Final Accounts - Principles of Accounting

7/27/2019 Final Accounts - Principles of Accounting

1/9

Principles Of AccountingPrinciples of Accounting Made Easy

Home Topics Pricacy Policy Contact Us Search

Accounting Balance Sheet Principles Tax & Accounting

Final Accounts

THE FINAL ACCOUNTS OF A SOLE TRADER

The trading account, profit and loss account and the balance sheet are called final accounts. Usually, the

final accounts are prepared at the end of an accounting period.

* Trial balance is the basis for preparing the final accounts.

TRADING AND PROFIT & LOSS ACCOUNT

Gross Profit = Net sales Cost of goods sold

Gross Loss = Cost of goods sold Net sales

Net Profit = Gross Profit + Incomes Expenses

Net Loss = Expenses Incomes Gross Profit

Note:

Net sales = Total sales Sales returns/ Return Inwards.

Cost of goods sold = Opening stock + Purchases + Carriage Inwards

Return Outwards/ Purchase Returns Closing Stock

Format of the Trading & Profit and Loss Account (Vertical Form)

Business reportingNew Travel Whitepaper Unlocks Secrets Big Data Holds For Travel

www.Amadeus.com/BigData

The purpose of preparing the trading account is to find out the gross profit or gross loss of the

business during an accounting period.

The purpose of preparing the profit and loss account is to find out the net profit or net loss of the

business for an accounting period

$ $

Sales xxxxxx

Less: Return Inwards xxxx xxxxxx

LESS: COST OF GOODS SOLD

Opening Stock xxxxx

Add: Purchases xxxxxxx

Add: Carriage Inwards xxxx ( )

xxxxxx

Less: Return Outwards xxxx

xxxxxxx

Less: Closing Stock xxxxx xxxxxx

GROSS PROFIT/ GROSS LOSS xxxxxxx

Add: Incomes:

Discount Received xxxx ( + )

Interest Received xxxx

Commission Received etc. xxxx xxxxxxxxxx

LESS: EXPENSES

Rent paid xxxx

Commission paid xxxx

Discount allowed xxxx

Interest paid xxxx

Salary paid xxxx

Power charges/ electricity charges xxxx ( )

Telephone charges xxxx

Licence & taxes xxxx

Depreciation on fixed assets xxxx

Advertisement expenses xxxx

Selling expenses xxxx

Page 1 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

2/9

BALANCE SHEET

This is the statement of assets and liabilities of a business prepared on a particular date to show the

financial position of a business. The Balance sheet is prepared after the preparation of the trading, profit

and loss account.

Format of the Balance sheet of a sole trader (Vertical form)

Balance sheet of Mr. Ahmed, as at 31st December 2001

Assignment Questions:

Q. 1 The excess of net sales over the cost of goods sold in a particular period is called :

(a) gross profit (b) gross loss (c) trading a/c (d) none of these.

Q. 2 When the Gross profit is more than the total business expenses, the difference is called:

(a) net loss (b) net Profit (c) cost of goods sold (d) none of these.

Q. 3 At the end of the year, the net profit should be credited in the

Carriage outwards/ carriage on sales xxxx

Repairs to fixed assets etc. xxxx xxxx

NET PROFIT/ NET LOSS xxxxxx

The balance sheet is prepared with the account balances left after the preparation of the trading and

profit & loss account.

Usually, the trading account and the profit and loss account are prepared together. But the balance

sheet is prepared separately.

$ $ $

Fixed Assets:

Plants & Machinery xxxx

Land & Buildings xxxxMotor cars xxxx

Furniture & Fixtures xxxx

Motor vehicles xxxx

Fixtures & Fittings xxxx

Premises etc xxxx xxxxxx

Current Assets:

Stock (Closing) xxxx

Debtors xxxx

Cash in hand xxx

Cash at bank xxxx

Expenses prepaid xx

Accrued incomes xx

xxxxxx

Less: Current Liabilities

Creditors xxxx (+)

Bank Overdrafts xxx (-)

Expenses owing XxIncome received in advance Xx xxxx

Working capital xxxxx

xxxxx

Long Term Liabilities: (+)

Loan from the Bank xxxx

Loan from other financial

Institutions

xxxx xxxx

Xxxxxx

Add: Net Profit/

Less : Net Loss

(+)/ (-) xxxx

xxxxx

Less : Drawings

(Cash & Goods)

(-)

xxx

Xxxxxx

Xxxxxx

Page 2 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

3/9

(a) drawings a/c (b) profit and loss a/c (c) balance sheet (d) capital a/c

Q. 4 Carriage on goods out of the firm is called:

(a) carriage inwards (b) carriage outwards

(c) carriage on purchase (d) none of these.

