufactured $245,00
Solution:
 Cost of goods sold = $25,00 + $245,00 - $30,00 = $240,00
Opening Inventory + Closing Inventory ( $ 25 ,00+ $ 30 , 00 )
 Average inventories = = =
2 2
$27,500
( $ 240 ,00 )
 Inventory turnover ratio = = 8.73
$ 27,500
( 365 dsays )
 Days inventories outstanding= = 41.8
8.73
Analysis:
 It is used to assess how efficiently a business is managing its inventories
 A higher inventory turnover indicates efficient operations yet can result in stock out costs
 A low inventory turnover compared to the industry average and competitors means poor
inventories management. It may be either a slowdown in demand or over stocking of inventories.
Overstocking poses risks of obsolescence and result in increased inventory holding costs.
 It may be useful in conducting a trend analysis of stock

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Debt to Equity Ratio or Debit/Equity ratio
This is calculated by dividing a company’s total liabilities by its stockholders ‘equity, is a debit ratio used
to measure a company’s financial leverage.

Total liabilities
Debt to Equity ratio =
Total equity
Example:
Assume a company has $ 100,000 of bank lines of credit and a $ 500,000 mortgage on its property. The
shareholders of the company have invested $1.2 million. Here is how you could calculate the debt to
equity ratio.
Total liabilities $ 100,000+ $ 500,000
Debt to Equity ratio = =
Total equity $ 1,200,000
A debt to Equity ratio of 1 would mean that investors and creditors have an equal stake in the business
assets. A lower D/E ratio usually implies a more financially stable business.

Companies with higher D/E ratio are considered to be more risky to creditors and investors than
companies with a lower ratio. Unlike equity financing debt, must be repaid to the lender. Sine debt
financing also requires debt serving or regular interest payments, debt can be a far more expensive for of
financing than equity financing.
It shows the percentage of company financing that comes from creditors and investors. A higher debt to
equity ratio indicates that more creditor financing (bank loans) is used than investor financing
(shareholders).

D/E ratio indicates how much debt a company is using to finance its assets relative to the value of
shareholders’ equity.

5.5. CASH FLOW STATEMENT

It is a detailed description of the amount of cash being received and spent in form of payments or other
disbursements by the business in a given period of time, say, a month or a year.

 Cash flow plan shows the sources and uses of funds in the business.
 It is used by the management and accounting personnel, potential lenders/ creditors , potentials
investors , suppliers or contractors.
 The information used to construct the cash flow statement comes from the balance sheet and the
income statement for the period.

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1. Importance of Cash Flow Statement

The following indicate the role of cash flow plan:

1. Cash flow statement/ plan provides information on the sources of cash, uses of cash and changes in
cash balances.
2. Cash flow statement shows the ability of the business to repay loans acquired and the best time of
repayment
3. Cash inflows statement helps to know if the uses of funds can be met by the available resources of
funds or whether there will be a shortage and the need for external financing.
4. It indicates the amount of future cash inflows expected: sources and uses.
5. It provides information on the liquidity (cash) and solvency (ability to meet short term financial
obligations).
6. It enables the entrepreneur to determine the short term sustainability of the business.
7. It provides information for evaluating changes in assets, Liabilities and equity/ capital invested in
business.

2. Contents of a Cash Flow Plan/ statement

A cash flow statement has three major parts:

1. Cash inflow or Sources of cash

It consists and shows where money or cash will come and flow into the business.
e.g: - Sales, donations, debtors and loans from banks
- Rent income, borrowing from friends
- Grant from the government, dividends, share of capital, etc.
2. Cash Outflows or Uses of cash

It contains and shows where cash of the business will be spent in form of payment out.
e.g: - Purchases of goods & Services
- Salaries and wages of workers
- Rent
- Administrative expenses
- Interest paid on loan
- Fees for Utilities (Water & electricity)
- Payments to share holders
- Fines and Commissions
3. Net Cash Position

It is the residual cash balance / position of the business after deducting cash outflow from cash inflows.
Net Cash Position = Cash inflows - Cash Outflows -
The net cash position can be categorized into:
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  Cash Surplus: When cash inflows is greater than cash Outflows
 Cash Deficit: When cash Outflows is greater than cash inflows

3. Measures to avoid a deficit in the cash flows

 Increasing sales by carrying out sales promotion

 Delaying some cash expenditures
 Borrowing some more money
 Reducing some expenditure like the wage and salaries bills
 Monitoring and controlling of cash inflows and outflows.
 Ensuring that credit sales payments are made with in the same month.
 The wage should not be paid in advance if workers are willing to accept delay.
Cash Flow Management
 Having a cash surplus is the most preferred net cash position
 Cash receipts and cash payments must match ant ensure at worst a zero net balance.
 Giving cash discount to customers to motivate them to settle their payments due in time.
 Improving on the efficiency of preparing and sending customer’s invoice
 Reducing the period it takes for payments from clients
 Adopting a system of prompt billing so that the client receives their bills due on time

Exercises
1. The following information relates to MUNYESHYAKA Enterprises transactions for the month of
November and December 2017.

