Trading account problems and solutions
A ltd. Has a factory which has two manufacturing departments X and Y.
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Top 5 problems on departmental accounts
In this article we will discuss about the top five accounting problems on departmental accounts with their relevant solution.
Accounting problems on departmental accounts
Departmental accounts: problem and solution # 1.
Truck master was the proprietor of a garage. His trial balance on march 31, 2012 was as follows:
Departmental accounts: problem and solution # 2.
M/s bright and co., had four departments A, B, C and D, each department being managed by a department manager whose commission was 10% of the respective department profit before such commission, subject to a minimum of rs 60,000 in each case.
Interdepartmental transfers took place at a ‘loaded’ price as follows:
For the year ended 31st march, 2012 the firm had already prepared and closed the departmental. Trading and profit and loss account. Subsequently it was discovered that the closing stocks of departments had included interdepartmentally transferred goods at loaded price instead of cost price.
From the following information prepare a statement re-computing the departmental profit or loss:
Departmental accounts: problem and solution # 3.
A firm had two departments, cloth and readymade clothes. The clothes were made by the firm itself out of cloth supplied by the cloth department at its usual selling price.
From the following figures prepare departmental trading and profit and loss accounts for the year ended 31st march. 2012:
The stock in the readymade clothes department may be considered as consisting of 75% cloth and 25% other expenses. The cloth department earned gross profit at the rate of 15% in 2010-11. General expenses of the business as a whole came to rs 1,10,000.
It has been possible to know the reserve credited against unrealised profit in the opening stock. In the absence of information, the reserve should be calculated on the difference in the opening and closing stocks. In the above case, it would have been calculated on rs 10,000, since the closing stock has increased, the reserve calculated on it would be debited to the profit and loss account.
Departmental accounts: problem and solution # 4.
Sunrise ltd. Has two departments X and Y.
From the following particulars, prepare departmental trading accounts and general profit and loss account for the year ending 31st march. 2012:
Purchased goods have been transferred mutually at their respective departmental purchase cost and finished goods at departmental market price and that 20% of the closing finished stock with each department represents finished goods received from the other department.
Departmental accounts: problem and solution # 5.
A ltd. Has a factory which has two manufacturing departments X and Y. Part of the output of X department is transferred to Y department for further processing and the balance is directly transferred to the selling department. The entire production of Y department is transferred to the selling department.
Inter-departmental stock transfers are made as follows:
X department to Y department at 33 1/3% over department cost.
X department to selling department at 50% over department cost.
Y department to selling department at 25% over department cost.
The following information is given for the year ended 31st march, 2012:
Out of the total production in X. Department, 30 M.T. Were for transfer to the selling department, apart from these stocks which were transferred during the year, the balance output and the entire opening and closing stocks of X department were for transfer to Y department. The per tonne material and labour consumption in X department on production to be transferred directly to the selling department is 300 per cent of the labour and material consumption on production meant for Y department. The administrative and office expenses totalled rs 1,65,000.
Prepare departmental profit and loss accounts and the general profit and loss account.
Final accounts (non-corporate) problems and solutions
Problems # 1:
From the following particulars taken out from the books of abdul hanan & co. You are required to prepare trading and profit & loss account and balance sheet as at december 31 st , 2019.
Adjustments:
(a) closing stock rs, 35,000.
(b) provision for doubtful debts at 5% of sundry debtors.
(c) depreciation furniture and machinery by 10%.
(d) commission of rs. 3,600 has been earned but not received till the closing of accounts.
Solution:
Problems # 2:
From the following trial balance of faris ali qureshi & bros. And additional information, prepare trading and profit & loss account and balance sheet for the year ended june 30 th , 2019.
Additional information
- Depreciation furniture by 10% by written down method (WDM).
- A provision for doubtful debts is to be created to the extent of 5% on sundry debtors.
- Salaries for the month of june, 2019 amounting to rs. 3,000 were unpaid which must be provided for. However, salaries included rs. 2,000 paid in advance. Office expenses outstanding rs. 8,000.
- Insurance amounting to rs. 2,000 is prepaid.
- Stock use for private purpose rs. 6,000 and closing stock rs. 60,000.
