Company LOGO FINAL ACCOUNTS OF A SOLE TRADER

Company LOGO FINAL ACCOUNTS OF A SOLE TRADER www. company. com

Company LOGO Final accounts of a sole trader www. company. com Final Statements include: • The Trading Account • The Profit and Loss Account • The Balance Sheet

Company LOGO TRADING ACCOUNT Final accounts of a sole trader It is prepared to ascertain the gross profit or gross loss of a business concern for a given time period. www. company. com Gross Profit is difference between actual sale proceeds and cost of goods sold, including direct expenses.

Company LOGO Final accounts of a sole trader TRADING ACCOUNT Gross Profit = Net Sales – [Cost of goods sold + Direct production expenses] Where, Net Sales = Total sales – Sales returns Cost of goods sold = Opening stock + Net Purchases – Closing stock www. company. com Net Purchases = Total purchases – Purchase returns

Company LOGO Final accounts of a sole trader Features of Trading Account • It is a nominal account • It contains items of revenue nature only. No item of capital nature. • Its closing balance indicates gross profit or gross loss. Credit balance represents gross profit and Debit balance represents gross loss. www. company. com • On debit side: the cost of goods sold and all expenses related to purchases. • On credit side: sale proceeds

Company LOGO Final accounts of a sole trader Items that are recorded in a trading account: Opening Stock 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 www. company. com • Previous years’ closing stock • The first item on the debit side of the trading account • The goods that remained unsold at the end of the accounting year • Recorded on the credit side of the trading account and also as an asset in the balance sheet • The last item on the credit side of the account

Company LOGO Final accounts of a sole trader www. company. com Format of Trading Account Dr Particulars 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 Production To Gross Profit Transferred to Profit and Loss A/c Cr Amount Particulars By Sales Less Sales Returns By Closing Stock By Gross Loss Transferred to Profit and Loss A/c Amount

Company LOGO Final accounts of a sole trader www. company. com Illustration 1 From the following particulars prepare a trading account: Particulars Opening Stock Cash Purchases Cash Sales Return inwards Return outwards Credit Purchases Credit Sales Wages Carriage inwards Fuel and Power Freight Lighting Factory expenses Closing Stock Amount 70, 000 55, 000 1, 10, 000 8, 000 85, 000 1, 65, 000 51, 500 5, 800 2, 200 3, 000 5, 000 80, 000

Trading Account Company LOGO Dr Final accounts of a sole trader www. company. com Debit for the year ended… Rs To Opening Stock 70, 000 To Purchases: Cash 55, 000 Credit 85, 000 1, 40, 000 Less: Returns Outwards 8, 000 1, 32, 000 To Wages 51, 500 To Carriage inwards 5, 500 To Fuel and Power 5, 800 To Freight 2, 200 To Lighting 3, 000 To Factory expenses 5, 000 To Gross profit 70, 000 transferred to profit and loss A/c _______ 3, 45, 000 Credit Cr Rs By Sales: Cash 1, 10, 000 Credit 1, 65, 000 2, 75, 000 Less: Returns Inwards 10, 000 2, 65, 000 By Closing Stock 80, 000 _______ 3, 45, 000

Company LOGO Final accounts of a sole trader PROFIT AND LOSS ACCOUNT It is prepared to calculate the net profit or net loss of a business concern for a given time period. www. company. com It is a statement that matches the gross profit and indirect revenues with the indirect expenses to show net profit or net loss.

Company LOGO Final accounts of a sole trader Features of Profit and Loss Account • It is a nominal account • It is prepared after the trading account. • It starts with the gross profit transferred from the trading account. Credit balance represents net profit and Debit balance represents net loss. www. company. com • On debit side: Gross loss and indirect expenses. • On credit side: Gross profit and indirect revenues.

Company LOGO Final accounts of a sole trader Items that are recorded in a profit and loss account: Office and Administrative expenses Selling and Distribution expenses Financial expenses Abnormal Losses www. company. com Gross Loss • 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 • 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 • Expenses incurred on obtaining funds like interest on loan, bank charges, discount allowed, etc • Recorded on the debit side of the account • Refer to losses which do not occur regularly like stocks destroyed in fire, lost in transit, theft, etc • Recorded on the debit side of the account • Gross loss, if any, is transferred from the trading account.

