Trading Accounts.

Trading Accounts

Aims & objectivesThe trading account• Purpose of the trading account• The trading period• Net sales/net purchases• Trading and non-trading stock• Stocktaking*• purpose• procedure• valuation of stock• Cost of goods sold• Gross profit/loss• On completion students should be able to:• Present appropriate (simple) reports on stock and stocktaking*• Record stock in accounts• Calculate closing stock as per accounts*• Operate the trading account in accordance with conventions of double entry*• Prepare a trading account from given data• Interpret information presented in a trading account*• Calculate gross profit percentage

The trading AccountA Record of

the goods or services that were traded by a business

during the previous trading period.

The trading Periodthe length of time the final accounts are

prepared for.

Usually one year But

May be any length of timeQ2 page 346

Gross profit / Gross loss The difference between the total sales during the period and the total amount it

cost the firm to purchase and prepare the goods for sale

• Sales - Cost of Sales

Cost of sales

The total amount it cost the firm to produce the goods they actually sold.

• (Opening Stock+ Purchases + Carriage Inwards + Import Duty) - Closing Stock

Cost of goods available for sale

The total amount it cost the firm to produce the goods they actually sold + stock not sold yet

(Opening Stock+ Purchases + Carriage Inwards + Import Duty)

OrCost of sales + Closing Stock

Items on the trading account

Sales The value of the goods sold

Sales Returns (returns in)The value of goods sold which

were returned to the firm.


PurchasesThe cost of goods purchased.

Purchase Returns (returns out) The value of goods

purchased which were returned by the firm.

Items on the trading accountOpening Stock The cost of

goods held in stock at the start of the period

Closing Stock The cost of goods held in stock at the end of the.

period.


Carriage Inwards Transport costs of

bringing goods into the factory.


Import/Custom Duties

Any taxes which the firm had to pay on goods they purchased from certain other countries.

Sample questionSales €37,500Purchases €18,000Sales Returns €280Purchases Returns €340Opening Stock €2,200Carriage Inwards €20Customs Duties €50Direct Wages €100Closing Stock €6,000.

SolutionTRADING PROFIT AND LOSS ACCOUNT and Appropriation A/c OF Deane Ltd. For year

ended 31.12.2010

COLUMN 1 COLUMN 2 COLUMN 3

€ € €

Sales 35,700

Less Sales Returns (280)

Net Sales 35,420

Less: Cost of Sales:

Opening Stock (1 January 2010) 2,200

Add: Purchases 18,000

Less: Purchases Returns (340)

Net Purchases 17,660

Add: Carriage Inwards 20

Add: Import Duty 50

Add: Direct Wages 100

Cost of Goods Available 20,030

Less: Closing Stock (31 Dec 2010)

(6,000)

Cost of Sales (14,030)

Gross Profit 21,390

Net Sales = Sales - Sales Returns

Net Purchases = Purchases -

Purchase Returns

Cost of goods available = Opening Stock + Net Purchases + carriage in + duty+ direct wages

Cost of sales = cost of goods available - closing stock

Gross Profit = Net Sales - Cost of sales

Trading Account of Dean Ltd for year ended 31 December 2010Column1

€Column 2

€Column3

€

Sales 35,700Less Sales Returns (280) 35,420Less Cost of SalesOpening Stock(1Jan 2010) 1 2,200Add: Purchases 18,000Less: Purchases Returns (340) 2 17,660Add: Carriage Inwards 3 20Add: Import Duty 4 50Add: Direct Wages 5 100Cost of Goods Available for Sale 1+2+3+4+5 20,030Less Closing Stock(31 Dec 2010) (6000)Cost of Sales (14,030)Gross Profit 21,390

Q4 Trading Account of Clancy Ltd for year ended 31 December 2006Column1

€Column 2

€Column3

€

Sales 150000Less Sales Returns 0 150000Less Cost of SalesOpening Stock(1Jan 2010) 10000Add: Purchases 60000Less: Purchases Returns 0 60000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 70000Less Closing Stock(31 Dec 2010) (8000)Cost of Sales (62000)Gross Profit 88000

