Final Accounts

Question 1

Name the two final accounts

Answer 1

Trading account - used to calculate gross profit

Profit and loss account - used to calculate net profit

Question 2

Explain the difference between a pre-adjustment trail balance and a post-adjustment trial balance

Answer 2

Pre-adjustment: Trial balance that’s drawn up on the last day of the financial year. It’s a summary of all the transactions that occurred during the financial year and shows the totals of the accounts in the general ledger before any adjustments are made.

Post-adjustment: Trial balance that’s prepared after adjustments have been journalized and posted to the general ledger

Question 3

What is the purpose of preparing final accounts?

Answer 3

To determine whether the business is profitable during the financial year

Question 4

Explain the term gross profit

Answer 4

Turnover less cost of sales

Question 5

Explain the term net profit

Answer 5

Gross profit plus income less expenses

Question 6

Explain the term cost of sales

Answer 6

Opening stock
Plus purchases
Plus carriage inwards
Less closing stock

Question 7

Explain the term operating expenses

Answer 7

Expenses of the business that it must pay in order to operate

Question 8

Explain the term net loss

Answer 8

When expenses exceed sales plus income (if the gross income is smaller than expenses)

Question 9

Explain the term turnover

Answer 9

Sales less sales returns

Question 10

Explain the term closing transfers

Answer 10

It’s the transfer (close off) of all balances/amounts of the nominal account section of the general ledger, for a specific period, to the final accounts

The transfer of drawings, opening and closing stock, gross and net profit to the final accounts

Question 11

In what book of first entry is closing transfers recorded?

Answer 11

General journal