Hps Poa FINAL

7/24/2019 Hps Poa FINAL

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BUSINESS : Business is any legal activity to earn profit.

ACCOUNTING : Accounting is an art of recording, classifying, summarizing business

transactions and interpreting their results into final accounts.

ACCOUNTING EQUATIONAssets = Capital + Liabilities

Fixed Assets + Current Assets = Capital + Current Liabilities + Long-term Liabilities

Working Capital

Fixed Assets + Currents Assets - Current Liabilities = Capital + Long-term Liabilities

Net Assets Capital Employed

The prime function of accounting is to provide the information basis for action.

In bookkeeping, posting a transaction means making the second entry of a double

entry transaction.

An accounting period is any twelve month period.

The part of accounting that is concerned with recording data is known as

bookkeeping.

DEFINITION/TERMS

Assets:Assets are resources owned by the business. There are two types of assets:

i.Non-Current Assets:Assets with normal life of more than one year are known as non-

current assets. These assets are costly and there are rare changes in

these. At the time of purchase our intention is to use them in

business, not to resell. Examples are Land, Building, Plant,

Machinery, Furniture, Fixture, Fitting, Electrical Equipments and

Vehicles etc.

ii.Current Assets : Assets with normal life of less than one year are known as current

assets. These are not very costly and there are frequent changes in

these. Examples are Inventory, Trade Receivables, Prepayments,

Cash at Bank and Cash in Hand etc.

Expenses:

Expenses are cost or value of goods and services that has been used to obtain revenue.

Expenses are charged to profit and loss account.

Drawings:

Drawings are cost or value of personal expenditures of the owner.

Liabilities:

Liability is amount owing to suppliers. There are two types of liabilities.

i.

Non-Current Liabilities : Liabilities that do not have to be paid within one year and

we have more than one year time to pay them are known asnon-current liabilities. Example is Loan.

ii Current Liabilities



Income/Sales:

Income or sales is value of goods and services that has been supplied to customers. Sales and

operating incomes are transferred to trading account whereas non operating incomes are

transferred to profit and loss account.

Capital:

Capital is actual investment of the owner in the business.

Purchases:

Purchase is value or cost of goods purchased for reselling purpose. Purchases are transferred

to trading account.

Returns Inwards/Sales Returns:

Returns inwards are sold goods returned to us by our customers. Value of returns inwards is

deducted from sales in trading account.

Returns Outwards/Purchases Returns:Returns outwards are purchased goods returned by us to our suppliers. Value of returns

outwards is deducted from purchases in trading account.

Note: Trade Payable sends a credit note to trade receivable or trade receivable sends debit

note to supplier for confirmation of returns.

Discount Allowed:

Discount allowed is rebate given to customers when they pay us. Discount allowed is treated

as an expense and charged to profit and loss account.

Discount Received:

Discount received is rebate given by our supplier when we pay them. Discount received istreated as an income and is added to gross profit or operating profit.

Carriage Inwards:

Carriage inwards is transport cost on goods purchased. It is part of purchases and added to

purchases in trading account.

Carriage Outwards:

Carriage outwards is transport cost on goods sold. This is treated as an expense and charged

to profit and loss account.

Increase in Inventory: i) Purchase of additional goods.ii) Goods returned to the business which were previously sold.

Decrease in Inventory: i) Sale of goods.

ii) Goods returned by the business which were previously bought.



Book-keeping Accounting

Transactions Recording of transactions

in books of original entry.To examine these

recorded transactions inorder to find out their

accuracy.

Posting To make posting in ledger To examine this

posting in order to

ascertain its accuracy.

Total and Balance To make total of the

amount in journal and

accounts of ledger. To

ascertain balance in all theaccounts.

To prepare trial balance

with the help of

balances of ledger

accounts.

Income Statementand Balance Sheet

Preparation of trading,Profit & loss account and

balance sheet is not book

keeping

Preparation of trading, profits and loss account

and balance sheet is

included in it.

Rectification of

errors

These are not included in

book -keeping

These are included in

accounting.

Special skill and

knowledge

It does not require any

special skill and knowledge

as in advanced countries

this work is done by

machines.

It requires special skill

and knowledge.

Liability A book-keeper is not liable

for accountancy work.

An accountant is liable

for the work of book -

k eeper.



