Figure 6 shows William’s balance sheet as at 2 January on the left hand side (the stock statement at the start of the period) and William’s balance sheet as at 6 January on the right hand side (the stock statement at the end of the period). The stock statement at the start of the period shows Bank £10,000 in blue and Owner’s capital £10,000 in purple. Debit side: Total assets £10,000 = Credit side: Total capital £10,000. The stock statement at the end of the period shows Bank £7,400 in blue and owner’s capital £11,400 in purple. In black it shows also on the debit side the assets of van £4,000 and computer £2,000. In black it shows on the credit side a loan of £2,000. Hence total assets (Bank + Van + Computer) £13,400 = total capital and liabilities £13,400. The flow statements link these two balance sheets at two points in time by showing what happened during that period. The first flow statement is the income statement for the period ended 6 January. It shows in black £1,500 sales less £1,000 cost of sales = £500 profit, whereby the profit number is shown in orange. The second flow statement is William’s cash flow statement which reconciles the opening bank balance of £10,000 at 2 January with the closing bank balance of £7,400 at 6 January (both in blue). Opening cash £10,000 plus £3,500 cash inflow less £6,100 cash outflow leads to a net cash outflow of £2,600 during the period. The third flow statement is William’s statement of changes in capital for the period ended 6 January which reconciles opening capital £10,000 (purple) to closing capital £11,400 (purple) by adding £1,000 of capital introduced during the period and the profit for the period of £500 (orange), and then deducting drawings of £100.

◄ 5 Comparing sole trader and company financial statement formats