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Title: Final accounts FUNDAMENTAL ACCOUNTING PRINCIPLES
Description: It's shows you how to prepare final accounts in fundamental accounting principles
Description: It's shows you how to prepare final accounts in fundamental accounting principles
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Final accounts
Fundamentals of
accounting principals
Makerere university
bachelors of commerce
Final accounts
After preparing the trial balance, final accounts are prepared to achieve the objectives of the
accountancy
...
For achieving the objectives, the financial statements are prepared at the end
of each accounting period
...
Balance sheet or position statement will portray the financial
position of a firm on a particular date
...
e
...
The three following financial statements are prepared for the preparation of final accounts:
i
...
iii
...
Profit and loss account: it shows the net profit/ loss of the business
...
It is the end product of accounting
process which gives consolidated accounting information of the accounting period ,after the
accounting period is over
...
“The trading Account shows the result of buying and selling of goods
...
Trading Account is prepared for the following reasons
To know the gross profit or gross loss arising due to trading activities of the business
...
Gives the trader an idea of the increase in Gross profit /Gross Loss and to assess the
performance of the performance of the business and take corrective measures ,if needed
...
i
...
iii
...
v
...
vii
...
Purchases : hand cares total purchase both cash and credit made during the year
...
Net purchases will be shown In the trading
account
...
Wages
...
Sales returns or return inwards : sales returns must be subtracted from the Total sales to get
Net sales
...
Closing stock
...
it apperas out
side the Trial balance
...
Treatment of closing stock in the final Accounts
When closing stock is given outside the Trial balance
...
The credit side on the Trading Account
Under current Assets in the Balance Sheet
...
This means that the closing stock have already been deducted from the purchases and thus it will ONLY
appear in the Balance sheet under current ASSETS
viii
...
it can be calculated as follows
...
The trading account reveals the gross profit of the business
...
Cost of goods sold is the cost of purchasing the goods from suppliers ( in case of retailing
business ) or the cost of producing the goods that are sold
...
FORMAT OF THE TRADING ACCOUNT
KAFUMISIS
TRADING ACCOUNT
FOR THE PERIOD ENDED 31/12/2011
SHS
SHS
SHS
Sales
Less sales Returns
Net sales
Less cost of sales
Opening stock /inventory
Add purchases
Less purchases returns
Net purchases
Carriage inwards
Wages
Xxxx
XX
XXX
XXX
XXX
XX
XXX
X
XX
Cost of Goods available for
sales
Less closing stock
Cost of sales
Gross profit /loss
XXX
XXXX
XXX
XXXX
XXXX
EXAMPLE ONE
On 31st December 2014 ,the books of Masolo show the following balances:
$
Openning stock
1000
Purchases
2600
Sales
9000
Retur outwards
200
Return inwards
450
Carriages inwards
40
Warehouse worker wages
200
Closing stock was valued at $400
Required : from the above information ,prepare the trading account
Note: Gross profit is $5310
PROFIT AND LOSS ACCOUNT
Expenses and income items are transferred from the double –entry accounts to the profit and
loss Account
...
Compare the net profit of the business with previous years and to assess the
performance of the business
...
Gross profit is transferred to the Debit
side whereas Gross Loss is transferred to the Credit side
...
Any income or gains of the business from the sources other than sales are recorded on the credit side of
profit and loss account
...
Selling and Distribution expenses
...
Miscellaneous expenses
Such as interest on loan ,interest on capital ,depreciation etcs
FORMAT OF THE PROFIT AND LOSS ACCOUNT
KAFUMISIS
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31/12/2014
SHS
SHS
Gross profit / loss
Add miscellaneous
incomes
Rent income
Interest income
Less operating expenses
Salaries and wages
Interest expense
Carriage outwards
Depreciation
Motor expenses
Total expenses
Net profit
SHS
XXXX
XX
X
XXXX
XX
X
XXX
XX
XX
XXXX
XXXX
Example 2
Prepare the profit and loss Account ,from the following balances of Mr
...
2014
...
25,000
Note : Net profit is Shs 1,600
COMBINING THE TRADDING ACCOUNT WITH THE PROFIT AND LOSS ACCOUNT
...
Here ,it is very necessary to remember that these accounts
are not prepared in the ledger rather than on the plain sheets or papers
...
FORMAT OF THE TRADING, PROFIT AND LOSS ACCOUNT / INCOME STATEMENT /STATEMENT OF
COMPREHENSIVE INCOME
KAFUMISIS
PROFIT AND LOSS ACCOUNT /INCOME STATEMENT /STATEMENT OF COMP
...
“the Balance sheet is a statement at a particular date showing on one side the company’s property and
possessions ( ASSETS) and on the other hand the liabilities and capital
...
Balance sheet is a statement not an account
It is prepared to show the financial position of the business
It records all the assets and liabilities of the business
It shows the financial position on a particular day not for a period of time
...
A balance sheet serves the following purposes :
The true financial position of the business can be ascertained at a particular point of time
Reveals the amount of assets owned by the business for example machinery, cash ,debtors and
so on
Show the liabilities of the business such as total creditors ,Bank loans , etc
To judge whether the firm is solvent or not
...
They can be classified as
Fixed assets /non –current ASSETS: all those assets which are allowed by the business and last for
more than an accounting year
...
Current assets: it includes all those assets which either in the form of cash or can be easily converted in
to cash with in one accounting period
...
Liabilities
Liabilities represent what the business owes to outside persons other than owners
...
Long term liabilities /Non current liabilities: these are liabilities which the business owes for more than
one accounting period e
...
g creditors and bank overdraft
...
It is equal to total assets minus total
liabilities
...
The heading of Balance sheet as on a particular date
...
Depreciation
XX
XX
XX
SHS
NBV
XXX
XXXXXX
XXXX
XXXX
XXXX
XXXXX
XXXX
XX
Total capital and reserves
LAIBILITIES
Non-current liabilities
Bank loan
Current liabilities
Accounts payables /creditors
Bank overdraft
XXXX
XX
XXXX
XXX
XX
XXX
Total Liabilities
XXX
XXXX
EXAMPLE THREE
Prepare (i) Trading and profit and Loss A/C and (ii0 Balance sheet
...
12
...
1
...
(Shs)
2,000
Cr
...
12
...
100,000
523,400
Note : Gross profit Shs 52,200 , net profit Shs
...
Prepare Trading and profit 7 LOSS a/c from the information given in Trial Balance for the year ending
31st March ,2014
...
Particulars
Stock (1
...
2013)
Purchases and sales
Return inwards and return outwards
Debtors & creditors
Bills recievables & bills payables
Commission paid
Audit fees
Building
Furniture
Salaries
Telephone charges
Insurance
Discount allowed
Packaging materials
Wages
Freight inwards
Bad bebts
Depreciation
Bank loan
Cash in hand and at bank
Capital
Drawing
machinery
Dr
...
3
...
19600
Cr
...
27,600
Exercise two
...
Kasolo Brothers prepare Trading and profit and loss Account for
the year ended 31st December 2002 and balance sheet as on that date
...
(shs)
Cr
...
16,300
33000
419,067
Title: Final accounts FUNDAMENTAL ACCOUNTING PRINCIPLES
Description: It's shows you how to prepare final accounts in fundamental accounting principles
Description: It's shows you how to prepare final accounts in fundamental accounting principles