Final Statements include The Trading Account The Profit and Loss Account The Balance Sheet Final accounts of a sole trader TRADING ACCOUNT Final accounts of a sole trader TRADING ACCOUNT Final accounts of a sole trader ID: 322612
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Slide1
FINAL ACCOUNTS OF A SOLE TRADERSlide2
Final Statements include:
The Trading Account
The Profit and Loss AccountThe Balance Sheet
Final accounts of a sole traderSlide3
TRADING ACCOUNT
Final accounts of a sole traderSlide4
TRADING ACCOUNT
Final accounts of a sole traderSlide5
Features of Trading Account
It is a
nominal accountIt contains items of revenue nature only.
No item of capital nature.
Its closing balance indicates gross profit or gross loss.
On debit side:
the cost of goods sold and
all expenses related to purchases.
On credit side:
sale proceeds
Credit balance
represents gross profit
and
Debit balance
represents gross loss.
Final accounts of a sole traderSlide6
Items that are recorded in a
trading account:
Opening
Stock
Previous years’ closing stock
The
first item on the debit side of the trading account
Purchases and Purchase return
Purchase
include cash and credit purchase of goods
Recorded on the debit side of the trading account after deducting purchase return
Direct expenses
Include manufacturing expenses like wages, rent, carriage inward, factory
insurance, freight, fuel, etc
Recorded on the debit side of the trading account
Sales and Sales return
Include both cash and credit sales
Sales
return is deducted from the total sales
Recorded on the credit side of the account
Closing
Stock
The goods that remained unsold at the end of the accounting yearRecorded on the credit side of the trading account and also as an asset in the balance sheetThe last item on the credit side of the accountFinal accounts of a sole traderSlide7
Format of Trading Account
Particulars
Amount
Particulars
Amount
To Opening Stock
To Purchases
Less Purchase
Returns
To Direct Expenses
Wages
Carriage inwards
Freight
Import duty
Gas and Fuel
Octroi
Dock charges
Lighting
Factory expenses
Coal and coke
Water
Oil and Grease Power Royalty on ProductionTo Gross Profit Transferred to Profit and Loss A/c By Sales Less Sales ReturnsBy Closing StockBy Gross Loss Transferred to Profit and Loss A/c
Dr
Cr
Final accounts of a sole traderSlide8
Illustration 1
From the following particulars prepare a trading account:
Particulars AmountOpening Stock 70,000
Cash Purchases 55,000
Cash Sales 1,10,000
Return inwards 10,000
Return outwards 8,000
Credit Purchases 85,000Credit Sales 1,65,000
Wages
51,500
Carriage inwards 5,500
Fuel and Power
5,800
Freight 2,200
Lighting 3,000
Factory expenses 5,000
Closing Stock 80,000
Final accounts of a sole traderSlide9
Trading Account
for the year ended…
Debit
Rs
Credit
Rs
To Opening Stock
To
Purchases:
Cash 55,000
Credit
85,000
1,40,000
Less:Returns
Outwards
8,000
To
Wages
To
Carriage inwardsTo Fuel and PowerTo Freight To Lighting
To Factory expensesTo Gross profit transferred to profit and loss A/c 70,0001,32,000 51,500 5,500 5,800 2,200 3,000 5,000 70,000_______3,45,000By Sales: Cash 1,10,000 Credit 1,65,000 2,75,000Less:Returns Inwards 10,000By Closing Stock 2,65,000 80,000_______
3,45,000
Final accounts of a sole trader
Dr
CrSlide10
PROFIT AND LOSS ACCOUNT
Final accounts of a sole traderSlide11
Features of Profit and Loss Account
It is a
nominal accountIt is prepared after the trading account.
It starts with the gross profit transferred from the trading account.
On debit side:
Gross loss and indirect expenses.
On credit side:
Gross profit and indirect revenues.
Credit balance
represents net profit
and
Debit balance
represents net loss.