Solution:
Problems # 3:
The following trial balance of amna mushtaq ahmed & brothers on june 30 th , 2020, prepare profit and loss account and balance sheet.
Adjustments:
- Stock at the end of year rs. 5,200 and three months excise duties is due, but not paid rs. 30.
- 5 percent depreciation to be written-off on furniture and write-off further bad debts rs. 70.
- The provision for bad debts to be rs. 300 and provision for discount on debtor @ 2 % to be made.
- During the year machinery was purchased for rs. 2,000, but was debited to purchase account.
Solution:
Problems # 4:
The following are the balances taken from the books of muhammad zain ammar safdar & co. On may 31 st , 2020. You are required to prepare trading and profit and profit and loss account / income statement for the year ended may 31 st , 2020 and balance sheet as on that date.
Adjustments:
- Depreciation furniture and machinery at 10% p.A.
- Insurance is paid in advance to the extent of rs. 200.
- Reserve for discount is no longer required and is to be written back.
- Closing stock is valued at rs. 100,000.
- Interest on bank loan is outstanding.
Solution:
Problems # 5:
The following trial balance of hashim & ibrahim enterprises as on december 31 st , 2019, prepare financial statement in horizontal style.
Hashim and ibrahim share profit and loss equally, other information is given below:
- Stock at the december 31 st , 2019 was raw material rs. 4,000 and finished goods rs. 12,000.
- Outstanding expenses: salaries rs. 1,500; carriage rs. 2,100.
- Insurance paid for 15 months upto march 2020.
- Write-off bad debts of rs. 400 and provision for bad debts @ 5 % of debtors.
- Goods withdrawn by hashim for personal use rs. 2,000.
Top 5 problems on final accounts of the companies
Are you looking for problems and solutions of final accounts of the companies? You are at the right place! In this article we have compiled top five accounting problems on final accounts of the companies with its relevant solutions.
- Preparation of profit and loss account, profit and loss appropriation account and balance sheet of a company
- Preparation of balance sheet, profit and loss account in accordance with the requirements of companies act, 1956
- Preparation of final accounts of a company ignoring previous year’s figure
- Preparation of final accounts of a company according to requirements of schedule VI of the companies act, 1956
- Preparation of final accounts of a company when additional information is given
Problems on final accounts of the companies
1. Preparation of profit and loss account, profit and loss appropriation account and balance sheet of a company:
The trial balance of T.V. Limited [having an authorised capital of rs. 8,00,000] at 31st december 1996 was as under:
Further information:
(1) of the shares allotted 2,000 shares worth rs. 2,00,000 were allotted as fully paid to vender from where a running business was acquired.
(2) of the debtors rs. 10,000 were outstanding but are considered good except a debt of rs 5,000 doubtful to be provided.
(3) A provision of rs. 25,000 is to be made for income tax.
(4) the market value of government securities on the date of the balance sheet was rs. 93,000 and that of equity shares was 1,60,000.
(5) auditor’s fee rs. 3,000 should be provided for. Included in general expenses is six month’s insurance rs. 1,500 paid for the year to end on 30th june 1997.
(6) interest on debentures issued and on investment in government securities should be taken into account.
(7) depreciation is to be provided for @ 6% original cost of machinery and 2% on the original cost of land and building.
(8) provide for a dividend of 5% on shares.
Prepare profit and loss account, profit and loss appropriation account and the balance sheet as on 31.12.1996.
2. Preparation of balance sheet, profit and loss account in accordance with the requirements of companies act, 1956:
The following balances and particulars are extracted from the books of pant co. Pvt. Ltd. For the year ended 31st december 1994:
Further information:
(a) rate of depreciation — furniture 10%; office equipment’s 15%; motor car 20%
(b) M. D. Is entitled to a commission @ 10% of net profit after providing for such commission subject to maximum of rs. 36,000 p.A.
(c) debtors include rs. 1,50,000 outstanding for more than 6 months, out of this rs. 20,000 is considered doubtful for which provision is to be made in the accounts.
(d) tax liability for 1994 is estimated at rs. 2,00,000 for which provision is to be made.
