CHAPTER 9 - FINAL ACCOUNTS OF SOLE TRADERS

Question 1

Which 2 financial statements make up the final accounts?

Answer 1

1. Trading and Profit & Loss Account
2. Balance Sheet

Question 2

How do get the closing stock value and how is this applied in the final accounts?

Answer 2

It’s valued at cost price

Deduct from purchases in Trading Account to give COS

Add to Balance Sheet as an asset

Question 3

What does the trading account show?

Answer 3

Sales, Cost of Sales and Gross Profit made from trading activities in the year

All entries relate to stock (bought or sold)

COS = cost of goods sold in year =

Opening Stock + Purchases - Closing Stock

GP = Sales - COS

Question 4

What does the P&L show?

Answer 4

The net profit for the year by deducting operational expenses from Gross Profit

Gross Profit - Expenses = Net Profit

Question 5

What timeframes do the financial statements cover and how should they be titled?

Answer 5

Trading and P&L covers all activity in a financial year

“Trading and P&L for year ended 31st Jan”

Balance Sheet shows position at a given point

“Balance Sheet as at 30th June”

Question 6

How many times do figures in the Trial Balance appear on the final accounts and how many times do figures in the notes appear?

Answer 6

Trial Balance figures appear once

Notes figures appear twice

Question 7

Where do net profit and drawings appear on the balance sheet?

Answer 7

With Captial

net profit is added and drawings are deducted to give Closing Capital figure

Question 8

How are discounts allowed and received recorded in the final accounts?

Answer 8

Discounts Allowed recorded as an expense in the P&L

Discounts recieved recorded as ‘other income’ below Gross Profit in the P&L

Question 9

How are carraige inwards and outwards recorded in the final accounts?

Answer 9

Inwards (supplier’s delivery charge) is added to the cost of purchases in the Trading Account (shown as an expense in the nominal ledger)

Outwards (where we pick up the cost of delivering to a customer) is charged to the P&L as an expense

Question 10

How are Sales and Purchases returns recorded in the final accounts?

Answer 10

As deductions underneath the respective headings in the Trading Account

Sales

Less Sales Returns

Purchases

Less Purchases Returns