trading accounts
DESCRIPTION
Aims & objectives The trading account Purpose of the trading account The trading period Net sales/net purchases Trading and non-trading stock Stocktaking* purpose procedure valuation of stock Cost of goods sold Gross profit/loss On completion students should be able to: Present appropriate (simple) reports on stock and stocktaking* Record stock in accounts Calculate closing stock as per accounts* Operate the trading account in accordance with conventions of double entry* Prepare a trading account from given data Interpret information presented in a trading account* Calculate gross profit percentageTRANSCRIPT
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Trading Accounts
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Aims & objectivesThe trading account• Purpose of the trading account• The trading period• Net sales/net purchases• Trading and non-trading stock• Stocktaking*• purpose• procedure• valuation of stock• Cost of goods sold• Gross profit/loss• On completion students should be able to:• Present appropriate (simple) reports on stock and stocktaking*• Record stock in accounts• Calculate closing stock as per accounts*• Operate the trading account in accordance with conventions of double entry*• Prepare a trading account from given data• Interpret information presented in a trading account*• Calculate gross profit percentage
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The trading AccountA Record of
the goods or services that were traded by a business
during the previous trading period.
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The trading Periodthe length of time the final accounts are
prepared for.
Usually one year But
May be any length of timeQ2 page 346
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Gross profit / Gross loss The difference between the total sales during the period and the total amount it
cost the firm to purchase and prepare the goods for sale
• Sales - Cost of Sales
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Cost of sales
The total amount it cost the firm to produce the goods they actually sold.
• (Opening Stock+ Purchases + Carriage Inwards + Import Duty) - Closing Stock
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Cost of goods available for sale
The total amount it cost the firm to produce the goods they actually sold + stock not sold yet
(Opening Stock+ Purchases + Carriage Inwards + Import Duty)
OrCost of sales + Closing Stock
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Items on the trading account
Sales The value of the goods sold
Sales Returns (returns in)The value of goods sold which
were returned to the firm.
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Items on the trading account
PurchasesThe cost of goods purchased.
Purchase Returns (returns out) The value of goods
purchased which were returned by the firm.
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Items on the trading accountOpening Stock The cost of
goods held in stock at the start of the period
Closing Stock The cost of goods held in stock at the end of the.
period.
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Items on the trading account
Carriage Inwards Transport costs of
bringing goods into the factory.
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Items on the trading account
Import/Custom Duties
Any taxes which the firm had to pay on goods they purchased from certain other countries.
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Sample questionSales €37,500Purchases €18,000Sales Returns €280Purchases Returns €340Opening Stock €2,200Carriage Inwards €20Customs Duties €50Direct Wages €100Closing Stock €6,000.
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SolutionTRADING PROFIT AND LOSS ACCOUNT and Appropriation A/c OF Deane Ltd. For year
ended 31.12.2010
COLUMN 1 COLUMN 2 COLUMN 3
€ € €
Sales 35,700
Less Sales Returns (280)
Net Sales 35,420
Less: Cost of Sales:
Opening Stock (1 January 2010) 2,200
Add: Purchases 18,000
Less: Purchases Returns (340)
Net Purchases 17,660
Add: Carriage Inwards 20
Add: Import Duty 50
Add: Direct Wages 100
Cost of Goods Available 20,030
Less: Closing Stock (31 Dec 2010)
(6,000)
Cost of Sales (14,030)
Gross Profit 21,390
Net Sales = Sales - Sales Returns
Net Purchases = Purchases -
Purchase Returns
Cost of goods available = Opening Stock + Net Purchases + carriage in + duty+ direct wages
Cost of sales = cost of goods available - closing stock
Gross Profit = Net Sales - Cost of sales
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Trading Account of Dean Ltd for year ended 31 December 2010Column1
€Column 2
€Column3
€
Sales 35,700Less Sales Returns (280) 35,420Less Cost of SalesOpening Stock(1Jan 2010) 1 2,200Add: Purchases 18,000Less: Purchases Returns (340) 2 17,660Add: Carriage Inwards 3 20Add: Import Duty 4 50Add: Direct Wages 5 100Cost of Goods Available for Sale 1+2+3+4+5 20,030Less Closing Stock(31 Dec 2010) (6000)Cost of Sales (14,030)Gross Profit 21,390
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Q4 Trading Account of Clancy Ltd for year ended 31 December 2006Column1
€Column 2
€Column3
€