(e) transfer to general reserve rs. 50,000 out of net profits and proposed dividend is @ 6% on equity shares.
Prepare the balance sheet, profit and loss account for the year ended 31st december 1994 in accordance with the requirements of companies act, 1956.
3. Preparation of final accounts of a company ignoring previous year’s figure:
The following trial balance has been drawn up from the books of RED CIRCLES ltd. As on 31st march 1999:
The following further particulars are available:
(1) liabilities for expenses include the last quarter’s interest due on unsecured loan.
(2) payment to auditors include rs. 2,000 paid for taxation work.
(3) market value of trade investment is rs. 85,000.
(4) provision for taxation is to be made at 45%.
(5) secured loan is from the company’s bankers obtained against charge of all the assets of the company.
(6) no adjustment has been made for the sale of old plant of rs. 3,000. It is ascertained that the original cost and depreciation provided on this item were rs. 8,000 and rs. 4,000, respectively.
(7) unsecured loan is from a director carried forward from last year, interest payable at 6% p.A. Falling due on quarterly basis at the end of each quarter.
You are required to prepared the profit and loss account for the year ended 31st march 1999 and a balance sheet as on that date ignoring previous year’s figure.
4. Preparation of final accounts of a company according to requirements of schedule VI of the companies act, 1956:
Depreciation is to be charged for the year on written-down value at 10% on plant and machinery and furniture and fixtures and at 20% on motor car.
(iii) the unsecured loan was taken on 1.1.2000 at 18% interest. Interest is payable half-yearly and necessary provisions are to be made in the accounts.
(iv) office administration expenses include auditor’s fee rs. 4,000 (including fee for taxation services, rs. 800) and director’s fees, rs. 2,400.
(v) provision for taxation is to be made for rs. 2,80,000.
(vi) preliminary expenses are to be written-off.
(vii) the directors have proposed a final dividend of 15% on share capital in addition to interim dividend already declared.
Prepare profit and loss account of ESSBEE ltd. For the year ended 31st march 2000 and balance sheet as at that date according to requirements of schedule VI of the companies act, 1956.
5. Preparation of final accounts of a company when additional information is given:
Given below is the trial balance and additional information relating to bharat implements ltd., as at the end of their financial year 1999-2000. Prepare the final accounts in proper form.
(d) sundry debtors include rs. 121 thousand due for more than six months out of which provision has been made for doubtful debts at rs. 45 thousand during the year.
(e) included in other expenses are:
(i) fees to auditors rs. 65 thousand, out of which rs. 15 thousand are in other capacities; and
(ii) interest on fixed loans rs. 620 thousand, and other interest rs. 1,000 thousand.
(f) rs. 340 thousand are to be re-transferred from development rebate reserve account.
(g) provisions are to be made for managing director’s remuneration at 5% of net profits as provided under law, subject to a maximum of rs. 120 thousand per annum.
(h) balance of profit is to be transferred to general reserve after providing for dividend at 25% on capital.
(i) the authorised capital of the company is 20 lakhs equity shares of rs. 10 each.
Journal entry problems and solutions
Click here to download journal entry problems
Problem 1:
On april 01, 2016 anees started business with rs. 100,000 and other transactions for the month are:
2. Purchase furniture for cash rs. 7,000.
8. Purchase goods for cash rs. 2,000 and for credit rs. 1,000 from khalid retail store.
14. Sold goods to khan brothers rs. 12,000 and cash sales rs. 5,000.
18. Owner withdrew of worth rs. 2,000 for personal use.
22. Paid khalid retail store rs. 500.
26. Received rs. 10,000 from khan brothers.
30. Paid salaries expense rs. 2,000
Solution:
Problems 2:
Prepare general journal entries for the following transactions of a business called pose for pics in 2016:
Aug. 1: hashim khan, the owner, invested rs. 57,500 cash and rs. 32,500 of photography equipment in the business.
04: paid rs. 3,000 cash for an insurance policy covering the next 24 months.
07: services are performed and clients are billed for rs. 10,000.
13: purchased office supplies for rs. 1,400. Cash paid rs. 400 and remaining outstanding.
