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Grade 11 & 12 Accounting

Company Financial
Statements & Adjustments

SCI, SFP, the 9 notes and every common adjustment - what goes where and why.

Financial statements questions are the longest in the exam. Book a session to work through them with Dineo.

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SCI vs SFP SCI Format SFP Format The 9 Notes Adjustments Accruals & Prepayments
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Topic 01
SCI vs SFP - What Each Statement Does
Two statements, two completely different jobs
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Real Life Analogy

The SCI is like your payslip for the year - it shows all your income and expenses and what you are left with at the end. The SFP is like a photograph of your financial position on one specific day - it shows everything you own (assets) and everything you owe (liabilities). One measures performance over time. The other is a snapshot at a point in time.

SCI (Income Statement)SFP (Balance Sheet)
Also calledStatement of Comprehensive IncomeStatement of Financial Position
ShowsIncome and Expenses for the yearAssets, Equity and Liabilities at year-end
Ends withNet Profit after TaxTotal Assets = Total Equity and Liabilities
Time periodFor the year ENDED ...AS AT (a single date)
ContainsIncome, expenses, profit. NO assets or liabilities.Assets, equity, liabilities. NO income or expenses.

The Golden Rules to Keep in Your Head

No assets or liabilities ever appear in the SCI. Accrued expenses, prepaid expenses, income received in advance - none of these go in the SCI. They go on the SFP via Notes 5 or 9.
Always show your adjustment calculations in brackets on the face of the SCI. Part marks are awarded for correct working even if your final figure is wrong.
Total Assets must always equal Total Equity and Liabilities on the SFP. If it does not balance, something is in the wrong place.
Dividends do NOT appear in the SCI. They go to Note 8 (Retained Income) and Note 9 (Trade and Other Payables) only.
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Topic 02
SCI Format & Structure
Learn this layout and the order of every line
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The Flow of the SCI

The SCI works from the top down - each section removes another layer of cost or adds another type of income until you reach Net Profit. Memorise the order. Know which items belong in each section and which are excluded entirely.

Statement of Comprehensive Income for the year ended ...
Revenue
Sales (minus Debtors Allowances)XXX
Cost of Sales(XXX)
Gross ProfitXXX
Other Operating Income
Rent incomeXXX
Bad debts recoveredXXX
Trading stock surplusXXX
Operating Expenses
Salaries and wages(XXX)
Bad debts written off(XXX)
Depreciation(XXX)
Insurance(XXX)
Consumable stores(XXX)
Stationery(XXX)
Trading stock deficit(XXX)
Provision for bad debts adjustment(XXX)
Operating ProfitXXX
Interest income Note 1XXX
Profit before Interest ExpenseXXX
Interest expense Note 2(XXX)
Net Profit before TaxXXX
Income tax for the year(XXX)
Net Profit for the YearXXX

Critical Placement Rules

Interest income goes AFTER Operating Profit - it is NOT an operating item. Do not put it in Other Operating Income.
Interest expense goes AFTER Profit before Interest - it has its own line, separate from Operating Expenses.
Trading stock deficit = Operating Expense. Trading stock surplus = Other Operating Income.
Provision for bad debts adjustment can be either an expense (provision increased) or income (provision decreased). Place it accordingly.

Consumables and Stationery - Expense vs On Hand

Consumable stores (expense in SCI) - the total amount of consumables USED during the year. This is what reduces your profit. Example: if R10 000 of consumables were purchased and R2 000 are still unused, the expense is R8 000.
Consumables on hand (asset in Note 4 on SFP) - the portion NOT yet used at year-end. Sits in inventory alongside trading stock. In the example above, R2 000 on hand is moved OUT of the expense and INTO Note 4.
Stationery (expense in SCI) - the amount of stationery actually USED during the year. Same logic as consumable stores.
Stationery on hand (asset in Note 4 on SFP) - unused stationery at year-end. Moved out of the stationery expense and into Note 4 as a current asset.
The adjustment rule for both: if the question gives you the "on hand" amount, reduce the expense by that amount and add it to Note 4. If the question gives you the "used" amount directly, that is your expense figure as-is and the remainder is on hand.

Quick Distinction

In the SCI (expense)

Consumable stores
Stationery
= amount USED during the year

In Note 4 - SFP (asset)

Consumables on hand
Stationery on hand
= amount NOT YET USED

✍️
Show every calculation in brackets next to each line

Example: Salaries (R120 000 + R8 000 accrued) = R128 000. Writing the calculation earns you method marks even if the number itself is wrong. Never just write a bare number without showing how you got there.