Company LOGO Final accounts of a sole trader Items that are recorded in a profit and loss account: Revenue Incomes Non – Trading Incomes Abnormal gains • 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 • 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 • 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 • It is transferred from the trading account. Gross Profit www. company. com

Company LOGO Final accounts of a sole trader www. company. com Format of Profit and Loss Account Dr Particulars 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 Amount Particulars By Gross Profit Transferred from trading a/c By 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 Cr Amount

Company LOGO Final accounts of a sole trader www. company. com Format of Profit and Loss Account Dr Particulars 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 Amount Particulars Cr Amount

Company LOGO Final accounts of a sole trader www. company. com Format of Profit and Loss Account Dr Particulars 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 Assets To Net Profit Transferred to Capital A/c Amount Particulars Cr Amount

Company LOGO Final accounts of a sole trader www. company. com Illustration 2 From the following trial balance, prepare the Trading Account and Profit and Loss Account Particulars Debit Stock in hand 50, 000 Capital Cash at Bank 70, 000 Furniture 82, 000 Purchases 1, 20, 000 Sales Return inwards 10, 000 Return outwards Wages 8, 000 Carriage outwards 1, 000 Fuel and Power 1, 500 Electricity 2, 000 Salaries 15, 000 Discount received Debtors 90, 000 Creditors Closing stock at the end of the year was valued at Rs. 40, 000 Credit 2, 000 2, 10, 000 8, 000 1, 500 30, 000

Trading Account Company LOGO Dr Final accounts of a sole trader www. company. com Particulars for the year ended… Rs To Opening Stock 50, 000 To Purchases: 1, 20, 000 Less: Returns Outwards 8, 000 1, 12, 000 To Wages 8, 000 To Fuel and Power 1, 500 To Gross profit 68, 500 transferred to profit and loss A/c _______ 2, 40, 000 Particulars Cr Rs By Sales: 2, 10, 000 Less: Returns Inwards 10, 000 2, 000 By Closing Stock 40, 000 ______ 2, 40, 000

Profit and Loss Account Company LOGO Dr Final accounts of a sole trader for the year ended… Debit To Salaries To Electricity To Carriage Outwards To Net profit transferred to Capital A/c Rs 15, 000 2, 000 1, 000 52, 000 _______ 70, 000 www. company. com Credit By Gross profit By Discount received Cr Rs 68, 500 1, 500 ____ 70, 000

Company LOGO BALANCE SHEET Final accounts of a sole trader It sets out the assets and liabilities of an organisation as on a certain date. It is not an account but only a statement of assets and liabilities. It shows the status of the business as at a given moment of time. www. company. com

Company LOGO Final accounts of a sole trader 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 • 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. • Excess of assets over liabilities represents the capital of the owner www. company. com

Company LOGO Final accounts of a sole trader www. company. com Format of Balance Sheet as at… Liabilities 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 advance Amount Assets Fixed Assets Goodwill Land Buildings Plant and Machinery Furniture and Fixtures Motor Vehicles Investments Current Assets Stock in hand Sundry Debtors Bills Receivable Cash at bank Cash in hand Accrued Income Prepaid expenses Fictitious Assets Preliminary expenses Amount

Company LOGO Final accounts of a sole trader www. company. com Illustration 2 From the following trial balance, prepare the Trading Account, Profit and Loss Account and Balance Sheet Particulars Debit Stock in hand 50, 000 Capital Cash at Bank 70, 000 Furniture 82, 000 Purchases 1, 20, 000 Sales Return inwards 10, 000 Return outwards Wages 8, 000 Carriage outwards 1, 000 Fuel and Power 1, 500 Electricity 2, 000 Salaries 15, 000 Discount received Debtors 90, 000 Creditors Closing stock at the end of the year was valued at Rs. 40, 000 Credit 2, 000 2, 10, 000 8, 000 1, 500 30, 000

Trading Account Company LOGO Dr Final accounts of a sole trader www. company. com Particulars for the year ended… Rs To Opening Stock 50, 000 To Purchases: 1, 20, 000 Less: Returns Outwards 8, 000 1, 12, 000 To Wages 8, 000 To Fuel and Power 1, 500 To Gross profit 68, 500 transferred to profit and loss A/c _______ 2, 40, 000 Particulars Cr Rs By Sales: 2, 10, 000 Less: Returns Inwards 10, 000 2, 000 By Closing Stock 40, 000 ______ 2, 40, 000

Profit and Loss Account Company LOGO Dr Final accounts of a sole trader for the year ended… Debit To Salaries To Electricity To Carriage Outwards To Net profit transferred to Capital A/c Rs 15, 000 2, 000 1, 000 52, 000 _______ 70, 000 www. company. com Credit By Gross profit By Discount received Cr Rs 68, 500 1, 500 ____ 70, 000

Balance Sheet Company LOGO for the year ended… Final accounts of a sole trader Liabilities Rs Capital: Opening Balance 2, 000 Add. Net profit 52, 000 Creditors Furniture Cash at Bank Debtors 2, 52, 000 Closing Stock 30, 000 _______ 2, 82, 000 www. company. com Assets Rs 82, 000 70, 000 90, 000 40, 000 ____ 2, 82, 000