20: received rs. 2,000 cash in photography fees earned previously.
24: the client immediately pays rs. 15,000 for services to be performed at a later date.
29: the business acquires photography equipment. The purchase price is rs. 100,000, pays rs. 25,000 cash and signs a note for the balance.
Solution:
Problem 3:
On march 2017, farhan rahim, starts wholesaling business. Following transactions as follows:
1. He started business with capital of rs. 15,000 and land worth rs. 10,000.
8. Bought goods from bilal and friends rs. 1,000 and by cash from XYZ co. Rs 2,000.
13. Sold goods to rehman & sons rs. 1,500 and sale by cash rs. 5,000.
17. Gave away charity of cash rs. 50 and merchandising worth rs. 30.
21. Paid bilal and friends cash rs. 975; discount received rs. 25.
28. Received cash from rehman & sons rs. 1,450; allowed him discount of rs. 50.
Solution:
Problem 4:
Shah sauood marine is a boat repair yard. During august 2016, its transactions included the following:
03. Loan taken from habib bank ltd. Of rs. 25,000. Rs. 20,000 withdrawn for business and remaining in the bank a/c.
06. Paid rent for the month of august rs. 4,400 and accrued rent expenses was rs. 600.
12. At request of kiwi insurance, inc, made repairs on boat of jon seaways. Sent bill for rs. 5,620 for services rendered to kiwi insurance inc. (credit repair service revenue).
18. Made repairs to boat of dennis copper and collected in full the charge of rs. 2,830.
20. Placed advertisement in the dawn of rs. 165, payment to be made within 30 days.
25. Received a check for 5,620 from kiwi insurance inc representing collection of the receivable of august 12.
30. Sent check to the dawn in payment of the liability incurred on august 20.
Solution:
Problems 5:
1 st january, 2017, saeed ahmad started business other transactions for the month of june as follows:
02. Purchased from kareem goods of list price of rs. 6,000 subject to 10% trade discount by cash.
04. Sold goods to din muhammad rs. 800 and cash sales of rs. 200.
10. Distributed goods worth rs. 200 as free samples and goods taken away by the proprietor for personal use rs. 100.
12. Received discount rs 20 and commission rs 500.
17. Goods returned by din muhammad rs. 200 and payment other outstanding amount.
24. Furniture lost by fire of worth rs. 500.
30. Bad debts during the period was rs.100.
Solution:
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Accounting problems & solutions
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References
Ramchandran, N., & kakani, R. K. (2007). Financial accounting for management. (2nd, ed.) new delhi: tata mcgraw hill.
Sehgal, A., & sehgal, D. (n.D.). Advanced accountancy (vol. I & II). New delhi: taxmann publication pvt. Ltd.
Shukla, M. C., grewal, T. S., & gupta, S. C. (2008). Advanced accountancy (vol. I & II). New delhi: S chand & co.
Weygandt, J. J., kimmel, P. D., & kieso, D. E. (2012). Accounting principles (10th ed.). Hoboken: john wiley & sons, inc.
Williams, M., & bettner, H. (1999). Accounting (the basic for business decisions). (11th, ed.) USA: irwin mcgraw- hill.
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Q no.12 use following title of accounts to complete journal entries of given transactions.
CASH A/C RECEIVABLE A/C PAYABLE RENT EXPENSE
DRAWING CAPITAL SALARIES EXPENSE EQUIPMENT
FURNITURE SERVICE INCOME SUPPLIES
1. Mr. A deposited into bank rs.50,000 to start a business
2. Paid rent for three months at rs.2500 per month
3. Bought office equipment from B&co. For rs. 10000, paid to them rs.3000 and promised to pay
the balance after two months.
4. Rendered services to clients and received cash rs. 5000
5. Purchase supplies for cash rs. 400
6. Paid salaries to staff rs. 5400
7. Bought furniture for rs. 3200,paid to K&co. Rs.1200 and promised to pay balance after one
month
8. Withdrew cash for personal use rs. 3000
9. Billed to nasir for services rendered rs. 12500
10. Received from nasir rs.5000
INSTRUCTION
A. Prepare journal entries
b. Post to ledger accounts
c. Prepare a trial balance at july 31,2005
A. Incorporators infused P12.5 million cash in a newly organized corporation, ASC company, a trading company. The par value of the shares is ₱1.00.
