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Accountingrevision
Thursday,January5,2012

TRADINGANDPROFITANDLOSSACCOUNT
FinalAccountsofsoleTraders:showthecalculationofprofitearnedortheloss
incurredduringtheperiodandthefinancialpositionofthebusinessattheendofthe
period.Finalaccountsusuallypreparedfromatrialbalance.

1.TradingAccount:dealswithtrading(buyingandselling).Theaccountshowsthe
calculationofprofitearnedongoodssold.
GrossProfit=SalesCostofGoodsSold
Costofgoodssold=openingstock+purchases+carriageinwards
closingstock
Drawingsofgoodsforpersonaluseisdeductedfrompurchases
Carriageinwardsisaddedtothepurchases
2.ProfitandLossAccount:showsthecalculationoffinalortrueprofit.Thisisthe
profitafterallrunningexpensesandanyotheritemsofincome.
NetProfit=Grossprofit+otherincomesExpenses

SpecimenofProfitandLossAccount
Amount
SalesSalesReturns
X
Less:Costofgoodssold:
Openingstockof
X
goods
X
()
Add:Purchases
X
Add:Carriage
inwards/Carriageon
X
Xx
purchases

Less:Closingstock
Xx
Gross
Xx
Profit
Xx
Add:Rentreceived
Xx
Add:Discountreceived
Add:Commission
X
received
X
Add:Decreasein
X
provisionforbaddebts
X
X
Less:Expenses:
X
Rentpaid+
X
()
Accrued/unpaid
X
Salarypaid+
X
Accrued/unpaid
X
Baddebt
X
Generalexpenses x
Officeexpenses
xxx
Insurance
prepaid/paidinadvance
Increasein
xx
provisionforbaddebts

BlogArchive

2012(9)
January(9)
BADDEBTSANDPROVISION
FORDOUBTFULDEBTS
ACCOUNTINGFORNON
TRADINGCONCERNS

xxx

TRADINGANDPROFITAND
LOSSACCOUNT
MANUFACTURING
ACCOUNTS
GOODWILLAND
PARTNERSHIP
COMPANYACCOUNTS
ACCOUNTINGRATIOS
ACCOUNTSFROM
INCOMPLETERECORDS
(SingleEntry)
ACCOUNTINGCONCEPTS

Depreciationof
fixedassets
Bankcharges
Loaninterestpaid
Repairsto
building
Deliveryvan
expenses
Netprofitfortheyear
transferredtocapitala/cin
thebalancesheet

3.BalanceSheet:isastatementofthefinancialpositionofthebusinessonacertain
date.Itshowswhatthebusinessowns,andamountsowingtothebusinessthe
assetsandwhatthebusinessowes,theliabilitiesandthecapital.
SpecimenofBalanceSheet
Amount
FIXEDASSETS:
FreeholdPremises/LandandBuildings
X
Equipmentlessdepreciation
X
Furniture(depreciationofcurrentyear+previousyears)
X
Motorvan/Motorvehicledepreciation
X
Goodwill
X
CURRENTASSETS:
Cashinhand/cashatbank
X
Debtorslessprovisionforbaddebts
X
(+)
Closingstock
X
Prepaidrent/insuranceetc.
X
xx
LESS:CURRENTLIABILITIES
Creditorsforgoods
xx
Creditorsforexpensessuchasaccruedrent,deliveryvan
Xx Xx
expensesx
Xxx
Bank
overdraft
x
X
WORKINGCAPITAL
X
FINANCEDBY:
Capital
Add:NetprofitfromP&Laccount

Xx
(+)
x
xxx

Less:(Drawingsofcash+goods)
LONGTERMLIABILITIES
BankLoan

AdjustmentofitemsinFinalaccounts
Items
1.unpaidexpenses
2.Prepaidexpenses
3.Drawingsofgoods
4.Bankcharges
5.Provisionforbaddebts
6.Provisionfordepreciationon
fixedassets
7.Accruedincome
8.Purchases,purchasereturns,
sales,
salesreturns
9.Discount/commission/rent
received
10.Discountallowed,
commissionpaid,rent,
baddebt,wages,salaries,
bankcharges,
generalexpenses,office
expenses,

Trading,Profitand
Lossa/c
+totheexpenses
fromtheexpenses
frompurchasesin
tradinga/c
Expensesinprofit
andlossa/c
Expenses
Expenses
Addtotheg/p
Tradinga/c
Addedtogrossprofit
Expensesinp&la/c

BalanceSheet
Currentliability
Currentassets
Addedtodrawings
Deductedfromcash
atbank
Deductedfrom
debtors
Deductedfromfixed
assets
Currentasset
..

..

..
Fixedasset
.

repairstobuilding
11.Machinery,equipment,
furniture,
premises,landandbuildings
12.Cashinhand,debtors,cash
atbank
13.Creditors,bankoverdraft
ClubAccounts
1.subscriptionreceivedin
advanceatstart
2.subscriptionreceivedin
advanceatend
3.subscriptioninarrearinthe
beginning
4.subscriptioninarrearatthe
end

..

