Trading and profit and loss accounts and balance sheets: Other items

////Trading and profit and loss accounts and balance sheets: Other items

Trading and profit and loss accounts and balance sheets: Other items

Trading and Profit and Loss Accounts. Image credit caonline.com.au

Trading and Profit and Loss Accounts. Image credit caonline.com.au

ZIMSEC O Level Principles of Accounts Notes: Sole Trader: Trading and profit and loss accounts and balance sheets: Other items

  • The Trading and Profit and Loss Account and Balance Sheet are almost always more complex in the real world when compared to the simple statements in these notes
  • There are several more factors to be taken into consideration when preparing these final accounts
  • These include:
  • Sales and Purchases Returns
  • Carriage inwards and Carriage outwards
  • Opening stock from the previous trading period

Sales and Purchases Returns

  • Both these items are dealt with in the Trading Account
  • Sales Returns are deducted from the Sales figure
  • The result is known as Net Sales or Net Turnover
  • It is important to understand that typically Sales Returns only affect Credit Sales and Not Cash Sales
  • Purchases Returns are deducted from the Purchases figure in the Trading Account

(Sales-Sales Returns)-(Opening Stock+(Purchases-Purchases Returns)-Closing Stock)=Gross Profit

Carriage Inwards

  • Includes all the costs incurred in bringing purchases into the businesses
  • For example: courier costs
  • transport costs
  • Freight charges
  • postage costs etc
  • Carriage inwards must be added to the cost of purchases in the Trading Account

Carriage Outwards

  • These are the costs incurred when goods are delivered to customers
  • For example the business might offer customers “free” delivery
  • Carriage outwards in not part of the Sales figure
  • Carriage Outwards are an expense item in the Profit and Loss Account

Closing and Opening  Stock

  • In the second and subsequent years of business most businesses have stock remaining at the end of the year
  • This stock is known as closing stock.
  • It is deducted from the Total Goods available in the Trading Account
  • The closing stock in the preceding year is treated as Opening stock in the subsequent period
  • Opening Stock is added to Purchases so as to obtain the Cost of Goods Available in the Trading Account

Other expenses that appear in the Trading Account

  • In addition to the items listed above
  • The Trading Account must also include items such as import duty (this is added to purchases)
  • Transport insurance
  • Courier’s handling fees
  • Any costs incurred in bringing goods into a salable condition including repairs

To access more topics go to the Principles of Accounts Notes.

By |2017-01-17T11:14:42+00:00March 7th, 2016|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Trading and profit and loss accounts and balance sheets: Other items

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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