company logo final accounts of a sole trader
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Company LOGO
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FINAL ACCOUNTS OF A SOLE TRADER
Company LOGO
www.company.com
Final Statements include:
• The Trading Account• The Profit and Loss Account• The Balance Sheet
Final accounts of a sole trader
Company LOGO
www.company.com
TRADING ACCOUNT
It is prepared to ascertain the gross
profit or gross loss of a business concern
for a given time period.
Gross Profit is difference between
actual sale proceeds and cost of goods
sold, including direct expenses.
Final accounts of a sole trader
Company LOGO
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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
Net Purchases = Total purchases – Purchase returns
Final accounts of a sole trader
Company LOGO
www.company.com
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.
• 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.
Credit balance represents gross profit
and Debit balance
represents gross loss.
Final accounts of a sole trader
Company LOGO
www.company.com
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 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
Final accounts of a sole trader
Company LOGO
www.company.com
Format of Trading Account
Particulars Amount Particulars Amount
To Opening StockTo 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 CrFinal accounts of a sole trader
Company LOGO
www.company.com
Illustration 1
From the following particulars prepare a trading account:Particulars Amount
Opening Stock 70,000
Cash Purchases 55,000
Cash Sales 1,10,000
Return inwards 10,000
Return outwards 8,000
Credit Purchases 85,000
Credit 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 trader
Company LOGO
www.company.com
Trading Accountfor the year ended…
Debit Rs Credit Rs
To Opening StockTo Purchases: Cash 55,000 Credit 85,000 1,40,000Less:Returns Outwards 8,000 To WagesTo Carriage inwardsTo Fuel and PowerTo FreightTo LightingTo Factory expensesTo Gross profit transferred to profit and loss A/c
70,000
1,32,000 51,500 5,500 5,800 2,200 3,000 5,000 70,000
_______3,45,000
By 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 Cr
Company LOGO
www.company.com
PROFIT AND LOSS ACCOUNT
It is prepared to calculate the net profit
or net loss of a business concern for a given time period.
It is a statement that matches the gross profit and indirect revenues with the
indirect expenses to show net profit or net
loss.
Final accounts of a sole trader
Company LOGO
www.company.com
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.
• 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.
Credit balance represents net profit
and Debit balance
represents net loss.
Final accounts of a sole trader
Company LOGO
www.company.com
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 Losses• 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• Gross loss, if any, is transferred from the
trading account.
Final accounts of a sole trader
Company LOGO
www.company.com
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 trader
Company LOGO
www.company.com
Format of Profit and Loss Account
Particulars Amount Particulars Amount
To Gross Loss Transferred from trading a/cTo 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 ReceivedBy Non-Operating Incomes Interest Dividend Rent Apprenticeship Premium Income from Other sources Miscellaneous receiptsBy Abnormal Gains Profit on sale of fixed assets Profit on sale of investments Bad debts recoveredBy Net Loss transferred to Capital A/c
Dr CrFinal accounts of a sole trader
Company LOGO
www.company.com
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
Dr CrFinal accounts of a sole trader
Company LOGO
www.company.com
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 capitalTo Abnormal Losses Goods lost in transit Loss by fire Cash defalcations Loss on sale of AssetsTo Net Profit Transferred to Capital A/c
Dr CrFinal accounts of a sole trader
Company LOGO
www.company.com
Illustration 2From the following trial balance, prepare the Trading Account and Profit
and Loss AccountParticulars Debit Credit
Stock in hand 50,000
Capital 2,00,000
Cash at Bank 70,000
Furniture 82,000
Purchases 1,20,000
Sales2,10,000
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 90,000
Creditors 30,000
Closing stock at the end of the year was valued at Rs. 40,000
Final accounts of a sole trader
Company LOGO
www.company.com
Trading Accountfor the year ended…
Particulars Rs Particulars Rs
To Opening StockTo Purchases: 1,20,000Less:Returns Outwards 8,000 To WagesTo Fuel and PowerTo Gross profit transferred to profit and loss A/c
50,000
1,12,000 8,000 1,500 68,500
_______2,40,000
By Sales: 2,10,000 Less:Returns Inwards 10,000By Closing Stock
2,00,000 40,000
______2,40,000
Final accounts of a sole trader
Dr Cr
Company LOGO
www.company.com
Profit and Loss Accountfor the year ended…
Debit Rs Credit Rs
To Salaries To ElectricityTo Carriage OutwardsTo 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
________ 70,000
Final accounts of a sole trader
Dr Cr
Company LOGO
www.company.com
BALANCE SHEET
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.
Final accounts of a sole trader
Company LOGO
www.company.com
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
represents the capital of the owner
• On the right side:
Assets • On the left side:
Liabilities
• 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 trader
Company LOGO
www.company.com
Format of Balance Sheet
Liabilities Amount Assets Amount
Owner’s Equity Capital Reserves ProfitsLong Term Liabilities Debentures Loans on mortgageCurrent Liabilities Sundry Creditors Bills Payable Bank Overdraft Outstanding expenses Income received in advance
Fixed 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 expensesFictitious Assets Preliminary expenses
Balance Sheet as at…Final accounts of a sole trader
Company LOGO
www.company.com
Illustration 2From the following trial balance, prepare the Trading Account, Profit and
Loss Account and Balance SheetParticulars Debit Credit
Stock in hand 50,000
Capital 2,00,000
Cash at Bank 70,000
Furniture 82,000
Purchases 1,20,000
Sales2,10,000
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 90,000
Creditors 30,000
Closing stock at the end of the year was valued at Rs. 40,000
Final accounts of a sole trader
Company LOGO
www.company.com
Trading Accountfor the year ended…
Particulars Rs Particulars Rs
To Opening StockTo Purchases: 1,20,000Less:Returns Outwards 8,000 To WagesTo Fuel and PowerTo Gross profit transferred to profit and loss A/c
50,000
1,12,000 8,000 1,500 68,500
_______2,40,000
By Sales: 2,10,000 Less:Returns Inwards 10,000By Closing Stock
2,00,000 40,000
______2,40,000
Final accounts of a sole trader
Dr Cr
Company LOGO
www.company.com
Profit and Loss Accountfor the year ended…
Debit Rs Credit Rs
To Salaries To ElectricityTo Carriage OutwardsTo 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
________ 70,000
Final accounts of a sole trader
Dr Cr
Company LOGO
www.company.com
Balance Sheet for the year ended…
Liabilities Rs Assets Rs
Capital: Opening Balance 2,00,000AddNet profit 52,000Creditors
2,52,000 30,000
_______ 2,82,000
FurnitureCash at BankDebtorsClosing Stock
82,000 70,000 90,000 40,000
________ 2,82,000
Final accounts of a sole trader