Sales 150000Less Sales Returns 0 150000Less Cost of SalesOpening Stock(1Jan 2010) 10000Add: Purchases 60000Less: Purchases Returns 0 60000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 70000Less Closing Stock(31 Dec 2010) (8000)Cost of Sales (62000)Gross Profit 88000
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Q5 Trading Account of o grady Ltd for year ended 30 nov 2006Column1
€Column 2
€Column3
€
Sales 200000Less Sales Returns 0 200000Less Cost of SalesOpening Stock(1Jan 2010) 40000Add: Purchases 140000Less: Purchases Returns 0 140000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 180000Less Closing Stock(31 Dec 2010) (30000)Cost of Sales (15000)Gross Profit 50000
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Q6 Trading Account of o delaney Ltd for year ended 30 nov 2006Column1
€Column 2
€Column3
€
Sales 60000Less sales returns 0 60000Less Cost of SalesOpening Stock(1Jan 2010) 15000Add: Purchases 50000Less: Purchases Returns 0 50000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 65000Less Closing Stock(31 Dec 2010) (3000)Cost of Sales (62000)Gross Profit (2000)
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Q7 Trading Account of o delaney Ltd for year ended 30 nov 2006Column1
€Column 2
€Column3
€
Sales 60000Less sales returns 4000 56000Less Cost of SalesOpening Stock(1Jan 2010) 9000Add: Purchases 40000Less: Purchases Returns 3000 37000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 46000Less Closing Stock(31 Dec 2010) (6500)Cost of Sales (39500)Gross Profit 16500
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Q8 Trading Account of hillside complexLtd for year ended 30 nov 2006
Column1€
Column 2€
Column3€
Sales 64000Less sales returns 4000 60000Less Cost of SalesOpening Stock(1Jan 2010) 10000Add: Purchases 36000Less: Purchases Returns 5000 31000Add: Carriage Inwards 1500Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 42500Less Closing Stock(31 Dec 2010) (11500)Cost of Sales (31000)Gross Profit 29000
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Q12 Trading Account of hillside complexLtd for year ended 30 nov 2006
Column1€
Column 2€
Column3€
Sales 315000Less sales returns 5000 310000Less Cost of SalesOpening Stock(1Jan 2010) 15000Add: Purchases 200000Less: Purchases Returns 10000 190000Add: Carriage Inwards 2000Add: Import Duty 3000Add: Direct Wages 0Cost of Goods Available for Sale 210000Less Closing Stock(31 Dec 2010) (10000)Cost of Sales (200000)Gross Profit 110000
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Items on the trading account
Net Sales Sales - Sales Returns
Net Purchases Purchases - Purchases
Returns
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Valuing stock
The price the firm paid for the goods (cost)
ExceptIf the selling price lower than costI.e. if the goods have gone out of
fashion
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Stock control
• ensure there is neither too much nor too little stock at any particular time
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Problems of overstocking
• Money tied up in stock should be earning interest
• The stock may go out of date or out of fashion.
• Warehouse and insurance costs• More security staff needed• Risk of pilferage
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Problems with under stocking
• Sales are lost• Profits are lost• Customers are lost• Warehouse space is wasted.
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SETTING UP A STOCK CONTROL SYSTEM
• Code every item in stock. • Decide the correct level of stock for each
item. • Develop a method of recording stock. • Carry out regular stocktaking.
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Stock terms
• Optimum level = Ideal stock level
• Minimum level = the lowest quantity that stock allowed fall to
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Stock terms
• Maximum level = the quantity which stock levels must not exceed
• Reorder quantity = the quantity ordered each time
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Stocktaking
• means counting the amount of stock in the warehouse at a particular time.
• This should be done at least once a year
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Computerised Stock control
• When a business is computerised, the Stock Quantity and value is always up to date.
• purchase invoices are keyed into the system - automatically increasing stock levels and adjusts the cost price if necessary.
• Each time a product is sold the bar code on the product is scanned and the stock count of the product is reduced by one
• The computer can generate orders if stock falls below minimum level
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Stock take procedure
• Close The warehouse • Divide it into sections • Assign two people to each section.• One counts & the other records • Check & total stock sheets• hand to the person in charge who
produces rpt.
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Mark-Up and MarginCost + profit = Selling PriceMark-up and margin are expressed as percentages.
E.G. Cost price €100 Selling price €120 ... Profit = €20 Mark-up - Profit expressed as a percentage of cost. Margin - Profit expressed as a percentage of selling
price.
Mark-Up = Profit x 100%Cost Price
€20 x 100%€100
= 20%
Margin = Profit x 100%Selling Price
€20 x 100%€120
= 16.66%