Final accounts of a sole traderSlide12
Items that are recorded in a profit and loss
account:
Office
and Administrative expenses
Expenses
incurred on a day to day administration of business like office rent, salaries, stationary, etc
It is recorded on the debit side of the account
Selling
and Distribution expenses
Expenses incurred on promoting sales and distribution of goods sold like advertisement,
godown
rent, carriage outward, commission on sales, brokerage, bad debt etc
Recorded on the debit side of the account
Financial expenses
Expenses
incurred on obtaining funds
like interest
on loan
, bank charges, discount allowed,
etc
Recorded on the debit side of the account
Abnormal
LossesRefer to losses which do not occur regularly like stocks destroyed in fire, lost in transit, theft, etcRecorded on the debit side of the accountGross LossGross loss, if any, is transferred from the trading account.Final accounts of a sole traderSlide13
Items that are recorded in a profit and loss
account:
Revenue
Incomes
Incomes
which arise out of ordinary course of business like discount received, commission received, etc
It is recorded on the credit side of the account
Non
– Trading Incomes
Incomes which arises from non –trading activities such as interest received from investments, dividend received, rent income, etc
Recorded on the credit side of the account
Abnormal
gains
Refer
to gains which do not occur regularly like profit on sale of investments, profit on sale of fixed assets, etc
Recorded on the credit side of the account
Gross
Profit
It is transferred from the trading account.
Final accounts of a sole traderSlide14
Format of Profit and Loss Account
Particulars
Amount
Particulars
Amount
To Gross
Loss Transferred
from trading a/c
To
Office
and Administrative
Expenses
Rent,
Rates and Taxes
Office
Salaries
Printing and Stationary
Office lighting
Postage and Telegrams
Telephone charges
Legal charges
Audit fees Insurance General Expenses Repairs and Renewals Office Conveyance Charity Establishment Expenses Stable Expenses Upkeep of motors and car Loss by fire & theft Depreciation on assets By Gross Profit Transferred from trading a/cBy
Revenue Incomes
Discount Received Commission Received
By
Non-Operating Incomes
Interest
Dividend
Rent
Apprenticeship
Premium
Income from Other
sources
Miscellaneous receipts
By
Abnormal Gains
Profit on sale of fixed
assets
Profit on sale of
investments
Bad debts recovered
By Net Loss transferred to
Capital A/c
Dr
Cr
Final accounts of a sole traderSlide15
Format of Profit and Loss Account
Particulars
Amount
Particulars
Amount
To
Selling
and Distribution
Expenses
Advertisement
Carriage
Outwards
Godown
Rent
Trade Expenses
Travelling Expenses
Brokerage
Export duty
Packing expenses
Entertainment expenses
Agents’ Storage Salesman’s salaries and commission Provision for bad and doubtful debts DrCrFinal accounts of a sole traderSlide16
Format of Profit and Loss Account
Particulars
Amount
Particulars
Amount
To
Financial
Expenses
Interest
on loan
Interest on overdraft
Bank charges
Bills discounting
Interest on debentures
Loss in exchange
Discount allowed
Interest on capital
To
Abnormal
Losses
Goods lost in transit
Loss by fire
Cash defalcations Loss on sale of AssetsTo Net Profit Transferred to Capital A/c DrCrFinal accounts of a sole traderSlide17
Illustration 2
From the following trial balance, prepare the Trading Account and Profit and Loss Account
Particulars Debit CreditStock in hand
50,000
Capital 2,00,000
Cash at Bank
7
0,000Furniture 82,000Purchases
1,20,000
Sales 2,10,000