B. ASC company bought land and building for P6 million cash. The value of the building which has a remaining useful life of 20 years is P4 million. A full-year depreciation for the building can be recognized in 2014.
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1. On january 3, 2019, lynn sanders’ printing service company owner started his business $200,000 for cash.
2. On january 5, 2019, purchases equipment on account for $3,500, payment due within the month.
3. On january 9, 2019, receives $4,000 cash in advance from a customer for services not yet rendered/delivered/performed.
4. On january 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services.
5. On january 12, 2019, paid cash for electric bill, $75.00.
6. On january 15, 2019, pays a $300 utility bill with cash.
7. On january 17, 2019, receives $2,800 cash from a customer for services rendered.
8. On january 18, 2019, paid cash to owner for personal use, $1,000
9. On january 19, 2019, paid in full, with cash, for the equipment purchase on january 5.
10. On january 20, 2019, paid $3,600 cash in salaries expense to employees.
11. On january 23, 2019, received cash payment in full from the customer on the january 10 transaction.
12. On january 25, 2019, sold services on account to connie vaughn, $20,000
13. On january 27, 2019, provides $1,200 in services to a customer who asks to be billed for the services.
14. On january 28, 2019, paid cash for insurance, $3,000.00.
15. On january 30, 2019, purchases supplies on account for $500, payment due within three months.
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Trading account and profit and loss account and balance sheet - an example:
Learning objectives:
Understand the procedure of preparing trading and profit and loss account and balance sheet of a business.
The following trial balance have been taken out from the books of XYZ as on 31st december, 2005.
| Dr. $ | cr. $ |
| plant and machinery | 100,000 |
| opening stock | 60,000 |
| purchases | 160,000 |
| building | 170,000 |
| carriage inward | 3,400 |
| carriage outward | 5,000 |
| wages | 32,000 |
| sundry debtors | 100,000 |
| salaries | 24,000 |
| furniture | 36,000 |
| trade expense | 12,000 |
| discount on sales | 1,900 |
| advertisement | 5,000 |
| bad debts | 1,800 |
| drawings | 10,000 |
| bills receivable | 50,000 |
| insurance | 4,400 |
| bank balances | 20,000 |
| sales | 480,000 |
| interest received | 2,000 |
| sundry creditors | 40,000 |
| bank loan | 100,000 |
| discount on purchases | 2,000 |
| capital | 171,500 |
| 795,500 | 795,500 |
Closing stock is valued at $90,000
Required: prepare the trading and profit and loss account of the business for the year ended 31.12.2005 and a balance sheet as at that date.
XYZ
trading and profit and loss account
for the year ended 31st, december 2005
| Opening stock | 60,000 | sales | 480,000 | |
| purchases | 160,000 | less discount | 1,900 | 478,100 |
| less discount | 2,000 | 158,000 | ||
| closing stock | 90,000 | |||
| carriage inward | 3,400 | |||
| wages | 32,000 | |||
| gross profit (transferred to P&L) | 314,700 | |||
| 568,100 | 568,000 | |||
| carriage outward | 5,000 | gross profit (transferred to P&L) | 314,700 | |
| salaries | 24,000 | interest received | 2,000 | |
| trade expenses | 12,000 | |||
| advertisement | 5,000 | |||
| bad debts | 1,800 | |||
| insurance | 4,400 | |||
| net profit (transferred to capital) | 264,500 | |||
| 316,700 | 316,700 |
Note: discount on purchases and discount on sales are deducted from purchases and sales respectively. They may be shown on the credit and debit side of profit and loss account respectively and it will not affect the net profit of the business. The gross profit will be affected if discount is treated so.
XYZ
balance sheet
for the year ended 31st, december 2005
Preparing trading and profit & loss account :: illustration
Following are the transactions relating to M/s trinity foods, a newly set up business, over the accounting period from 1 st june 20_5 to 30 th june 20_5.
