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Final Accounts

References ：Chapter 7 to 10 (P. 59-113)

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A Trial Balance ( 試算表 )

A trial balance is a list of debit balances and credit balances in the books of accounts 。The total of debit balances and the total of credit balances are equal. If not, errors are needed to identitied. Trial balance is the basis for preparing final accounts (Trading and profit and loss A/C; Balance Sheet).

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Examples of Trial Balance ：Leungs Company

Trial Balancefor the year ended 31 December, 2008

$ $Sales 1010Returns inwards 10Stock as at 1 January, 2008 100Purchases 530Returns outwards 20Carriages inwards 10Rental income 100Commission received 50Rent 120Commission 30Electricity 150Rates 50

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$ $Land and building 1000Office Furniture 700Fittings 500Office equipment 500Machinery 1000Motor vehicles 500Debtors 1500Bank 400Cash 80Creditors 1000Bank overdraft 500Capital 3000Drawings 100Bank loan 1000Loan － Mr. Cheung 600

7280 7280Stock as at 31 December, 2008 is $120

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B Trading A/C

Net Sales － Cost of goods sold ＝ Gross profit / Gross loss

• Function: Calculate the gross profit or gross loss.

Net Sales =Sales – Returns inwards

Cost of goods sold = Opening stock ＋(Net Purchases+Carriage inwards) - Closing stock

Net Purchases =Purchases – Returns outwards

Gross profit: Net Sales>Cost of sales

Gross loss: Cost of sales>Net sales

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Put the above formulas ( 算式 ) into a statement, a Trading A/C is formed.Trading A/c has vertical form and horizontal form.

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Examples of vertical form ：Leungs Company

Trading A/Cfor the year ended 31 December, 2008

$ $ $Sales 1010Less ： Returns inwards 10Net Sales 1000Less ： Cost of goods sold

Stock as at 1 January,2006 100Add ： Purchases 530 Less ： Returns outwards 20 Net purchases 510Add ： Carriage inwards 10 520

620Less ： Stock as at 31 December, 2006 120

500Gross profit 500

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Examples of horizontal form （ T form ）Leungs Company

Trading A/Cfor the year ended 31 December, 2008

$ $ $Opening Stock 100 Sales 1010Add ： Purchases 530 Less ： Returns inwards 10Less ： Returns outwards 20 Net Sales 1000Net purchases 510Add ： Carriage inwards 10 520

620Less ： Closing stock 120Cost of goods sold 500Gross profit c/d 500

1000 1000

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C Profit and loss A/C

Gross profit ＋ Other income － Expenses ＝ Net profit / Net loss

•Functions: calculate the net profit / net loss.

Other income= rental income + commission income+…

Expenses=rent and rates+commission+electricity+ …

Net profit: Gross profit+Income>Expenses

Net loss: Expenses>Gross profit+Income

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Put the above formulas ( 算式 ) into a statement, a Profit and loss A/C is formed.Trading A/c has vertical form and horizontal form.

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Vertical form ：Leungs Company

Profit and lossfor the year ended 31 December, 2008

$ $Gross profit 500Add ： Rental income 100

Commission income 50650

Less ： ExpensesRent 120Commission 30Electricity 150Rates 50 350

Net Profit 300

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Examples of horizontal form (T form) ：Leungs Company

Profit and loss A/Cfor the year ended 31 December, 2006

$ $Rent 120 Gross profit b/d 500Commission 30 Rental income 100Electricity 150 Commission income

50Rates 50Net profit 300

650 650

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D Balance Sheet

*Assets ＝ Non-current assets ＋ Current assets**Liabilities ＝ Current liabilities ＋ Long-term liabilities***Capital:Opening capital ＋ Net profit － Capital ＝ Closing

capital

Assets* ＝ Liabilities** ＋ Capital***

Balance sheet is a statement to record the balances of assets, liabilities and capital at the end of the accounting period.

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D1 Non-current Assets

Non-current assets have a long life and are to be used in the business.The non-current assets is not bought for resale.E.g. Land and building, Furniture, Fixtures and fitting, Office equipment, Machinery, Motor vehicles…

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Non-current assets are listed in the order of “permanency” in the Balance Sheet are as follows:

Non-current assets Land and building Furniture Fixtures and fittings Office equipment Machinery Motor vehicles

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D2 Current assets

Current assets are likely to be converted into cash in the short term (i.e. within 1 year) or items having a short life.E.g. Stock, Debtors, Prepayment, Bank, Petty cash, Cash…

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Current assets are listed starting the most difficult to be turned into cash, and the last one is “Cash”:

Current assets Stock Debtors Prepayment Bank Cash

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D3 Long-term Liabilities

Long-term liabilities do not have to have in the near future (i.e. longer than 1 year) e.g. Bank loan, Loan: Mr. Cheung, Debentures…

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D4 Current liabilities

Current liabilities are to be paid in the near future (i.e. within 1 year).e.g. ： Creditors, Accruals, Bank overdraft…

Current assets － Current liabilities ＝ Working Capital

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Balance Sheet has vertical form and horizontal form. The format of vertical is as follows:

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Leungs CompanyBalance Sheet

as at 31 December, 2008$ $ $

Non-current assetsLand and building 1000Furnitures 700Fixtures and fittings 500Office equipment 500Machinery 1000Motor vehicles 500 4200

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$ $ $Current assets

Stock 120Debtors 1500Bank 400Cash 80 2100

Less ： Current liabilitiesDebtors 1000Bank overdraft 500 1500

Working capital 600

4800

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$ $ $Capital

Capital as at 1 January, 2008 3000Add ： Net profit 400 3400Less ： Drawings 100Capital as at 31 December, 2008 3300

Long-term LiabilitiesBank loan 1000Loan － Mr. Cheung 500 1500

4800

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Horizontal form （ T form ）：Leungs Company

Balance SheetAs at 31 December, 2006

$ $ $ $Fixed assets Capital

Land and buildings 1000 Capital as at 1 January, 2008 3000Furniture 700 Add ： Net profit 300Fixtures and fittings 500 3300Office equipment 500 Less ： Drawings 100Machinery 1000 Capital as at 31 December, 2008 3200Motor vehicles 500 4200 Long-term Liabilities

Current assets Bank loan 1000Stock 120 Loan-Mr. Cheung 600 1600Debtors 1500 Current LiabilitiesBank 400 Creditors 1000Cash 80 2100 Bank overdraft 500 1500

6300 6300