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Questions
Explain the nature of a Trading Account.
What is the nature of Trading Account?
Solution
Following are the features of a Trading account:
- It is a nominal account.
- On the final day of the accounting year, it is prepared.
- It stands for the first stage of a trader's final accounts and the next stage of a manufacturer's final accounts.
- It only includes revenue-generating items. Not a single capital item if it's included.
- The opening stock balance is present for a trader. In the case of a manufacturer, it begins with the balance of the manufacturing account.
- It only includes items related to the current year.
Notes
Students should refer to the answer according to their questions.
RELATED QUESTIONS
Closing stock appears in the Final Accounts in the ______.
Purchases are recorded the ______ side of the ______.
Abraham is in business. The following balances were extracted from the books as on 31.12.2018. You are required to prepare a trading account and a profit and loss account for the year ended 31.12.2018 and a balance sheet as on that date.
| Debit (₹) | Credit(₹) | |
| Capital | 32,000 | |
| Drawings | 4,240 | |
| Purchases less Returns | 15,610 | |
| Rates and Taxes | 388 | |
| Salaries | 1,612 | |
| Lighting and Heating | 164 | |
| Electric Power | 384 | |
| Del credere Commission | 414 | |
| Insurance | 206 | |
| Advertising | 214 | |
| Sales less Returns | 34,176 | |
| Bad Debts Written off | 62 | |
| Postage, Telegrams, etc. | 826 | |
| Carriage | 754 | |
| Opening Stock | 6,160 | |
| Wages | 7,962 | |
| Land and Building | 15,840 | |
| Plant and Machinery | 4,034 | |
| Furniture and Fittings | 378 | |
| Sundry Debtors | 6,082 | |
| Sundry Creditors | 4,422 | |
| Cash at Bank | 5,268 | |
| 70,598 | 70,598 |
When preparing the accounts it is necessary to take the following matters into consideration: Closing stock on 31.12.2018 was ₹ 8,760.
The following is the trial balance of Harinath's business, for the year ending 31 March 2019:
| Debit (₹) | Credit (₹) | |
| Capital | 9,790 | |
| Drawings | 2,100 | |
| Debtors and Creditors | 8,220 | 6,470 |
| Cash and Bank Balance | 240 | 660 |
| Discounts | 340 | 210 |
| Purchases and Sales | 10,270 | 16,620 |
| Factory Premises | 5,500 | |
| Wages and Salaries | 1,880 | |
| Office Furniture | 1,000 | |
| Stock as on 1.4.2019 | 3,120 | |
| General Expenses | 210 | |
| Rates and Insurance | 270 | |
| Returns Inwards and Outwards | 1,500 | 1,000 |
| Bad Debts | 100 | |
| 34,750 | 34,750 |
Prepare the trading account and the profit and loss account for the year ended 31-3-2019, together with the balance sheet as on that date.
Stock on 31-3-2019 valued at ₹ 5,690.
The following is the trial balance of Mr. C. Nariman for the year ended 31st December, 2018. Complete the final accounts for him, after incorporating the adjustments and thereafter complete the required details listed by him.
| Debit (₹) | Credit (₹) | |
| Capital | 65,000 | |
| Drawings | 4,000 | |
| Purchases and Returns Outward | 25,000 | 4,000 |
| Cash Sales | 17,000 | |
| Credit Sales | 54,000 | |
| Stock (1.1.2018) | 9,000 | |
| Salaries | 10,000 | |
| Wages | 3,000 | |
| Carriage Inward | 2,000 | |
| Bad Debts | 500 | |
| Petty Cash | 100 | |
| Cash and Bank | 6,000 | |
| Rent, Rates and Taxes | 4,000 | |
| Discounts | 400 | 500 |
| Telephones, Postage and Stationery | 1,500 | |
| Bank Loan on Mortgage | 14,000 | |
| Premises and Godowns | 35,000 | |
| Machinery | 50,000 | |
| Debtors and Creditors | 10,000 | 6,000 |
| 1,60,500 | 1,60,500 |
Stock on 31.12.2018 is ₹ 30,000.
Mr. P.H. Mehta is in business. The following balances were extracted from the books as on 31.12.2018. You are required to prepare the Trading Account and the Profit and Loss Account for the year ended 31.12.2018 and the Balance Sheet as on that date.
| Debit (₹) | Credit (₹) | |
| Capital | 1,98,000 | |
| Drawings | 10,000 | |
| Purchases and Returns Outward | 1,18,800 | 500 |
| Salaries | 21,650 | |
| Rate and Taxes | 950 | |
| Office Lighting and Cooling | 2,700 | |
| Import Duty | 2,200 | |
| Insurance | 250 | |
| Agency Commission | 900 | |
| Advertising | 5,000 | |
| Returns Inward and Sales | 3,48,500 | |
| Bad Debts | 800 | |
| Postage and Telegrams | 800 | |
| Discount Received | 150 | |
| Carriage for Door Delivery to Customers | 1,400 | |
| Opening Stock | 6,200 | |
| Wages | 27,700 | |
| Plant and Machinery | 2,05,000 | |
| Land and Buildings | 1,10,000 | |
| Furniture and Fittings | 3,000 | |
| Sundry Debtors and Creditors | 39,600 | 20,000 |
| Cash at Bank | 10,000 | |
| Petty Cash Balance | 200 | |
| 5,67,150 | 5,67,150 |
Closing stock on 31.12.2018 was ₹ 48,700.