Q. 5 Bank overdraft is an example of a

(a) current asset (b) current liability (c) long term liability (d) current asset

Q.6 The cost of putting goods into a saleable condition should be charged to the

(a) trading a/c

(b) profit & loss a/c

(c) balance sheet

(d) manufacturing a/c

Q.7 The net profit is added to capital by:

(a) debiting in the capital a/c

(b) crediting in the Trial balance

(c) crediting in the capital a/c

(d) debiting in the cash a/c

Q. 8 Which of the following is correct?

(a) Profit increases the drawings

(b) Profit reduces the capital

(c) Profit does not affect any item

(d) Profit increases capital

Q. 9 Name the account which should not be included in the Profit & Loss a/c:

(a) Sales office expenses

(b) Wages and Salaries

(c) Carriage on Purchase

(d) Carriage on sales

Q. 10 Net profit is calculated in the:

(a) sales a/c

(b) profit & loss a/c

(c) trading a/c

(d) balance sheet

Q. 11 The transportation cost for bringing the goods into the business is:

(a) travelling expenses

(b) carriage inwards

(c) carriage outwards

(d) motor expenses

Q. 12 Rent paid for the subsequent period is a

(a) current liability

(b) long term liability

(c) current asset

(d) none of the above.

Q. 13 Insurance is paid in advance by $ 150. What does it mean?

(a) The business has used $ 150

Page 3 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

4/9

(b) The business has unused $ 150

(c) The business owes $ 150

(a) None of the above.

Q. 14 A traders Turnover for the year were $ 3, 56,000, and his purchases were

$ 2,68,000. The stock at the beginning of the year was $ 31,400 and the

stock at the end was $ 34,600. He had returned goods to his suppliers for $ 2,600

What is his gross profit for the year?

(a) $ 86,200

(b) $ 90,600

(c) $ 91,200

(d) $ 93,800

Q. 15 A business has fixed assets $ 10,000. Its current assets is $ 6,000,

working capital $ 2,000 and balance sheet total is $ 12,000

what is the amount of its current liability?

(a) $ 1,000 (b) $ 2,000 (c) $ 3,000 (d) $ 4,000

Q. 16 Fill in the following with most suitable terms

1) Working capital is the difference between - &

2) Gross profit = - less -.

3) In the final accounts, the closing stock is shown in the - a/c

and in the -

4) Bank overdraft is shown in the balance sheet as .

5) Drawings are usually deducted from .

6) Net profit is added to -.

7) In the balance sheet, the working capital is added to the total of

8) To find the amount of working capital, current liabilities total is deducted from

- total

9) The net profit is the difference between and

10) Expense prepaid is an example of - asset.

11) Expense payable is an example of

12) Net sales cost of goods sold =

13) Net sales = Sales less

14) A loan taken from the bank, repayable after 5 years will be shown as

- - in the balance sheet

15) In the final accounts, the carriage inwards is taken to calculate the

16) The total of income is added to -

17) Last years closing stock is the current years

18) The principle of valuation of closing stock is

19) Closing Capital = opening Capital + Net profit (or Net loss) -

20) The balance sheet is prepared to know the -

21) The purpose of preparing trading account is to calculate the- -

or -

22) The profit & loss account is prepared to calculate the or

- -

23) Expenses Incomes Gross profit=

24) The balance sheet is a statement of - &

25) are the cost of operating the business.

26) The balance sheet is not a part of

Page 4 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

5/9

27) The trading and profit & loss account and balance sheet are known as -

Q. 17 The following trial balance was extracted from the books of a business for the

year ended 31st December 2002

The closing stock on 31.12.2002 was valued at $ 28,000

Required to Prepare: (a) Trading, Profit & loss account for the year ended

31.12.2002

(b) Balance sheet as at 31.12.2002

Q. 18 The following trial balance has been extracted from the books of Slim Traders

for the year ended 31st December 2001:

Account Balances debit

$

credit

$

Capital 50,000

Plants & Machinery 18,000

Salaries 10,000

Repairs 1,600

Wages 28,000

Cash in Hand 2,500

Land & Buildings 74,500

Purchases 1,23,500

Sales 2,49,000

Bank balance 3,800

Discounts 8,500

Commissions 1,500

Debtors & Creditors 45,000 26,300

Bad debts 1,000

Stock 0n 1.1.2002 37,000

Advertising 600

Office expenses 1,000

Fixtures & fittings 4,000

Stationery 400

Interest 2,000

Rent & Rates 1,500

Bank Loan 11,500

Total 3,50,600 3,50,600

Account Balances debit

$

credit

$

Sales 1,98,000

Discount received 700

Bank interest 200

Purchases 53,000

Carriage outwards 4,900

Carriage inwards 2,000

Bad debts 300

Rent 44,100

Office salaries 26,200

Sales commission 37,600

Discount allowed 100

Stationery 2,400

Advertising 8,700

Electricity 7,200

Cash at bank 4,700

Stock on 1st January 2001 39,000

Debtors & creditors 10,000 11,300

8,000

Page 5 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

6/9

The closing stock on 31.12.2001 was valued at $ 41,000

Prepare

(a) The trading, profit & loss account for the year ended 31st December 2001

(b) The balance sheet of the business as at 31st December 2001

Q. 19 The following trial balance was extracted from the books of a sole trader for the

year ended 31st December 2000:

The closing stock on 31.12.2000 was valued at $ 14,700

Required: (a) The trading, profit & loss account for the year ended 31.12.2000

(b) The balance sheet as at 31.12.2000

Q. 20 The following trial balance was extracted from the books of a sole trader for the year ended 31stMarch 2002:-

Closing stock was valued at $ 9534

Pre are a The tradin , rofit & loss account for the ear ended 31st March 2002

Office furniture

Delivery van 37,300

Premises cost 29,000

Loan from State Bank (repayable in

2012)

22,000

Capital 98,300

Drawings 14,000

Interest on loan 2,000

Total 3,30,500 3,30,500

Account Balances debit

$

credit

$

Salaries and wages 4,200

Insurance 1,200

Administrative expenses 2,670Selling expenses 3,180

Carriage on purchases 2,700

Returns 400 700

Cash in hand 1,255

Carriage outwards 725

Bank overdrafts 7,900

Loan from ICICI Bank 12,000

Drawings & Capital 7,550 31,280

Land and Buildings 29,500

Debtors & Creditors 21,000 9,600

Plants & Machinery 25,000

Purchases and Sales 93,250 1,60,400

Equipments 20,000

Stock of goods (on 1.1.2000) 8,250

Interest on Bank Loan 1,000

Total 2,21,880 2,21,880

Debit Balances AmountCredit Balances Amount

Purchases 37 000Sales 96 000

Returns Inwards 2 004Returns Outwards 195

Opening stock 8 851Discount received 480

Carriage inwards 456Interest received 1 150

Wages 16 251Creditors 12 133

Discount allowed 237Bank Loan 1 000

Lighting & heating 1 198Capital 20 184

Travelling expenses 435

Repairs 518

Rent paid 2 450

Furniture & Fittings 2 650

Plants & Machinery 13 840

Motor Vehicles 6 825

Debtors 4 675

Cash in hand 1 384

Cash at bank 4 718

Salaries 19 900

Drawings 7 750

Total 1 31 142 Total 1 31 142

Page 6 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

7/9

(b) The balance sheet as at 31st March 2002

Q. 21 From the following trail balance prepare a set of final accounts for the year

ended 31st December 2002

The closing stock on 31st December 2002 was $ 12,400

Q 22. The following trial balance was extracted from the books L.Stokes, a sole trader, as at 31st March2003:-

The closing stock is valued at $ 17 000

From the above information, prepare a set of final accounts for the year ended 31st March 2003

Q 23. Prepare the trading & profit & loss account for the year ended 31st Dec 2003 and a balance sheeton that date from the following balances extracted from the books of a business