- Started business with capital 1,00,000
- Paid into bank 10,000
- Bought furniture and paid cash 25,000
- Bought goods for cash 50,000
- Bought goods from ram on credit 15,000
- Sold a part of the goods for 75,000 and paid the proceeds into bank directly
- Sold the remaining goods on credit for 50,000 to rahim
- Paid salaries and wages 5,000
- Paid rent by cheque 8,000
Illustration - solution [journal and ledger]
Journal
Use of the date, V/R no. And L/F columns is avoided to make the presentation look unclutterd.
Ledger accounts
Use of the column J/F and the suffix a/c after the name of the account head is avoided to make the presentation look unclutterd.
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to capital | 1,00,000 | by bank by furniture by purchases by salaries & wages by by balance c/d | 10,000 25,000 50,000 5,000 10,000 | ||
| total | 1,00,000 | total | 1,00,000 | ||
| 30/06/_5 | to balance b/d | 10,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| 30/06/_5 | to balance c/d | 1,00,000 | 01/06/_5 | by cash | 1,00,000 |
| total | 1,00,000 | total | 1,00,000 | ||
| 30/06/_5 | by balance b/d | 1,00,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to cash to sales | 10,000 75,000 | 30/06/_5 | by rent paid by balance c/d | 8,000 77,000 | |
| total | 85,000 | total | 85,000 | ||
| 30/06/_5 | to balance b/d | 77,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| 1 st -30 th | to cash a/c | 25,000 | 30/06/_5 | by balance c/d | 25,000 |
| total | 25,000 | total | 25,000 | ||
| 30/06/_5 | to balance b/d | 25,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to cash a/c to ram a/c | 50,000 15,000 | 30/06/_5 | by balance c/d | 65,000 | |
| total | 65,000 | total | 65,000 | ||
| 30/06/_5 | to balance b/d | 65,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| 30/06/_5 | to balance c/d | 15,000 | by purchases a/c | 15,000 | |
| total | 15,000 | total | 15,000 | ||
| 30/06/_5 | by balance b/d | 15,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| 30/06/_5 | to balance c/d | 1,25,000 | by bank a/c by rahim a/c | 75,000 50,000 | |
| total | 1,25,000 | total | 1,25,000 | ||
| 30/06/_5 | by balance b/d | 1,25,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to sales a/c | 50,000 | 30/06/_5 | by balance c/d | 50,000 | |
| total | 50,000 | total | 50,000 | ||
| 30/06/_5 | to balance b/d | 50,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to cash | 5,000 | 30/06/_5 | by balance c/d | 5,000 | |
| total | 5,000 | total | 5,000 | ||
| 30/06/_5 | to balance b/d | 5,000 | |||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to bank a/c | 8,000 | 30/06/_5 | by balance c/d | 8,000 | |
| total | 8,000 | total | 8,000 | ||
| 30/06/_5 | to balance b/d | 8,000 | |||
Illustration - solution [trial balance]
The trial balance is a statement of ledger account balances as on a particular date or to be more specific as at a particular instance.
| particulars | L/F | amount (dr) | amount (cr) |
|---|---|---|---|
| cash capital bank furniture purchases ram sales rahim salaries and wages rent paid | — — — — — — — — — — | 10,000 |
Use of the suffix a/c after the name of the account head is avoided to make the presentation look unclutterd.
Preparing trading and profit and loss account : journal & ledger
To ascertain the profit or loss made by the organisation, the balance in these accounts should be transferred to the "trading and profit & loss a/c".
The journal entries for these transfers would be:
Journal entries
| date | particulars | amount (dr) | amount (cr) | |
|---|---|---|---|---|
| june 30 th | trading and profit & loss a/c | |||
Ledgers
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| 30/06/_5 30/06/_5 30/06/_5 | to purchases to salaries & wages to rent paid | 65,000 5,000 8,000 | 30/06/_5 | by sales | 1,25,000 |
| sub-total | 78,000 | sub-total | 1,25,000 | ||
| 30/06/_5 | to balance (profit) | 47,000 | |||
| total | 1,25,000 | total | 1,25,000 | ||
In a simplified form this account would be as below.
| dr cr | |||
|---|---|---|---|
| particulars | amount | particulars | amount |
| to purchases to salaries & wages to rent paid to balance (profit) | 65,000 5,000 8,000 47,000 | by sales | 1,25,000 |
| total | 1,25,000 | total | 1,25,000 |
Since the credit side total is greater, the account has a credit balance. Since a credit balance in a nominal account indicates a gain, we can say that there is a profit.
