2. PROCESO DE LA INVESTIGACIÓN
2.4. ANÁLISIS, INTERPRETACIÓN Y DISCUSIÓN DE LOS DATOS
2.4.3. Impactos de la migración
Trading income account for year ending 30 April 20X4
N’000 N’000
Inventory at 1 May 20X3 5,000 Purchases 50,000 Gross
profit c/d 22,500 75,000
Sales revenue 65,500 Inventory at 30 April 20X4 10,000
_______
77,500 Gross profit b/d 22,500
Notes
1. The gross profit is the difference between the two sides of the trading account and must be brought down to the opposite side of the account.
2. No date columns are shown in the trading account since the date appears as part of the heading of the account.
3. When the trading account is prepared in account form the inventory at the end of the year may be shown as' either a credit entry or deducted on the debit side as shown below. This has the advantage of showing the cost of sales.
S.Musa
Trading account for the year ended 30 April 20X4
N’000 N’000
Opening inventory 5,000 Add:
Purchases 50,000 55,000 Less: Closing inventory 10,000 Cost of sales 45,000 Gross profit c/d 22,500 67,500
Sales Revenue 67,500
67,500 Gross profit b/d 22,500
70
4. The trading income account is a ledger account in the general ledger and thus part of the double-entry system. However, when it is prepared for submission to the management, it is often presented vertically as shown at the start of Example 1. .
5. No entries other than those shown above (and the correction of errors) should be made in
an inventory account. It is not a continuous record of the Value of inventory. ,
6. The inventory shown in a trial balance will always be that at the end of the previous year
(and thus the opening inventory of the year to which the trial balance relates).
3.1.3 The statement of profit and loss
The statement of profit and loss is taken from a ledger account in the general ledger (called the profit and loss account) and thus is a part of the double-entry system. It is used to ascertain the profit (or loss) for the period and is prepared in the same way as the trading account. That is, the balances on the Income and expense ledger accounts in the general ledger are transferred to the profit and loss account by means of double entry.
3.2 The purpose and structure of a statement of financial position
The statement of financial position is a list of the assets, liabilities and capital of a business at the end of a given accounting period. It therefore provides information about the resources and debts of the reporting entity. The statement of financial position enables users of financial statements to evaluate the entity's financial position, in particular whether the business is likely to pay its debts or not. The statement of financial position is like a photograph of the financial state of affairs of a business at a specific time.
Statements of financial position contain five groups of items, as follows.
Non-current assets
These are items not specifically bought for resale but to be used in the production or distribution of those goods normally sold by the business. They are utilized to generate economic inflows to the entity. Non-current assets are durable goods that usually last for several years, and are normally kept by a business for more than one accounting year. Examples of non-current assets include land and buildings, plant and machinery, motor vehicles, office equipment, furniture,
fixtures and fittings. These are tangible assets. The different types are recorded in separate ledger accounts with the balances on each account being disclosed in the statement of financial position.
In company financial statements tangible non-current assets are collectively referred to as 'property, plant and equipment' - only one combined figure would be disclosed in a company's statement of financial position.
Current assets
These are items that are normally kept by a business for less than one accounting year. Indeed the composition of each type of current asset is usually continually changing. Examples include, inventories, trade receivables, short-term investments, money in a bank account and cash.
Equity capital
This refers to the amount of money invested in the business by the owner(s). This can take the form of cash introduced or profits not withdrawn.
Non-current liabilities
These are debts owed by a business that are not due until after one year (often much longer) from the date of the statement of financial position. Examples include loans and mortgages.
Current liabilities
These are debts owed by a business that are payable within one year (often considerably less) from the date of the statement of financial position. Examples include trade payables and bank overdrafts.
ABC
Statement of financial position as at…
Non-current assets +
Current assets
= Total assets Equity capital
+
Non-current liabilities +
Current liabilities
=
Total equity and liabilities
An example of the key areas covered in a statement of financial position for a sole trader
Prepare a statement of financial position listing your assets and liabilities, or those of your family.
Use an appropriate method of classifying the assets and liabilities and show the relevant totals and subtotals.
3.3 Preparing Financial Statements from the Trial Balance
It is important to appreciate that the general ledger entries described above to close the income and expenditure ledger accounts also have to be done, although students are not normally expected to show them in their answer to examination questions.
The following is the trial balance of A. Dauda at 31 March 20X3
Debit Credit N’000 N’000
Capital 42,140 Drawings 13,600
Loan from S. Rikha 10,000 Bank 5,800
Cash 460
Sales revenue 88,400 Purchases 46,300
Sales returns 5,700
Purchases returns 3,100 Inventory at 1 Apr 20X2 8,500
Carriage inwards 2,400 Carriage
outwards 1,600 Trade receivables 15,300
Trade payables 7,200 Motor vehicles 23,100
Fixtures and fitting 12,400 Wages and salaries 6,800
Rent 4,100 Light and heat 3,200
Telephone and postage 1,700 Discount allowed 830
Discount received 950 151,790 151,790
The inventory at 31 March 20X3 was valued at N9,800,000. The loan from S. Rikha is repayable on 1 January 20X5.
Required
Prepare the statement of profit and loss and statement of financial position (horizontal format) for A. Dauda from the trial balance provided.
Solution Ledger entries
Sales revenue a/c
Trading a/c 88,400 Balance b/d 88,400
Sale returns a/c
Balance b/d 5,700 Trading a/c 5,700
Purchases a/c
Balance b/d 46,300 Trading a/c 46,300
Purchases returns a/c
Balance a/c 3,100 Trading b/d 3,100 Inventories a/c
Balance b/d 8,500
Trading a/c 9,800 Trading a/c 8,500 Carriage inwards a/c
Balance b/d 2,400 Trading a/c 2,400 Carriage outwards a/c
Balance b/d 1,600 Profit and loss a/c 1,600 Wages and salaries a/c
Balance b/d 6,800 Profit and loss a/c 6,800
Rent a/c
Balance b/d 4,100 Profit and loss a/c 4,100 Light and heat a/c
Balance b/d 3,200 Profit and loss a/c 3,200 Telephone and postage a/c
Balance b/d 1,700 Profit and loss a/c 1,700 Discount allowed a/c
Balance b/d 830 Profit and loss a/c 830 Discount received a/c
Profit and loss a/c 950 Balance b/d 950 Drawings a/c
Balance b/d 13,600 Capital a/c 13,600
All other accounts contain only the balances shown in the trial balance.