Debit $Credit $

Purchases 92,300Sales 1,90,300

Carriage inwards 5,200Capital 59,400

Drawings 5,000Creditors 13,200

Rent, Rates & Insurance 4,500Commission received 7,000

Postage 3,000Discount received 3,920

Stationery 2,700Returns outwards 700

Machinery 55,000

Buildings 45,000

Fixture & Fittings 15,000

Opening stock 1,000

Bank balance 2,500

Cash balance 1,800

Debtors 14,500

Discount allowed 250

Bad debts 800

Salaries & wages 22,120

Advertising 1,850

Carriage outwards 1,200

Returns inwards 800

Total 2,74,520 Total 2,74,520

Account balances Debit $ Credit $

Drawings and capital 3 000 70 000

Cash at bank 1 800

Debtors and creditors 24 000 14 000

Purchases & sales 58 600 78 023

Returns 600 700

Carriage outwards 700

Carriage inwards 1 350

Salaries & wages 12 370

Commission paid 630

Interest 1 240

Bad debt 700

Depreciation 4 500

General expenses 188

Plant & machinery 12 000

Building and land 30 000

Furniture & fixtures 4 000

Cash in hand 500

Opening stock 6 000

Discount on purchases 1 400

Discount on sales 825

Telephone charges 2 120

Salaries payable 1 000

Total 1 65 123 1 65 123

$ $

Opening stock 16 000Carriage outwards 250

Closing stock 4 000Returns inwards 150

Discount received 3 000Returns outwards 450

Discount allowed 1 500Salaries & wages 4 400

Purchases 60 000Machinery 20 000

Sales 1 00 000Rent paid 1 000

Carriage inwards 950Power charges 300

Drawings 5 300Commission received 3 500

Capital 28 250Repairs to machinery 750

Motor car 25 000General expenses 100

Page 7 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

8/9

Q 24. The following trial balance is extracted form the books of a sole trader for the year ended 31st Dec2003:-

The stock on 31st Dec 2003 was valued at $ 50 000

Prepare the trading & profit & loss account for the year ended 31st Dec 2003 and a balance sheet as onthat date

Q 25. The following trial balance was taken from the books of a business for the year ended 31 st Dec2003:-

The stock at 31st Dec 2003 was valued at $ 2 040.

Prepare a set final accounts for the year ended 31st Dec 2003

Q 26. The following account balances are extracted from the books of a sole trader for the year ended

31st Dec 2003:-

Advertisement expenses 450Salary received 1 950

Debtors 5 000Creditors 4 000

Debit balances $Credit balances $

Debtors 47 000Sales 2 30 000

Drawings 7 300Return outwards 3 500

Opening stock 30 000Commission received 3 100

Motor car 26 350Rent received 1 200

Land 14 500Discount received 5 700

Equipment 17 400Loan from bank 29 000

Petty cash balance 29 600Capital 1 50 000

Bad debts 3 000Interest received 4 900

Communication expenses 2 160Creditors 17 190

Insurance 9 900Loan from Ali 30 000

Return inwards 5 000Bank overdraft 4 960

Carriage outwards 2 550

Building repairs 8 690

Motor car diesel expenses 10 754

Purchases 1 83 000

Stationery expenses 1 000

Electricity charges 4 900

Machinery 21 700

Cash balance 42 700

Rent paid 6 746

Wages paid 4 400

License and taxes 900Total 4 79 550Total 4 79 550

Account balances Debit $ Credit $

Purchases & sales 14 282 42 380

Returns in & out 111 333

Carriage inwards 322

Carriage outwards 666

Debtors & Creditors 11 380 6 777

Opening stock 1 004

Salaries & wages 5 555

Cash in hand 444

Bank 223

Depreciation 2 333

Salaries owing 1 000

Rent & rates 600

Commission 400

Discounts 188 244

Plant 6 000

Machinery 7 000

Furniture& fixtures 4 000

Advertising 1 023

Insurance 711

Heating & lighting 501

Bad debts written off 105

Bank loan(long term) 2 000

Interest on bank loan 200

Insurance prepaid 50

Repairs to machinery 101

Capital 3 219

Total 56 576 56 576

Page 8 of 9Final Accounts - Principles Of Accounting

8/12/2013http://principlesofaccounting2.com/topics/final-accounts/

7/27/2019 Final Accounts - Principles of Accounting

9/9

You are required to prepare :

a. The trial balance at 31st Dec 2003.

b. The trading & profit & loss account for the year ended 31st Dec 2003.

c. The statement showing the financial position of the business as at 31st Dec 2003.

Incoming search terms:

$ $

Plant & machinery 40 000Office expenses 1 800

Land & buildings 50 000Electricity charges 750

Furniture 10 000Returns outwards 2 700

Fixtures 5 000Capital 81 000

Cash in hand 2 400Lighting & heating 1 100

Returns inwards 800Carriage inwards 2 100

Purchases 72 400Opening stock 6 100

Salaries & wages 21 000Discount received 1 200

Insurance 5 000Commission received 2 000

Stationery 1 050Postage expenses 250

Discount allowed 1 000Bank overdraft 4 500

Debtors 12 000Bad debts 400

Rates & taxes 1 250Creditors 6 500

Sales 1 20 000Selling expenses 500

General expenses 700Closing stock 7 200

Bank loan 17 700

accounting for losses in a return inward

difference between final account and cost accounting how will you show the following item(a)drawings(b)return inwards(c)returnoutwards

in which final account will sales returns be shown

principles of accounting final accounting

PROFIT &LOSS A/C FOR THE YEAR ENDED 31-12-2000

where do you put carriage inwards in the trading account

where do you put freight inwrds and outwards charges on cost of goods sold

http://www.principlesofaccounting2.com

Page 9 of 9Final Accounts - Principles Of Accounting