THE MAIN FINAL ACCOUNTS Flashcards
Trading Account
The trading account reveals the gross profit of the business, defined as the difference between sales revenue and the direct costs of the goods sold (or cost of sales).
Formulas for Trading Account
Gross Profit = Sales Revenue - Cost of Goods Sold
Cost of Sales = Opening Stock + Purchases - Closing Stock
Example of Trading Account:
Opening Stock: $10,000
Purchases: $30,000
Closing Stock: $12,000
Sales Revenue: $50,000
Calculation of Gross Profit:
Cost of Sales = $10,000 (Opening Stock) + $30,000 (Purchases) - $12,000 (Closing Stock) = $28,000
Gross Profit = $50,000 (Sales Revenue) - $28,000 (Cost of Sales) = $22,000
Profit and Loss Account
Definition: The Profit and Loss Account (Income Statement) provides a summary of a company’s revenues, expenses, and overall profitability over a specific period.
Profit and Loss Account
Definition: The Profit and Loss Account (Income Statement) provides a summary of a company’s revenues, expenses, and overall profitability over a specific periodand how it is distributed at the end of that period.
Formulas for Profit and Loss Account
Profit Before Interest and Tax = Gross Profit - Operating Expenses
Profit Before Tax = Profit Before Interest and Tax - Interest Expenses
Profit for the Period = Profit Before Tax - Coorporation Tax
Example of Profit and Loss Account
Gross Profit: $22,000 (from the Trading Account)
Operating Expenses: $12,000
Interest Expenses: $2,000
Income Tax Expense: $3,000
Calculation of Profit Before Interest and Tax:
Profit Before Interest and Tax = $22,000 (Gross Profit) - $12,000 (Operating Expenses) = $10,000
Calculation of Profit Before Tax:
Profit Before Tax = $10,000 (Profit Before Interest and Tax) - $2,000 (Interest Expenses) = $8,000
Calculation of Profit for the Period:
Profit for the Period = $8,000 (Profit Before Tax) - $3,000 (Income Tax Expense) = $5,000
Appropriation Account
Definition: The Appropriation Account outlines the allocation of the company’s profits to various purposes, such as dividendsor retained profits
Formula for Appropriation Account:
Retained Profit = Profit for the Period - Dividends
Example of Appropriation Account
Example of Appropriation Account:
Profit for the Period: $5,000 (from the Profit and Loss Account)
Dividends Paid: $2,000
Transfers to Reserves: $1,000
Calculation of Retained Profit:
Retained Profit = $5,000 (Profit for the Period) - $2,000 (Dividends Paid) - $1,000 (Transfers to Reserves) = $2,000