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General Journal

Date Particulars Folio Dr Cr

20X5 ₤ ₤

General Ledger

Date Particulars Folio Dr Date Particulars Folio Cr

20X5 ₤ 20X5 ₤

FORMATS



Trading and Profit & Loss Account (Basic)

Particulars ₤ ₤ ₤

Sales xxx

Cost of Goods Sold

Opening Stock xxx

Purchases xxx

Carriage Inwards xxx xxx

Cost of Goods available for Sale xxx

Closing Stock (xxx) (xxx)

Gross Profit xxx

Other Expenses

Rent & Rates Expense xxx

Insurance Expense xxx

Electricity Expense xxx

Bank Charges xxx

Plant Repair xxx

Wages & Salaries xxx

Repair & Maintenance xxx

Sundry Expenses xxx (xxx)

Net Profit xxx



Balance Sheet (Basic)


Fixed Assets

Premises xxx

Furniture & Fixtures xxx

Motor Vans xxx xxx

Current Assets

Closing Stock xxx

Debtors xxx

Prepaid Expenses xxx

Cash at Bank xxx

Cash in Hand xxx

xxx

Current Liabilities

Creditors (xxx) xxx

xxx

Financed By

Capital xxx

Net Profit xxx

xxx

Drawings (xxx) xxx

8.2 A balance sheet is a financial statement that summarises the position at the end of a period. It con-tains all the balances on the accounts held in the accounting books at that time. As it is preparedafter the Trading and Profit and Loss Account, all the accounts have already been balanced off. Allwe do with the balance sheet is lift the balances carried forward from the accounts and place themin an appropriate position in the statement.



Trading and Profit & Loss Account (Advanced)


Sales xxx

Returns Inwards (xxx) xxx

Cost of Goods Sold

Opening Stock xxx

Purchases xxx

Carriage Inwards xxx

Damaged Goods (N-1) (xxx)

Returns Outwards (xxx)

Stock Drawings (N-2) (xxx) xxx

Cost of Goods available for Sale xxx

Closing Stock (xxx) (xxx)

Gross Profit xxx

Other Incomes

Discount Received xxx

Bad Debts Recovered xxx

Profit on Disposal of Fixed Assets xxx

Provision for Doubtful Debts (Reduction) xxx xxx

xxx

Other Expenses

Rent, Rates & Insurance xxx

Wages & Salaries xxx

Damaged Goods (N-3) xxx

Repair & Maintenance xxx

Bad Debts xxx

Provision for Doubtful Debts (Increase) xxx

Loss on Disposal of Fixed Assets xxx

Provision for Depreciation xxx

Sundry Expenses xxx (xxx)

Net Profit xxx

EXPLANATORY NOTES

N-1 : Goods damaged due to fire, flood or stolen by theft.

N-2 : Goods taken by owner for own use.

N-3 : Amount of damaged/stolen goods not covered by insurance.



Balance Sheet (Advanced)


Fixed Assets

Premises xxxProvision for Depreciation (xxx) xxx

Furniture & Fixtures xxx

Provision for Depreciation (xxx) xxx

Motor Vans xxx

Provision for Depreciation (xxx) xxx xxx

Current Assets

Closing Stock xxxDebtors xxx

Provision for Doubtful Debts (xxx) xxx

Prepaid Expenses xxx

Insurance Claim (N-1) xxx

Cash at Bank xxx

Cash in Hand xxx

xxx

Current Liabilities

Creditors xxx

Wages Owing xxx

Bank Overdraft xxx (xxx) xxx

xxx

Financed By

Capital xxx

Net Profit xxx

xxx

Drawings (xxx) xxx

Long-Term Liabilities

Loan xxx xxx

EXPLANATORY NOTES

N-1 : Amount of damaged/stolen goods covered by insurance.



Review questions

7.1 From the following trial balance of A Moore, extracted after one year’s trading, prepare a trad-ing and profit and loss account for the year ended 31 December 20X6. A balance sheet is not required.

Trial Balance as at 31 December 20X6

Dr Cr

£ £Sales 190,576Purchases 119,832Salaries 56,527Motor expenses 2,416Rent 1,894Insurance 372General expenses 85Premises 95,420Motor vehicles 16,594Debtors 26,740Creditors 16,524

Cash at bank 16,519Cash in hand 342Drawings 8,425Capital 138,066

345,166 345,166

Stock at 31 December 20X6 was £12,408.

(Keep your answer; it will be used later in Question 8.1)

7.2 From the following trial balance of B Lane after his first year’s trading, you are required todraw up a trading and profit and loss account for the year ended 30 June 20X8. A balance sheet isnot required.