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Topic 03
SFP Format & Structure
Assets on top, Equity and Liabilities below - and they must balance
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Statement of Financial Position as at ...
ASSETS
Non-Current AssetsXXX
Fixed assets Note 3XXX
Fixed deposit (more than 1 year remaining)XXX
Current AssetsXXX
Inventory Note 4XXX
Trade and other receivables Note 5XXX
Cash and cash equivalents Note 6XXX
TOTAL ASSETSXXX
EQUITY AND LIABILITIES
Shareholders' EquityXXX
Ordinary share capital Note 7XXX
Retained income Note 8XXX
Non-Current LiabilitiesXXX
Loan (portion remaining more than 1 year)XXX
Current LiabilitiesXXX
Trade and other payables Note 9XXX
Bank overdraft (if applicable)XXX
Current portion of loanXXX
TOTAL EQUITY AND LIABILITIESXXX

Tricky Placements to Know

Fixed deposits: Maturing in more than 1 year = Non-Current Asset. Maturing within 1 year = Note 6 (Current Asset).
Loans: The portion not due within the next year = Non-Current Liability. The portion due within the next year = Current Liability (or Note 9).
Bank overdraft goes in Current Liabilities. It does NOT go in Note 6 (cash and cash equivalents).
SARS income tax overpaid (debit balance) = Current Asset in Note 5. SARS underpaid (credit balance) = Current Liability in Note 9.
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Topic 04
The 9 Notes to the Financial Statements
The detail behind every number on the SFP
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Why the Notes Exist

The SFP shows one summarised number per line. The notes show the detail behind each number. Even if the exam does not ask you to write a specific note, you still need to know what goes in it so you can calculate the correct total for the SFP.

Note 1

Interest Income

  • Interest on fixed deposit
  • Interest on current account
  • Interest on overdue debtors
  • Interest on savings account
Total → SCI (after Operating Profit)
Note 2

Interest Expense

  • Interest on loan
  • Interest on overdraft
  • Interest on overdue creditors
Total → SCI (after Profit before Interest)
Note 3

Fixed Assets

  • CV at beginning
  • + Additions (purchases)
  • - Disposal at CV
  • - Depreciation for year
  • = CV at end → SFP
CV at end → SFP Non-Current Assets
Note 4

Inventory

  • Trading stock
  • Consumable stores on hand
  • Stationery on hand
Total → SFP Current Assets
Note 5

Trade & Other Receivables

  • Trade debtors
  • Less: Provision for bad debts
  • Accrued income
  • Prepaid expenses
  • SARS income tax (if overpaid)
  • Deposit paid
Total → SFP Current Assets
Note 6

Cash & Cash Equivalents

  • Bank (positive balance only)
  • Cash float
  • Petty cash
  • Savings account
  • Fixed deposit (maturing <1 yr)
Total → SFP Current Assets
Note 7

Ordinary Share Capital

  • Authorised (number only)
  • Issued: opening shares
  • + Shares issued (at issue price)
  • - Shares repurchased (at average)
  • = Closing balance
Closing balance → SFP Equity
Note 8

Retained Income

  • Opening balance
  • + Net profit after tax
  • - Repurchase extra (above avg)
  • - Interim dividends
  • - Final dividends
  • = Closing balance
Closing balance → SFP Equity
Note 9

Trade & Other Payables

  • Trade creditors
  • Accrued expenses
  • Income received in advance
  • Shareholders for dividends
  • SARS income tax (if underpaid)
  • PAYE / Medical / Pension
Total → SFP Current Liabilities

The Links You Must Know

Final dividends declared appear in BOTH Note 8 (deducted from retained income) AND Note 9 (as Shareholders for Dividends - a liability).
Share repurchase: The average value goes to Note 7. The extra above average (full price minus average) goes to Note 8 as a deduction from retained income.
Bank overdraft is NOT in Note 6. It goes in Current Liabilities directly on the face of the SFP.
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Notes not asked still matter

Even if the question only asks you to complete Notes 5 and 9, you still need to process adjustments for depreciation (Note 3), inventory (Note 4), interest (Notes 1 and 2), and retained income (Note 8) to get the correct totals elsewhere. Never skip the thinking just because a note is not explicitly asked.

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Topic 05
Common Adjustments
Bad debts, provisions, stock adjustments and sales corrections
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Bad Debts Written Off

Basic write-off: Debtor cannot pay at all. Dr Bad Debts (EXPENSE in SCI). Cr Trade Debtors (reduces Note 5).
Insolvent estate (partial): Some cash received, rest written off. The cash received goes Dr Bank / Cr Trade Debtors. The written-off portion goes Dr Bad Debts / Cr Trade Debtors. This is NOT bad debts recovered.