Other affected ledger accounts (nominal)
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to cash to ram | 50,000 15,000 | 30/06/_5 | by trading and P/L a/c | 65,000 | |
| total | 65,000 | total | 65,000 | ||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| 30/06/_5 | to trading and P/L a/c | 1,25,000 | by bank by rahim | 75,000 50,000 | |
| total | 1,25,000 | total | 1,25,000 | ||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to cash | 5,000 | 30/06/_5 | by trading and P/L a/c | 5,000 | |
| total | 5,000 | total | 5,000 | ||
| dr cr | |||||
|---|---|---|---|---|---|
| date | particulars | amount | date | particulars | amount |
| to bank a/c | 8,000 | 30/06/_5 | by trading and P/L a/c | 8,000 | |
| total | 8,000 | total | 8,000 | ||
Trial balance redrawn/remade
Trial balance after closing nominal accounts
What are non-trading concerns?
Non-trading concerns are simply non-profit making entities that exist solely for the betterment of the society by providing quality services. Unlike trading concerns that sell goods and services to earn profit, the non-trading concerns accept donations and receipts from the general public, corporate entities and government to run its operations. Some of the common examples of non-trading concerns are as follows:
- Orphanages
- Sports clubs
- Civil hospitals
- Libraries
- Charities
- Government owned educational institutions
- Civil hospitals
Objective of non-trading concerns
The main objective of a non-trading concern is to serve the community. It accepts donations and grants from general public and government to meet day to day expenditures.
Sources of income
The main sources of income for a non-trading concern are donations, fees and government or municipal grants. The income should generally be received through a proper banking channel in order to provide an audit trail.
Accounting for non-trading concerns
The accounting for a non-trading concern is generally as per the principles of double entry bookkeeping system. They generally only maintain a cash book to record receipts and payments made during the year. The cash book is converted into receipt and payment account at the end of the year. The receipts and payments account is a summarized form of cash book and is considered a more useful source of information for preparing final accounts of the entity. By using information from receipt and payment account and from other sources, the entity prepares its income and expenditure account and balance sheet at the end of the period. The income and expenditure account shows a surplus or deficit for the year and balance sheet shows the assets and liabilities of the entity at the end of the year.
Surplus or excess of income over expenditure ascertained by the income and expenditure account is never distributed among the people who support the organization but rather saved to be used by the organization in future to improve the quality of services and to buy assets necessary to carry out operations of the organization.
Management and control
The responsibility for the management and control of a non-trading concern rests with the board of trustees who came together to make the organization in the first place.
Chances of fraud
There is a medium to high risk of fraud in a non-trading concern as individuals within the organization may misappropriate donations or grants received and run away with the money. Therefore the control over assets is generally very strict. Only some certain trusted individuals have access to the assets of the organization. Moreover, the operations of non-trading concerns are closely watched and regulated by the government through strict laws.
Examples of trading and profit and loss account and balance sheet
Trading account format and accounting trading and profit and loss account examples in balance sheet. Different solved problems in trading profit and loss a/c in final accounts format for carriage outwards.
Learning objectives:
Prepare trading and profit and loss account and balance sheet.
Example 1:
From the following balances extracted from the books of X & co., prepare a trading and profit and loss account and balance sheet on 31st december, 1991.
| $ | $ | ||
| stock on 1st january | 11,000 | returns outwards | 500 |
| bills receivables | 4,500 | trade expenses | 200 |
| purchases | 39,000 | office fixtures | 1,000 |
| wages | 2,800 | cash in hand | 500 |
| insurance | 700 | cash at bank | 4,750 |
| sundry debtors | 30,000 | tent and taxes | 1,100 |
| carriage inwards | 800 | carriage outwards | 1,450 |
| commission (dr.) | 800 | sales | 60,000 |
| interest on capital | 700 | bills payable | 3,000 |
| stationary | 450 | creditors | 19,650 |
| returns inwards | 1,300 | capital | 17,900 |
The stock on 21st december, 1991 was valued at $25,000.
