TEMAS RELEVANTES QUE IMPACTARAN EL DESARROLLO INDUSTRIAL

Trading Account Profit and Loss Account

(i) Trading account is prepared to calculate the gross profit (loss) for a particular period.

(ii) In trading account, cost of goods sold, sales and direct expenses are accounted.

(iii) The result of trading account i.e. gross profit (loss) is transferred to profit and loss account.

(i) Profit and loss account is prepared to arrive at the net profit (loss)

(ii) In profit and loss account, indirect expenses, such as administrative expenses, selling expenses, etc, are charged against the gross profit and other revenues.

(iii) The balance in profit and loss account i.e. net profit (loss) is transferred to capital account which will be shown in the balance sheet.

SPECIMEN OF PROFIT & LOSS ACCOUNT Profit & Loss Account for the year ended...

Dr. Cr.

Particulars ` Particulars `

To Gross Loss b/d XXX By Gross Profit b/d XXX

Management expenses: Other income:

To Salaries (administrative) XXX By Discount received XXX To Office rent, rates and taxes XXX By Commission received XXX To Printing and stationery XXX Non-trading income:

To Telephone charges XXX By Bank interest XXX

To Insurance XXX By Dividend from shares XXX

To Audit fees XXX By Dividend from shares XXX

To Legal charges XXX Abnormal gains:

To Electricity charges XXX By Profit on sale of machinery XXX Maintenance expenses: By Profit in sale of investment XXX To Repairs and renewals XXX By Net Loss (transferred to Capital A/c)

To Depreciation on: (Balancing Figure) XXX

Office equipment XXX

Office furniture XXX

Office building XXX

Selling and distribution expenses:

To Salaries (selling staff) XXX

To Advertisement XXX

To Godown rent XXX

To Carriage outwards XXX

To Bad debts XXX

To Provision for bad debts XXX To Selling commission XXX Financial expenses:

To Bank charges XXX

To Interest on loans XXX To Discount on bills XXX To Discount allowed to customers XXX Abnormal losses:

To Loss on sale of machinery XXX To Loss on sale of investment XXX

To Loss by fire XXX

To Net Profit (transferred to Capital XXX

A/c) (Balancing Figure) ____ ____

XXX XXX

REVIEW QUESTIONS

Fill in the blanks:

(i) Trading account reveals __________ profit or _________ loss. (ii) Profit and loss account reveals _________ profit or _________ loss. (iii) Expenses appear on _________ side of trading and profit and loss

account.

(iv) Provision for bad debts account shows _________ balance.

(v) Reserve for discount on creditors account shows ________ balance. (vi) Carriage inwards appears in ____________ account, whereas

carriage outwards appears in ___________ account. Decide whether the following statements are true or false:

(ii) Capital account appears on assets side of balance sheet.

(iii) Drawing account is revenue expenditure to be shown on debit side of profit and loss account. (iv) If trading account reveals gross loss, profit and loss account results in net profit in any case.

(v) Interest on capital and salary to proprietor are incomes and hence are shown on credit side of profit and loss account.

Tick the correct answers:

(i) What type of account is goodwill? Fictitious/Intangible

(ii) What type of account is furniture? Fixed/Current

(iii) On which side of balance sheet is unexpired insurance shown? Assets/Liabilities (iv) Which type of items appear in profit and loss account? Revenue/Capital/Both

(v) Is balance sheet an account or a statement? An Account/A Statement (vi) Where will amount spent on stationery appear? In Profit and Loss Account/

In Balance Sheet.

BALANCE SHEET

Balance sheet is a statement which shows the financial position i.e. the balances of assets, liabilities and capital, of a business entity at a given date. It is prepared from the real accounts and personal accounts of trial balance. A debit balance in a real account or personal account represents an asset of the concern/firm. Likewise a credit balance in a personal account represents a liability. There can be some newly opened accounts as well on account of adjustment entries. These assets and liabilities are arranged in a proper way and the resultant statement is the balance sheet. On the right hand side, assets are arranged while on the left hand side, liabilities are recorded. The totals of the two sides of the balance sheet must agree because of the equation, viz. Assets = Liabilities + Capital.

If there is a difference, it means that there is some mistake. The difference, if it does occur, should be placed on the deficit side as Suspense Account to make the two sides agree apparently.

Features of Balance Sheet

– The primary objective of the preparation of balance sheet is to ascertain the financial position of a concern.

– It shows (a) the nature and value of assets, (b) the nature and value of liabilities and (c) the position of capital.

– Balance sheet is always prepared on a certain date, never for a particular period.

– Balance sheet, unlike a trading and profit and loss account, is not an account. It is a statement containing information regarding assets, liabilities and capital.

Marshalling of Balance Sheet

The arrangement of assets and liabilities in accordance with a particular order is known as marshalling of balance sheet. The items in the balance sheet are generally marshaled in two ways-

(i) Liquidity order or according to time: In liquidity order, the assets are stated in the order in which they can be easily converted into cash and the liabilities in the order in which they have to be paid off. (ii) Permanence order or according to purpose: In permanence order, assets which are to be used

permanently in the business and are not meant for sale are shown first and the assets that are liquid are shown last in order. Similarly, liabilities may also be shown according to the permanence arrangement. Specimen of Balance Sheet in permanence order is given below. The order will be reversed in liquidity order.

SPECIMEN OF BALANCE SHEET

Balance Sheet as at...

Liabilities ` Assets `

Capital XXX Goodwill XXX

Add: Net profit XXX Land and building XXX

Less: Drawings XXX XXX Plant and machinery XXX

Loans on mortgages XXX Furniture and fixtures XXX

Outstanding expenses XXX Stock XXX

Bank overdraft XXX Sundry debtors XXX

Sundry creditors XXX Investments XXX

Bills payable XXX Bills receivable XXX

Cash at bank XXX

____ Cash in hand XXX

XXXX XXXX

REVIEW QUESTIONS