ENEMS PROJECT: THE FINAL ACCOUNT

THE FINAL ACCOUNT

The final accounts of a sole trader consists of

i. These Trading, Profit and Loss account

ii. The balance sheet.

The Trading, profit and loss account.

The trading profit and loss account comprises of two accounts:

a. The trading account: Prepared to ascertain the gross profit or loss.

b. Profit and Loss Account: Prepared to ascertain the net profit or loss for the period:

In the Trading Account, the cost of goods are debited while the income earned from sales of goods are credited. Adjustments for returns outwards and inwards are made on the debit and credit sides respectively. The difference between the two sides represents gross profit or loss.

The profit and loss account follows immediately under the trading account. All other expenses that were not incurred directly on the stock are debited to this account. Similarly all other incomes that were not from sales of goods are credit to this account. The difference between the two sides represents the net profit or loss.

In both cases, it is profit when the credit side is greater than the debit side. When the opposite is the case, it is a loss. The Trading Profit and Loss account is part of the double entry system.

Below is the vertical format for trading profit and loss account. It can also be presented in a T-account format.

NASPOLY CONSULT NIG. LTD

Trading Profit and Loss Account for the Year Ended 31^st December 2014

Sales	N	N x
Less: Returns inwards Less: cost of Sales: Opening stock Purchases Returns outwards Carriage inwards Cost of goods available for sale Closing stock Cost of goods sold ‘Wages’ Cost of sales Gross profit	x x (x) _x_ x (x) x x	(x) x _x_ x
Add: Other Incomes Interest received Rent received Commission received Discount received Decrease in provision for doubtful debt Less: Other expenses Salaries Rent & Rates Carriage outwards Increase in provision for bad debts Depreciation Telephones Loan interest Repair Advertising Net Profit	x x x x _x_ x x x x x x x x _x_	_x_ x _(x)_ xx

N.B: Wages should be charged in trading A/C only if it is shown separately from salaries in the trial balance.

NASPOLY CONSULT NIG. LTD

Trading Profit and Loss Account for the Year Ended

	N	N		N	N
Opening stock		x	Sales	x
Purchases	x		Sales returns	(x)	X
Purchases returns Carriage inwards Cost of goods available for sales Closing stock Cost of goods sold “Wages” Cost of sales Gross profit c/d Salaries Rent and rates Carriage outwards Increase in provision for doubtful debt Depreciation Discount allowed Repairs Loan interest Printing and stationary Advertising Net profit	(x) _x_	_X_ x _(x)_ x _x_ x _x_ xx x x x x x x x x x x x __ xx	Gross profit b/d Interest received Rent received Commission received Discount received Decrease in provision for bad debt	x x x x _x_	__ xx x x __ xx

THE BALANCE SHEET

The balance sheet could be defined as a financial statement that shows the financial position of a firm in terms of assets, capital and liabilities as at a particular time.

It is not part of the double entry system but only shows a snapshot of the business as at the specified point in time.

The balance sheet is based on the accounting equation;

Asset = capital + liabilities

This accounting equation simply means that the assets of a business/organization are supplied by the owner (capital) and/or other people/interest (liabilities).

THE BALANCE SHEET LAYOUT

In drawing a balance sheet all we do is to list the assets, capital liabilities.

The assets are arranged under two headings, non-current assets or fixed assets and current assets

Non-current (fixed) assets. These are assets that;

i. Were not bought primarily to be sold.

ii. Are to be used in the operation of the business.

iii. Are expected to be of use to the business for a long time Examples include building, machinery motor vehicles, furniture’s and fitting e.t.c.

Fixed assets are listed first in the balance sheet starting with those that will last longest down to those that will not last so long. That is in decreasing order of useful life.

E.g Land & Building. x

Fixtures & fittings x

Machinery x

Motor vehicle x

Current assets: These are assets that are likely to change in the short term and certainly within twelve months of the balance sheet date. These include cash in hands, (accounts receivable).

These are listed in increasing order of liquidity.

e.g Stock

Debtors

Cash at bank

Cash in hand.

Liabilities; Also there are two categories of liabilities, these are current liabilities and non-current liabilities.(long term liabilities).

Current Liabilities; (short term liabilities). These are items that have to be paid within a year of the balance sheet date.

e.g bank overdraft, trade creditors.

Non-current liabilities (long term liabilities). These are items that have to be paid more than a year after balance sheet date.

e.g bank loans, long term loans from other sources.

The balance sheet could be presented in the traditional T-format or the more recent vertical format. When presented in the T-format the assets are listed in the right hand side and starting with fixed assets as was said earlier while the liabilities and capital are listed on the left hand side of the balance sheet.

Balance Sheet as at ____________

	N	N		N	N
Capital		X	Fixed Asset
Add Net Profit		_X_	Good will		X
		x	Land and building	X
Les drawing		X	Less depreciation.	(x)	X
		X	Plant & Machine	X
Long Term Liabilities			Less Dep.	(x)	X
Long term loans		X	Furniture	X
Current liabilities			Less Dep.	(x)	X
Short term loans	X	X	Motor van	X
Band O/draft	X		Less Dep.	(x)	x
Creditors	X
Accrues expenses	X		Long term investment		X
Bills payable	X	X	Current Assets
			Stock		X
			Debtors	X
			Less prov. for bad debts	(x)	X
			Short term investments		X
			Prepayments	X
			Accrued incomes	X
			Bank	X
		__	Cash	X	_x_
		xx			xx

Balance sheet as at ___________________

	N		N
Fixed assets	Cost	Dep.	NBV
Land and Building	X	X	X
Furniture & fittings	X	X	X
Plant and Machinery	X	X	X
Motor vehicle	X	X	_X_
			X
Long Term / Investment			X
Current Assets:
Stock		X
Trade debtors	X
Less provision	(X)	X
Short term investment		X
Prepayments		X
Accrued income		X
Bank		X
Cash		_X_
		X
Less Current liabilities
Trade creditors	X
Accrued expenses	X
Income received in adv	X
Bank o/draft	X	(x)
Working capital			_X_
			X
Long term liabilities:
Bank loans			(X)
Net assets			XX

Capital			x
Add capital introduced			X
Net profit			X
			X
Less: Drawing			(x)
			XX

Example: The following is the trial balance of G. Eze as at 30^th September 2014.

Dr. Cr

N N

Stock: 1/10/2013 41,600

Carriage outwards 2,100

Carriage inwards 3,700

Returns inwards 1,540

Return outwards 3,410

Purchase 188,430

Sales 380,400

Salaries and wages 61,400

Warehouse rent 3,700

Insurance 1,356

Motor expenses 1,910

Office expenses 412

Lightning and heading expenses 894

General expenses 245

Premises 92,000

Motor vehicles 13,400

Fixtures and fittings 1,900

Account receivable 42,560

Account payable 31,600

Cash at bank 5,106

Drawings 22,000

Capital 68,845

484253 484253

You are required to prepare his trading profit and loss account for the year ended 30^thSeptember 2014. And his balance sheet as at that date.

ENEMS PROJECT

Pages

Friday, 11 December 2015

THE FINAL ACCOUNT

THE FINAL ACCOUNT

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