November
Transactions (Rwf) December (Rwf)
Purchase of assets 2,000 2,500
Payment of wages 90 1,000
Receipt from sales 1,000 1,500
Loan 3,000 2,000
Repayment of loan installment 500 4,500
Payment of rent 60 70
Purchase of raw materials 1,000 1,500
sales refreshment 2,560 3,000
Taxes 100 120
Debtors 300 350
Creditors 160 150
Acquisition of furniture 180 170
Grants from friends 200 140

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Disco dance collections 4,000 4,500
Sales of old furniture receipt 120 100
Rates 150 160
Transport expenses 100 90
Installation of new machinery 250 200
Cinema collections 160 200
Electricity bills 70 72

Required:

a. Prepare MUNYESHYAKA Enterprises cash flow statement for the two months.
b. State the cash position of MUNYESHYAKA Enterprises for the two months

Solution:
a. MUNYESHYAKA Enterprises Cash flow statement for November and December 2017

Details November 2017 (Rwf) December 2017 (Rwf)

a. Cash inflows
Cash balances b/f 6,770
Receipt from sales 1,000 1,500
Sales refreshment 2,560 3,000
Debtors 300 3,500
Grants from friends 200 140
Disco dance collections 4,000 4,500
Sales of old furniture receipt 120 100
Loan 3,000 2,000
Cinema collections 160 200
Total Cash inflows 11,340 21,710

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 b. Cash Outflows
Purchase of assets 2,000 2,500
Payment of wages 90 1,000
Repayment of loan installment 500 450
Payment of rent 60 70
Purchase of raw materials 1,000 1,500
Taxes 100 120
Creditors 160 150
Acquisition of furniture 180 170
Rates 150 160
Transport expenses 100 90
Installation of new machinery 250 200
Electricity bills 70 72
Total Cash Outflows 4,660 6,482
Net cash Position = Sum (a) - Sum ( b) 6,770 15,228
b. The net cash position MUNYESHYAKA Enterprises in November is a Surplus
of 6,770
2. Given the following information below on RUSIZI Trading Company Ltd;
On 1st, April, CASSAVA Plant Company Ltd had a cash balance of 10,000 Rwf.
It expected Cash sales of 5,000Rwf per month.
Credit sales were to be 3,500rwf per month and payment would be made in the following month.
Monthly income from some of its properties was expected to be 1,000 Rwf.
Monthly purchases were 6,000Rwf.
The monthly salary and wage bill was projected to be 800 Rwf.
A loan from Umurenge SACCO 10,000Rwf in the month of April.
Interest monthly payment of 100 Rwf as on the loan.
Monthly raw materials for 5,000rwf.

Solution:

CASSAVA Plant Company Ltd Cash flow statement for November and December 2017
Details / Particulars April May June 2011
2011 (Rwf) 2011(Rwf) (Rwf)

a. Cash inflows

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Cash balance b/f 10,000 14,100 11,700
Cash sales 5,000 5,000 5,000
Credit sales 3,500 3,500
Rent income 1,000 1,000 1,000
Umurenge SACCO loan 10,000
26,000 23,600 21,200
b. Cash Outflows
Purchase 6,000 6,000 6,000
Salary and wages 800 800 800
Raw materials 5,000 5,000 5,000
Interest on loan 100 100 100
Total cash Outflows 11,900 11,900 11,900
Cash b/d = Cash inflows - Cash Outflows 14,100 11,700 9,300
Surplus 9,300
Net Surplus 9,300

3. Prepare SINZI ‘s cash flow statement for the month of January, February, March and Apr: l given
the following information:
Cash balance b/f in January was 15,000rwf
Monthly rent income was 5,000 Rwf
Monthly credit sales to be paid in the next month were 4,000Rwf
Sold a business van in February 14,500Rwf
Monthly commission 3,000Rwf
Monthly cash sales 10,000Rwf
Monthly cash purchases 12,000Rwf
Bought a truck in January 800,000Rwf
Monthly salaries and wages 5,000Rwf
Bought machinery worth 15,000Rwf payment of 8,000Rwf was made in January and the balance was
paid in two equal installments during the month of February and March.

4. Given the following information of Nyanza Supermarket.

i) On 1st April 2013 Nyanza supermarket had a cash balance of 10,000,000Rwf
ii) It expects cash sales of Rwf 5,000,000 per month.

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 iii) Credit sales were to be Rwf 3,500,000 per month and payments would be made in the
following month.
iv) Monthly rent Income from some of its properties was expected to be Rwf 1,000,000
v) Monthly purchases were Rwf 6,000,000
vi) The monthly salaries and wage bill was projected at Rwf 800,000
vii) Nyanza Supermarket planned to purchase a welding machine in April at Rwf 12,000,000 and
paid Rwf 5,000,000 in cash. The balance was to be paid in two equal installments in the
following months.
viii) Interests of Rwf 100,000 on the outstanding loan were paid on 30th April2013 the next two
months it will never be paid.

Required: Prepare a monthly cash flow statement for three months period (15 marks).

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