A Study On Trading And Profit Loss Accounting Essay

Category: Accounting

Prepare trading and profit and loss account for the year ended 30th September 2001 and a balance sheet on that date after taking into account the following adjustments:

Closing stock was valued at Rs, 34,220.

Provision for doubtful debts is to be kept at Rs. 500.

Depreciate plant and machinery @ 10% p.a.

The proprietor has taken goods worth Rs. 5,000 for personal use and additionally distributed goods worth Rs. 1,000 as samples.

Purchase of furniture Rs. 920 has been passed through purchases book.

ANSWER:

FINAL ACCOUNTS

The term final accounts means statements which result finally from the preparation of accounts showing the profit earned or loss suffered by the firm and the financial state of affairs of the firm at the end of a period concerned. As already stated a statement showing the profit and loss is known as Profit And Loss Account and the statement showing financial state of affairs is called the Balance Sheet.

The financial statements of an organization made up at the end of an accounting period, usually the fiscal year.

For a manufacturer, the final accounts consist of the following.

(1)Â Manufacturing account,

(2)Â Trading account,

(3) Profit and loss account, and

(4) Profit and loss appropriation account.

A commercial companyHYPERLINK "http://www.businessdictionary.com/definition/company.html"'HYPERLINK "http://www.businessdictionary.com/definition/company.html"s final accounts will include all of the above except the manufacturing account. Together, these accounts show the gross profit, net income, and distribution of net income figures of the company.

Financial accountancy is the field of accountancy that is concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. The fundamental need for financial accounting is to reduce the principal-agent problem by measuring and monitoring agents performance and reporting the results to the interested users.

Financial accountancy is also used to prepare accounting information for people the people those are outside the organization or not involved in the day-to-day running of the company.Â

In short, financial accounting is the process of summarizing financial data taken from an organizations accounting records and publishing in the form of annual reports for the benefit of people outside the organization.

Trading Account

As is clear from the title "Trading and Profit And Loss Account" it is divided into two sections - first section is called Trading Account and the second is called Profit And Loss Account. The aim of the first section is to find out Gross Profit or Gross Loss while that of second section is to find out Net Profit or Net Loss. It is from the management point of view that these two sections are prepared.

Profit and Loss Account

Gross Profit or Gross Loss so calculated is taken to the second part of the account called Profit and Loss Account. All the remaining expenses and losses are shown on the debit side and incomes and gains on the credit side of this account. The difference of the sides is either Net Profit or Net Loss which is taken to the capital account of the proprietor. Net Profit is added to the capital and Net Loss is deducted from the capital.

Balance Sheet

It is the statement prepared with an aim to know the exact Financial Position of the business on the last date of the Financial Year. All the balances of Real and Personal accounts are grouped as Assets and Liabilities and are arranged in a proper way and the resultant statement is called a Balance Sheet or Position Statement.

TRADING ACCOUNT

IN THE BOOKS OF AKHILESH FOR THE YEAR ENDING…

PARTICULARS

AMOUNT (DR)

PARTICULARS

AMOUNT (CR)

Opening Stock

30,000

Sales 1,27,000

(-) Sales Return (1,000)

1,26,000

Purchases 60,000

(-) Purchase Returns (750)

(-) Drawings (5,000)

(-) Furniture (920)

(-) Advertisement (1,000)

52,330

Closing Stock

34,220

Wages

10,000

GROSS PROFIT

67,890

TOTAL

1,60,220

TOTAL

1,60,220

PROFIT AND LOSS ACCOUNT

IN THE BOOKS OF AKHILESH FOR THE YEAR ENDING…

PARTICULARS

AMOUNT (DR)

PARTICULARS

AMOUNT (CR)

Salaries

7,550

GROSS PROFIT

67,890

Discount Allowed

425

Discount Received

800

Rent, Rates and Taxes

10,000

Provision For Doubtful Debts (500-525)

25

Advertisement 2000

Add- Samples 1000

3,000

Depreciation (10% on Plant &Machinery)

7,800

Carriage Outwards

1,200

NET PROFIT

38,740

TOTAL

68,715

TOTAL

68,715

BALANCE SHEET

IN THE BOOKS OF AKHILESH FOR THE YEAR ENDING…

LIABILITIES

AMOUNT (DR)

ASSETS

AMOUNT (CR)

Capital 1,00000

(-) Drawings (5,000)

95,000

Debtors 45,000

(-) Provision For Doubtful Debts (500)

44,500

Creditors

25,000

Plant &Machinery 78,000

(-) Depreciation (7,800)

70,200

Net Profit

38,740

Furniture 2000

Add- Purchases 920

2,920

Cash

6,900

Closing Stock

34,220

TOTAL

1,58,740

TOTAL

1,58,740