Page 213 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Accounting for the issue of shares

Sources of finance

When considering the statement of financial position of a sole trader, we saw that the
business was financed principally by the capital account of the sole trader. The
statement of financial position of a company is similar to that of a sole trader, but it
has a more formalised capital or equity structure as follows:

Sole trader – capital account $ Company – equity structure $

Capital b/f at the start of the year X Issued share capital X

Add: Capital introduced X Share premium X

Add: Profit for the year X Revaluation surplus X

Less: Drawings for the year X Retained earnings X

––– –––

Capital at the end of the year X Total equity X

Both a sole trader and a company may raise finance in the form of loans (e.g. from a
bank). In both cases, the loan will be classified as a liability in the statement of
financial position.

207