From the following Trial Balance of Mr. P.H. Planner as on 31.3.2019, prepare final accounts for him:
| Debit (₹) | Credit (₹) | |
| Duty, Clearing and Freight | 10,000 | |
| Stock (1.4.2018) | 30,000 | |
| Goodwill | 30,000 | |
| Salary, Bonus and Travel Allowance | 25,000 | |
| Leasehold Premises | 90,000 | |
| Purchases and Sales | 2,40,000 | 3,80,000 |
| Debtors and Creditors | 20,000 | 15,000 |
| Capital and Drawings | 20,000 | 1,60,000 |
| General Expenses | 16,000 | |
| Factory Equipment and Tools | 18,000 | |
| Bank | 5,000 | |
| Interest-free Loan from Mr. P.H. Planner for four years | 80,000 | |
| Wages and Bonus | 35,000 | |
| Cash and Petty Cash | 17,000 | |
| Plant and Machinery | 50,000 | |
| Bill Payable and Receivable | 12,000 | 8,000 |
| Professional Charges | 18,000 | |
| Returns | 7,000 | 4,000 |
| Insurance and Office Expenses | 14,000 | |
| 6,52,000 | 6,52,000 |
Closing Stock is ₹ 45,000.
Trial Balance of Mr. J. Junior as on 31.3.2019:
| Debit (₹) | Credit (₹) | |
| Factory Power | 16,000 | |
| Carriage Charges | 2,500 | |
| Salaries | 20,400 | |
| Sales & Purchases of Goods | 1,40,000 | 2,67,000 |
| Machinery | 1,20,000 | |
| Discounts Received and Allowed | 5,000 | 6,000 |
| Wages (manufacturing activity) | 18,000 | |
| Stock | 25,000 | |
| Commission | 3,800 | |
| Insurance | 8,000 | |
| Loose Tools (Fixed Asset) | 11,000 | |
| Returns of Goods | 5,000 | 6,000 |
| Debtors & Creditors | 45,000 | 18,000 |
| Carriage on Sales | 6,000 | |
| Rent & Rates | 10,800 | |
| Bad Debts Written off & Recovered | 2,000 | 1,600 |
| Investments | 80,000 | |
| Bank Accounts | 22,000 | 10,000 |
| Drawings & Capital | 15,000 | 2,37,000 |
| Bills Payable & Receivable | 6,000 | 4,000 |
| Income from Investments | 6,800 | |
| Cash | 2,500 | |
| 5,60,200 | 5,60,200 |
Compile Final Accounts:
- An inventory of the godown on 31.3.2019 reflected stock value stated as ₹ 50,000.
The following Trial Balance was from the books of Ram as on 31st December 2018.
| TRIAL BALANCE | |||
| Dr. (₹) | Cr. (₹) | ||
| Drawings Account | 7,000 | Capital Account | 90,000 |
| Purchases | 82,210 | Purchase Return | 4,240 |
| Sales Return | 1,820 | Sales | 1,49,840 |
| Opening Stock | 11,460 | Bad Debt Reserve | 4,240 |
| Salaries | 6,280 | Discount | 180 |
| Wages | 8,560 | Sundry Creditors | 16,980 |
| Leasehold Premises | 25,000 | ||
| Rent, Rates & Insurance | 6,940 | ||
| Carriage Inward | 2,310 | ||
| Office Expenses | 9,520 | ||
| Plant & Machinery | 24,000 | ||
| Light & Water | 7,950 | ||
| Bills Receivable | 1,240 | ||
| Sundry Debtors | 38,970 | ||
| Cash at Bank | 12,400 | ||
| Cash in Hand | 2,210 | ||
| Office Furniture | 3,500 | ||
| Travelling Expenses | 9,870 | ||
| Bad Debts | 1,000 | ||
| Carriage Outward | 3,240 | ||
| 2,65,480 | 2,65,480 | ||
Prepare a Trading Account and a Profit & Loss Account for the year ended 31st December 2018 and a Balance Sheet as at that date.
The value of Stock on 31st December 2018 was ₹ 14 920.
On 31st December, 2018 the following Trial Balance, was extracted from the books of Mohan:
| Debit (₹) | Credit (₹) | |
| Capital | 30,000 | |
| Drawings | 5,000 | |
| Drs. and Crs. | 20,000 | 10,000 |
| Loan | 9,500 | |
| Interest on Loan | 300 | |
| Cash | 2,000 | |
| Provision for Bad Debts | 700 | |
| Stock (1.1.2018) | 6,800 | |
| Motor Vehicles | 10,000 | |
| Bank | 3,500 | |
| Land and Building | 12,000 | |
| Bad Debts | 500 | |
| Purchases and Sales | 66,000 | 1,10,000 |
| Returns | 8,000 | 1,500 |
| Carriage Outward | 2,500 | |
| Carriage Inward | 3,000 | |
| Salaries | 9,000 | |
| Rent and Insurance | 3,000 | |
| Advertising | 3,500 | |
| Discount | 500 | |
| General Expenses | 3,400 | |
| B/R and B/P | 6,000 | 2,000 |
| Rent Received | 300 | |
| 1,64,500 | 1,64,500 |
Prepare a Trading Account and a Profit and Loss Account for the year ended 31st December, 2018 and a Balance Sheet as on that date after taking into account the following:
Stock on 31st December, 2018 was valued at ₹ 7,000.