Q5 Trading Account of o grady Ltd for year ended 30 nov 2006Column1

€Column 2

€Column3

€

Sales 200000Less Sales Returns 0 200000Less Cost of SalesOpening Stock(1Jan 2010) 40000Add: Purchases 140000Less: Purchases Returns 0 140000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 180000Less Closing Stock(31 Dec 2010) (30000)Cost of Sales (15000)Gross Profit 50000

Q6 Trading Account of o delaney Ltd for year ended 30 nov 2006Column1

€Column 2

€Column3

€

Sales 60000Less sales returns 0 60000Less Cost of SalesOpening Stock(1Jan 2010) 15000Add: Purchases 50000Less: Purchases Returns 0 50000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 65000Less Closing Stock(31 Dec 2010) (3000)Cost of Sales (62000)Gross Profit (2000)

Q7 Trading Account of o delaney Ltd for year ended 30 nov 2006Column1

€Column 2

€Column3

€

Sales 60000Less sales returns 4000 56000Less Cost of SalesOpening Stock(1Jan 2010) 9000Add: Purchases 40000Less: Purchases Returns 3000 37000Add: Carriage Inwards 0Add: Import Duty 0Add: Direct Wages 0Cost of Goods Available for Sale 46000Less Closing Stock(31 Dec 2010) (6500)Cost of Sales (39500)Gross Profit 16500

Q8 Trading Account of hillside complexLtd for year ended 30 nov 2006

Column1€

Column 2€

Column3€


Q12 Trading Account of hillside complexLtd for year ended 30 nov 2006

Column1€

Column 2€

Column3€



Net Sales Sales - Sales Returns

Net Purchases Purchases - Purchases

Returns

Valuing stock

The price the firm paid for the goods (cost)

ExceptIf the selling price lower than costI.e. if the goods have gone out of

fashion

Stock control

• ensure there is neither too much nor too little stock at any particular time

Problems of overstocking

• Money tied up in stock should be earning interest

• The stock may go out of date or out of fashion.

• Warehouse and insurance costs• More security staff needed• Risk of pilferage

Problems with under stocking

• Sales are lost• Profits are lost• Customers are lost• Warehouse space is wasted.

SETTING UP A STOCK CONTROL SYSTEM

• Code every item in stock. • Decide the correct level of stock for each

item. • Develop a method of recording stock. • Carry out regular stocktaking.

Stock terms

• Optimum level = Ideal stock level

• Minimum level = the lowest quantity that stock allowed fall to

Stock terms

• Maximum level = the quantity which stock levels must not exceed

• Reorder quantity = the quantity ordered each time

Stocktaking

• means counting the amount of stock in the warehouse at a particular time.

• This should be done at least once a year

Computerised Stock control

• When a business is computerised, the Stock Quantity and value is always up to date.

• purchase invoices are keyed into the system - automatically increasing stock levels and adjusts the cost price if necessary.

• Each time a product is sold the bar code on the product is scanned and the stock count of the product is reduced by one

• The computer can generate orders if stock falls below minimum level

Stock take procedure

• Close The warehouse • Divide it into sections • Assign two people to each section.• One counts & the other records • Check & total stock sheets• hand to the person in charge who

produces rpt.

Mark-Up and MarginCost + profit = Selling PriceMark-up and margin are expressed as percentages.

E.G. Cost price €100 Selling price €120 ... Profit = €20 Mark-up - Profit expressed as a percentage of cost. Margin - Profit expressed as a percentage of selling

price.

Mark-Up = Profit x 100%Cost Price

€20 x 100%€100

= 20%

Margin = Profit x 100%Selling Price

€20 x 100%€120

= 16.66%

Trading Accounts.

Documents

Transcript of Trading Accounts.