Trial Balance as at 30 June 20X8Dr Cr

£ £Sales 265,900Purchases 154,870Rent 4,200Lighting and heating expenses 530Salaries and wages 51,400Insurance 2,100Buildings 85,000Fixtures 1,100Debtors 31,300Sundry expenses 412

Creditors 15,910Cash at bank 14,590Drawings 30,000Vans 16,400Motor running expenses 4,110Capital 114,202

396,012 396,012

Stock at 30 June 20X8 was £16,280.

(Keep your answer; it will be used later in Question 8.2)



7.3A From the following trial balance of B Morse drawn up on conclusion of his first year in busi-ness, draw up a trading and profit and loss account for the year ended 31 December 20X8. A bal-ance sheet is not required.

Trial Balance as at 31 December 20X8

Dr Cr

£ £General expenses 305Business rates 2,400Motor expenses 910Salaries 39,560Insurance 1,240Purchases 121,040Sales 235,812Car 4,300Creditors 11,200Debtors 21,080Premises 53,000Cash at bank 2,715

Cash in hand 325Capital 23,263Drawings 23,400

270,275 270,275

Stock at 31 December 20X8 was £14,486.

(Keep your answer; it will be used later in Question 8.3A)

7.4A Extract a trading and profit and loss account for the year ended 30 June 20X8 forG Graham. The trial balance as at 30 June 20X8 after his first year of trading was as follows:

Dr Cr

£ £Equipment rental 940Insurance 1,804Lighting and heating expenses 1,990Motor expenses 2,350Salaries and wages 48,580Sales 382,420Purchases 245,950Sundry expenses 624Lorry 19,400Creditors 23,408Debtors 44,516

Fixtures 4,600Shop 174,000Cash at bank 11,346Drawings 44,000

Capital 194,272600,100 600,100

Stock at 30 June 20X8 was £29,304.

(Keep your answer; it will be used later in Question 8.4A) ‘



‘ 7.5 Henry York is a sole trader who keeps records of his cash and bank transactions in a three-column cash book. His transactions for the month of March were as follows:

March1 Cash in hand £100, Cash at bank £5,6724 York received a cheque for £1,246 from W Abbot which was paid directly into the bank.

This represented sales.

6 Paid wages in cash £398 Sold goods for cash £15210 Received cheque from G Smart for £315, in full settlement of a debt of £344; this was

paid directly into the bank.11 Paid sundry expenses in cash £7314 Purchased goods by cheque for £80018 Paid J Sanders a cheque of £185 in full settlement of a debt of £20123 Withdrew £100 from the bank for office purposes24 Paid wages in cash £3926 Sold goods for cash £9428 Paid salaries by cheque £23031 Retained cash amounting to £150 and paid the remainder into the bank

Required:

(a) Enter the above transactions within T-accounts and bring down the balances.(b) Assuming no opening debtors, creditors or stock, prepare a trading and profit and loss

account for the month of March.

Review questions

8.1 Complete question 7.1 by drawing up a balance sheet as at 31 December 20X6.

8.2 Complete question 7.2 by drawing up a balance sheet as at 30 June 20X8.

8.3A Complete question 7.3A by drawing up a balance sheet as at 31 December 20X8.

8.4A Complete question 7.4A by drawing up a balance sheet as at 30 June 20X8.

8.5 G. Hope started in business on 1 July 20X0, with £40,000 capital in cash. During the first yearhe kept very few records of his transactions.

The assets and liabilities of the business at 30 June 20X1 were:£

Freehold premises 76,000Mortgage on the premises 50,000Stock 24,000Debtors 2,800Cash and bank balances 5,400

Creditors 7,600



During the year, Hope withdrew £9,000 cash for his personal use but he also paid £6,000 receivedfrom the sale of his private car into the business bank account.

Required:From the above information, prepare a balance sheet showing the financial position of the busi-ness at 30 June 20X1 and indicating the net profit for the year.

8.6A The following information relates to A Trader’s business:

Assets and liabilities at 1 January 20X9 31 December 20X9£ £

Fixtures 18,000 16,200Debtors 4,800 5,800Stock 24,000 28,000Creditors 8,000 11,000Cash 760 240Balance at bank 15,600 4,600Loan from B Burton 6,000 2,000Motor vehicle – 16,000

During the year, Trader had sold private investments for £4,000 which he paid into the businessbank account, and he had drawn out £200 weekly for private use.

Required:Prepare a profit and loss account for the year ending 31 December 20X9 and a balance sheet as atthat date.

Hps Poa FINAL

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