Currentasset
Currentliability

Addedto
subscriptionsinI&E
a/c
Deductedfrom
subscription
Deductedfrom
subscriptions
Addedto
subscriptions

Currentliabilityinthe
openingb/s
Currentliabilityinthe
closingb/s
Currentassetinthe
openingb/s
Currentassetinthe
closingb/s

ListofsomecommonExpenses,Income,AssetsandLiabilities
EXPENSES.
Carriageinwards,carriage
outwards
Purchases,wagesand
salaries,
Rentandinsurance,
electricitycharges,
advertisingcharges,bank
charges,
Discountallowed,bad
debts,
Depreciationoffixed
assets,
Provisionforbaddebts,
officeexpenses,
Provisionfordiscounton
debtors
Generalexpenses,motor
expenses,
Motorvehicleexpenses
Repairstobuildingor
machinery
Interestonloan

FIXEDASSETS
PlantandMachinery
LandandBuildings
Premises
Equipment
FurnitureandFittings
FixturesandFittings
LawnMover
Computers
Motorvan/Motorvehicle
Motorcar

CURRENTLIABILITY
Creditorsforgoods
Creditorsforexpenses:
Eg.Rentowing,
Salaryaccrued
Wagesunpaid
Generalexpenses
unpaid
Commission
outstanding
Bankoverdraft
[allunpaidamounts]

INCOMES:
Sales,discountreceived,
Commissionreceived
Interestreceived,rent
received,
profitonsaleofoldfixed
assets

CURRENTASSETS
Cashinhand
Cashatbank
Debtors
Closingstock
Prepaidrent,insurance,
rates

LONGTERM
LIABILITIES
Loanfrombank
Mortgageloans
Debenture

Thetradingandprofit&lossaccountandbalancesheetpreparedattheendofayearis
knownasFinalaccounts.Whilepreparingthefinalaccounts,theremaybesomeitems
sofarnotadjusted.Theseitemsaretobeadjustedinthefinalaccountsforcalculating
thecorrectprofitorlossofthebusiness.Theusualadjustmentsinthefinalaccountsare:
a.Expensesowing:Thesearetheexpensesincurredduringtheyearbutnotpaidin
cash.Thisamountwillbepaidinthenearfuture(nextyear).Theowingexpenseistobe
addedwiththeamountofsameexpensealreadypaidgiveninthetrialbalanceandit
shouldbeshowninthebalancesheetasacurrentliability.
Thedoubleentryforrecordingtheexpensesowingis
DebitExpensesaccount
CreditExpensesowingaccount
Thisexpenseisalsoknownasoutstandingexpenses,expensespayableorexpense
payable.

b.Prepaidexpense.:Thisistheexpensepaidduringtheyearforthebenefitofthenext
year.Theportionoftheexpensewhichisprepaidistobedeductedfromthetotal
expensesalreadypaidduringtheyear(giveninthetrialbalance)andshownascurrent
assetinthebalancesheet.
Thedoubleentryforrecordingtheprepaidexpenseis
DebitPrepaidexpenseaccountand
CreditExpenseaccount
Thisexpenseisalsoknownasexpensepaidinadvanceorunexpiredexpense
c.Accruedincome:Theincomeearnedduringtheyearbutnotreceivedincashis
knownasaccruedincome.Theamountofaccruedincomeistobeconsideredascurrent
yearsincomeandaddedwiththeconcernedincomereceivedduringtheyear(givenin
thetrialbalance)andshownasacurrentassetinthebalancesheet.
Thedoubleentryforrecordingtheaccruedincomeis:
DebitAccruedincomeaccountand
CreditIncomeaccount
Theaccruedincomeisalsoknownasoutstandingincome.
d.Incomereceivedinadvance:Thisistheincomereceivedduringtheyearforthe
servicestoberenderedduringthenextyear.Sincethisincomeisnotrelatedtothe
currentyear,itshouldbedeductedfromtheconcernedincome(giveninthetrialbalance)
andshownasacurrentliabilityinthebalancesheet.
Thedoubleentryforrecordingtheincomereceivedinadvanceis:
DebitIncomeaccountand
CreditIncomereceivedinadvance
Thisisalsoknownasunexpiredincome.
e.Depreciation:Thepartofthecostofafixedassetthatisconsumedbyabusiness
duringtheperiodofitsuseisknownasdepreciation.Itisconsideredasan
expenseinthebusinessthereforeshownasanexpenseintheprofit&loss
accountanddeductedfromthecostpriceoftheconcernedfixedassetinthe
balancesheet.
Thedoubleentryforrecordingdepreciationis:
DebitProfit&lossaccountand
CreditDepreciationaccount
f.Baddebt:Thepartoftheamountofdebtorswhichcannotberecoveredisknownas
baddebt.Itisanexpensetobeshownintheprofit&lossaccount.Ifthebad
debtappearsinthetrialbalance,itisknownasbaddebtwrittenoffandshownin
theprofit&lossaccountonly.Ifbaddebtinformationappearsamongthe
adjustmentpointsbelowthetrialbalance,thenitshouldbeshownasanexpense
intheprofit&lossaccountandshownasadeductionfromthedebtorsinthe
balancesheetundertheheadingcurrentassets.
Thedoubleentryforrecordingthebaddebtis:
DebitBaddebtaccountand
CreditDebtorsaccount
g.Goodsdrawingsbytheownerforhispersonaluse:
Theamountofgoodswithdrawnbytheownerforhispersonaluseistobe
consideredasdrawing.
Thedoubleentryforrecordingthegoodsdrawingsis:
DebitDrawingsaccountand
CreditPurchaseaccountorsalesaccount
Theamountofgoodsdrawingsshouldbedeductedformpurchasesandcapitalinthe
balancesheet.
Postedbyza'amumthazat1:02PM

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