Solution:
X & co.
Trading and profit and loss account
for the year ended 31st december, 1991
| To opening stock | 11,000 | | | by sales | 60,000 |
| to purchases | 39,000 | | | less returns i/w | 1,300 |
| less returns o/w | 500 | | | 58,700 | |
| 38,500 | | | by closing stock | 25,000 | |
| to carriage inwards | 800 | | | ||
| to wages | 2,800 | | | ||
| to gross profit c/d | 30,600 | | | ||
| | | ||||
| 83,700 | | | 83,700 | ||
| | | ||||
| to stationary | 450 | | | by gross profit b/d | 30,600 |
| to rent and rates | 1,100 | | | ||
| to carriage outwards | 1,450 | | | ||
| to insurance | 700 | | | ||
| to trade expenses | 200 | | | ||
| to commission | 800 | | | ||
| to interest on capital | 700 | | | ||
| to net profit transferred to capital a/c | 25,200 | | | ||
| | | ||||
| | | ||||
| 30,600 | | | 30,600 | ||
| | |
X & co.
Balance sheet
as at 31st december, 1991
| Liabilities | $ | | | assets | $ | |
| creditors | 19,650 | | | cash in hand | 500 | |
| bills payable | 3,000 | | | cash at bank | 4,750 | |
| capital | 17,900 | | | sundry debtors | 30,000 | |
| add net profit | 25,200 | | | bill receivable | 4,500 | |
| 43,100 | | | stock | 25,000 | ||
| | | office equipment | 1,000 | |||
| | | |||||
| 65,750 | | | 65,750 | |||
| | | |||||
Example 2:
The following trial balance was taken from the books of habib-ur-rehman on december 31, 19 ….
| Cash | 13,000 |
| sundry debtors | 10,000 |
| bill receivable | 8,500 |
| opening stock | 45,000 |
| building | 50,000 |
| furniture and fittings | 10,000 |
| investment (temporary) | 5,000 |
| plant and machinery | 15,500 |
| bills payable | 9,000 |
| sundry creditors | 20,000 |
| habib’s capital | 78,200 |
| habib’s drawings | 1,000 |
| sales | 100,000 |
| sales discount | 400 |
| purchases | 30,000 |
| freight in | 1,000 |
| purchase discount | 500 |
| sales salary expenses | 5,000 |
| advertising expenses | 4,000 |
| miscellaneous sales expenses | 500 |
| office salary expenses | 8,000 |
| misc. General expenses | 1,000 |
| interest income | 1,000 |
| interest expenses | 800 |
| 2,08,700 | 2,08,700 |
Closing stock on december 31, 19 … was $10,000
Required: prepare income statement/trading and profit and loss account and balance sheet from the above trial balance in report form.
Solution:
Habib-ur-rehman
income statement/profit and loss account
for the year ended december 31, 19…..
| Gross sales | 100,000 |
| less: sales discount | 400 |
| net sales | 99,600 |
| cost of goods sold: | |
| opening stock | 45,000 |
| purchases | 30,000 |
| add: freight in | 1,000 |
| 31,000 | |
| less purchase discount | 500 |
| net purchases | 30,500 |
| cost of goods available fort sale | 75,500 |
| less closing stock | 10,000 |
| cost of goods sold | 65,500 |
| gross profit | 34,100 |
| operating expenses: | |
| selling expenses: | |
| sales salary expenses | 5,000 |
| advertising expenses | 4,000 |
| misc. Selling expenses | 500 |
| 9,500 | |
| general expense: | |
| office salaries expenses | 8,000 |
| misc. General expenses | 1,000 |
| 9,000 | |
| total operating expenses | 18,500 |
| net profit from operations | 15,600 |
| other expenses and incomes: | |
| interest income | 1,000 |
| interest expenses | 800 |
| net increase | 200 |
| net income | 15,800 |
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