Return inwards 10,000
Return outwards 8,000
Wages
8,000
Carriage outwards 1,000
Fuel and Power 1
,500
Electricity 2,000
Salaries
15,000
Discount received 1,500
Debtors 90,000Creditors 30,000Closing stock at the end of the year was valued at Rs. 40,000Final accounts of a sole traderSlide18
Trading Account
for the year ended…
Particulars
Rs
Particulars
Rs
To Opening Stock
To
Purchases:
1,20,000
Less:Returns
Outwards
8,000
To
Wages
To
Fuel and Power
To Gross profit transferred to profit and loss A/c
50,000
1,12,000 8,000 1,500 68,500_______
2,40,000By Sales: 2,10,000 Less:Returns Inwards 10,000By Closing Stock 2,00,000 40,000______2,40,000Final accounts of a sole traderDrCrSlide19
Profit and Loss Account
for the year ended…
Debit
Rs
Credit
Rs
To
Salaries
To
Electricity
To
Carriage Outwards
To Net profit
transferred to
Capital
A/c
15,000
2,000
1,000 52,000_______ 70,000
By Gross profitBy Discount received 68,500 1,500________ 70,000Final accounts of a sole traderDrCrSlide20
BALANCE SHEET
Final accounts of a sole traderSlide21
Features of Balance Sheet
It
contains personal and real accounts. However, the net result of Profit and Loss A/c is shown in the Balance Sheet
Excess of assets over liabilities
r
epresents the
capital
of the owner
On the right side:
Assets
On the left side:
Liabilities
It is prepared only after profit and loss account.
It helps to know the earning capacity and financial health of the firm.
Final accounts of a sole traderSlide22
Format of
Balance Sheet
Liabilities
Amount
Assets
Amount
Owner’s Equity
Capital
Reserves
Profits
Long Term
Liabilities
Debentures
Loans on mortgage
Current Liabilities
Sundry Creditors
Bills Payable
Bank Overdraft Outstanding expenses Income received in advanceFixed Assets Goodwill Land and Buildings Plant and Machinery Furniture and Fixtures Motor VehiclesInvestmentsCurrent Assets
Stock in hand Sundry Debtors Bills Receivable
Cash at bank Cash in hand
Accrued Income
Prepaid expenses
Fictitious Assets
Preliminary expenses
Balance Sheet as at…
Final accounts of a sole traderSlide23
Illustration 2
From the following trial balance, prepare the Trading Account, Profit and Loss Account and Balance Sheet
Particulars Debit CreditStock in hand
50,000
Capital 2,00,000
Cash at Bank
7
0,000Furniture 82,000Purchases
1,20,000
Sales 2,10,000
Return inwards 10,000
Return outwards 8,000
Wages
8,000
Carriage outwards 1,000
Fuel and Power 1
,500
Electricity 2,000
Salaries
15,000
Discount received 1,500
Debtors 90,000Creditors 30,000Closing stock at the end of the year was valued at Rs. 40,000Final accounts of a sole traderSlide24
Trading Account
for the year ended…
Particulars
Rs
Particulars
Rs
To Opening Stock
To
Purchases:
1,20,000
Less:Returns
Outwards
8,000
To
Wages
To
Fuel and Power
To Gross profit transferred to profit and loss A/c
50,000
1,12,000 8,000 1,500 68,500_______
2,40,000By Sales: 2,10,000 Less:Returns Inwards 10,000By Closing Stock 2,00,000 40,000______2,40,000Final accounts of a sole traderDrCrSlide25
Profit and Loss Account
for the year ended…
Debit
Rs
Credit
Rs
To
Salaries
To
Electricity
To
Carriage Outwards
To Net profit
transferred to
Capital
A/c
15,000
2,000
1,000 52,000_______ 70,000
By Gross profitBy Discount received 68,500 1,500________ 70,000Final accounts of a sole traderDrCrSlide26
Balance Sheet
for the year ended…
Liabilities
Rs
Assets
Rs
Capital:
Opening Balance
2,00,000
AddNet
profit
52,000
Creditors
2,52,000
30,000
_______
2,82,000
Furniture
Cash at Bank
Debtors
Closing Stock
82,000 70,000 90,000 40,000
________ 2,82,000 Final accounts of a sole trader