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Question
Why is a Trading Account prepared?
Solution
The Trading Account is established for the following reasons:
- It provides information about gross profit. A trading company's success can be measured by its percentage of gross earnings to sales.
- The gross profit-to-sales ratio allows traders to compare their performance over time.
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RELATED QUESTIONS
What is meant by purchase returns?
Prepare trading account in the books of Mr. Sanjay for the year ended 31st December 2017:
| Particulars | ₹ | Particulars | ₹ |
| Opening stock | 570 | Purchases | 15,800 |
| Sales | 26,200 | Purchases returns | 90 |
| Sales returns | 60 | Closing stock | 860 |
From the following details for the year ended 31st March 2018, prepare a trading account
| Particulars | ₹ | Particulars | ₹ |
| Opening stock | 2,500 | Returns inwards | 7,000 |
| Purchases | 27,000 | Coal and gas | 3,300 |
| Sales | 40,000 | Carriage inwards | 2,600 |
| Wages | 2,500 | Closing stock | 5,200 |
| Returns outwards | 5,200 |
Compute the cost of goods sold from the following information:
| Particulars | ₹ | Particulars | ₹ |
| Opening stock | 10,000 | Indirect expenses | 5,000 |
| Purchases | 80,000 | Closing stock | 15,000 |
| Direct expenses | 7,000 |
It is an account prepared to ascertain the gross profit/loss. It is a nominal account and represents the first stage of final accounts of a trading organisation.
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.
The following is the trial balance of Miss H. Seattle as on 31st December, 2018.
| Dr. (₹) | Cr. (₹) | |
| Salaries | 5,500 | |
| Wages | 33,000 | |
| Returns Accounted | 10,000 | 8,000 |
| Carriage Inwards | 12,000 | |
| Carriage Outwards | 10,000 | |
| Rent | 3,300 | |
| Insurance | 7,000 | |
| Stock on 1.1.2018 | 15,000 | |
| Rates and Taxes | 2,700 | |
| Power and Fuel | 8,000 | |
| Plant and Machinery | 1,00,000 | |
| Furniture and Fixtures | 10,000 | |
| Purchases | 1,20,000 | |
| Sales | 2,05,000 | |
| Investments (long-term basis) | 80,000 | |
| Income from Investments | 10,000 | |
| Commission Receipts | 12,000 | |
| Discount to Customers and from Creditors | 4,000 | 6,000 |
| Bad Debts Written off | 2,000 | |
| Cash in Bank | 25,000 | |
| Cash in Hand | 500 | |
| Capital | 2,20,000 | |
| Debtors' and Creditors' Personal Accounts | 52,000 | 39,000 |
| 5,00,000 | 5,00,000 |
Compile the final accounts for the owner, after attending to the adjustment given below.
- Closing stock is evaluated at the lower market price ₹ 42,000 ignoring the cost price, which is higher by ₹ 4,000.
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.
From the following trial balance of Mr. A prepare a Trading Account and a Profit and Loss Ale for the year ending 3tst Dec., 2018 and a Balance Sheet as on that date:
| TRIAL BALANCE | |||
| Debit Balance | (₹) | Credit Balance | (₹) |
| Cash | 10,000 | Sales | 1,80,500 |
| Stock | 40,800 | Returns | 195 |
| Wages | 22,525 | Loan | 20,000 |
| Ourchases | 1,30,295 | Creditors | 30,305 |
| Returns Inward | 2,400 | Discount | 530 |
| Repairs | 1,675 | Capital | 37,500 |
| Bad Debts | 2,310 | ||
| Interest on Loan | 600 | ||
| Salaries | 8,000 | ||
| Sales Tax | 800 | ||
| Octroi | 500 | ||
| Insurance | 1,000 | ||
| Charity | 125 | ||
| Rent | 2,000 | ||
| Machinery | 16,000 | ||
| Debtors | 30,000 | ||
| 2,69,030 | 2,69,030 | ||
Stock on 31st Dec., 2018 was ₹ 40,925.
Prepare Trading, Profit and Loss A/c and Balance Sheet of M/s Banerjee Enterprises for the Year ended 31st March, 2010 from the following Trial Balance.
| Heads of Accounts | (Dr.) (₹) | (Cr.) (₹) |
| Opening Stock | 25,000 | - |
| Purchases and Sales | 75,000 | 2,00,000 |
| Discounts | 3,600 | 6,000 |
| Debtors and Creditors | 32,000 | 15,000 |
| Bad debts | 400 | - |
| Cash-in-Hand | 3,000 | - |
| Machinery | 50,000 | - |
| Salaries | 8,000 | - |
| Carriage Inwards | 2,000 | - |
| Wages | 6,000 | - |
| Investments | 20,000 | - |
| Land and Building | 90,300 | - |
| Bank Overdraft | - | 20,000 |
| Commissions | 1,350 | 3,510 |
| Interest on Investments | - | 2,000 |
| Electricity | 2,000 | - |
| Rent | 2,500 | - |
| Insurance | 1,800 | - |
| Capital | - | 76,440 |
| 3,22,950 | 3,22,950 |
Closing stock was ₹ 10,360.
