Trading

Trading Account and Profit and Loss Account and Balance Sheet - An Example:

Learning Objectives:

  1. Understand the procedure of Preparing trading and profit and loss account and balance sheet of a business.

The following trial balance have been taken out from the books of XYZ as on 31st December, 2005.

  Dr.
$
Cr.
$
Plant and Machinery 100,000  
Opening stock 60,000  
Purchases 160,000  
Building 170,000  
Carriage inward 3,400  
Carriage outward 5,000  
Wages 32,000  
Sundry debtors 100,000  
Salaries 24,000  
Furniture 36,000  
Trade expense 12,000  
Discount on sales 1,900  
Advertisement 5,000  
Bad debts 1,800  
Drawings 10,000  
Bills receivable 50,000  
Insurance 4,400  
Bank balances 20,000  
Sales   480,000
Interest received   2,000
Sundry creditors   40,000
Bank loan   100,000
Discount on purchases   2,000
Capital   171,500
 
  795,500 795,500
 

Closing stock is valued at $90,000

Required: Prepare the trading and profit and loss account of the business for the year ended 31.12.2005 and a balance sheet as at that date.

XYZ Trading and Profit and Loss Account

For the year ended 31st, December 2005

width="67">

             
Opening stock   60,000   Sales 480,000  
Purchases 160,000     Less discount 1,900 478,100
Less discount 2,000 158,000      
      Closing stock   90,000
Carriage inward   3,400        
Wages   32,000        
Gross profit (transferred to P&L)   314,700        
         
    568,100       568,000
         
Carriage outward   5,000   Gross profit (transferred to P&L)   314,700
Salaries   24,000   Interest received   2,000
Trade expenses   12,000        
Advertisement   5,000        
Bad debts   1,800        
Insurance   4,400        
Net profit (transferred to capital)   264,500        
         
    316,700       316,700
         
             

Note: Discount on purchases and discount on sales are deducted from purchases and sales respectively. They may be shown on the credit and debit side of profit and loss account respectively and it will not affect the net profit of the business. The gross profit will be affected if discount is treated so.

XYZ Balance Sheet

For the year ended 31st, December 2005

           
Assets $   Liabilities   $
Current Assets:     Current Liabilities:    
     Bank balance 20,000        Sundry creditors   40,000
     Bills receivable 50,000        Bank loan   100,000
     Sundry debtors 100,000   Fixed and Long Term:    
     Closing stock 90,000        Capital 171,500  
Fixed Assets:         +Net profit 264,500  
     Furniture 36,000      
     Plant and Machinery 100,000       -Drawings 10,000 426,000
     Building 170,000      
           
       
  566,000       566,000
       
           


Category: Trading

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