Bad Debts Recovered

A debtor who was PREVIOUSLY WRITTEN OFF comes back and pays. Look for the words "previously written off" in the question.
Dr Bank (Note 6). Cr Bad Debts Recovered (OTHER INCOME in SCI). Does NOT affect the bad debts expense. Does NOT affect debtors control.
Common exam trap: If bad debts recovered was incorrectly put into debtors control, reverse it: Dr Debtors Control / Cr Bad Debts Recovered (income).

Provision for Bad Debts

The provision sits in Note 5 as a negative against trade debtors. The ADJUSTMENT (the change to the provision) goes in the SCI.
Provision increased (new provision > old provision): Dr Provision for Bad Debts Adjustment (EXPENSE). Cr Provision for Bad Debts (Note 5).
Provision decreased (new provision < old provision): Dr Provision for Bad Debts (Note 5). Cr Provision for Bad Debts Adjustment (INCOME in SCI).
Always calculate the NEW provision AFTER all other debtors adjustments (write-offs etc.) have been applied first.

Consumable Stores on Hand

Consumables (stationery, packing material) not yet used at year-end must be moved from expense to asset. The unused portion goes to Note 4 (Inventory).
Dr Consumables on hand (Note 4). Cr Consumables/stationery expense (reduces expense in SCI).
If "used" amount is given rather than "on hand": calculate on hand = total - used, then apply the same journal.

Sales and Returns Corrections

If a sale needs to be recorded: add Selling Price to Sales and Bank/Debtors; add Cost Price to Cost of Sales and reduce Trading Stock (Note 4).
If a return needs to be recorded: reduce Sales, reduce Debtors; reduce Cost of Sales, add Cost Price back to Trading Stock (Note 4).
Quick formula: Cost Price x (100% + Mark-up%) = Selling Price. Use this to find the missing value when only one is given.
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Every sale/return touches four places

Selling price: Sales + Bank or Debtors. Cost price: Cost of Sales + Trading Stock. If the question gives you one, use the mark-up formula to find the other. Missing either half of this adjustment will cost marks.

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Topic 06
Accruals & Prepayments
Income and expenses that are early, late or outstanding
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The Matching Principle

Income and expenses must be recorded in the year they BELONG TO - not necessarily when cash moves. If you paid next year's rent this year, this year's SCI should not include it. If you earned income this year but have not received it yet, the SCI must include it. That is what these adjustments are for.

Accrued Income

ASSET - Note 5

Income has been earned this year but NOT received yet. We have received too little.

+ Add to the income line in SCI
+ Add to Note 5 as accrued income

Income Received in Advance

LIABILITY - Note 9

Cash has been received for income that belongs to NEXT YEAR. We have received too much.

- Remove from the income line in SCI
+ Add to Note 9 as liability

Prepaid Expense

ASSET - Note 5

An expense has been paid for that belongs to NEXT YEAR. We have paid too much.

- Remove from the expense line in SCI
+ Add to Note 5 as prepaid

Accrued Expense

LIABILITY - Note 9

An expense belongs to this year but has NOT been paid yet. We have paid too little.

+ Add to the expense line in SCI
+ Add to Note 9 as accrued expense
AccountClassificationAppears inEffect on SCI
Accrued incomeAssetNote 5Increases income
Prepaid expenseAssetNote 5Reduces expense
Income received in advanceLiabilityNote 9Reduces income
Accrued expenseLiabilityNote 9Increases expense

The Memory Trick

Too little received / paid = something is outstanding = goes to the SFP as what you still have coming or what you still owe.
Too much received / paid = something belongs to next year = remove it from this year's SCI and put it on the SFP.
Assets (Note 5): Accrued income, prepaid expenses, SARS overpaid, deposits paid. Liabilities (Note 9): Accrued expenses, income received in advance, SARS underpaid, dividends payable.
None of these accounts go in the SCI

This is the most important rule for this section. Accrued expenses, prepaid expenses, accrued income and income received in advance are NOT income or expense accounts in the SCI. They are balance sheet accounts only. They affect the SCI by adjusting the underlying income or expense line - but they themselves go to Notes 5 or 9 on the SFP.

Quick Reference

The Rules That Never Change

SCI only has

Income and Expenses. NO assets or liabilities ever.

Interest income

Goes AFTER Operating Profit. Not in operating income.

Dividends

Note 8 and Note 9 only. Never in the SCI.

Note 5 assets

Accrued income, prepaid, SARS overpaid, deposits.

Note 9 liabilities

Accrued expenses, income in advance, dividends, SARS underpaid.

Show workings

Always in brackets on the SCI face. Part marks awarded.

Financial statements take
practice to get right.

The formats, notes and adjustments all need to work together. Book a session with Dineo to work through a full question from start to finish.

Book a Session → Visit dakaraiaccounting.co.za