From the following balances extracted from the books of a trader on December 31, 2022, prepare a trading and profit and loss account for the year ended on that date and also a bala... From the following balances extracted from the books of a trader on December 31, 2022, prepare a trading and profit and loss account for the year ended on that date and also a balance sheet as on the same date. Read more

Steps to Solve

1. Identify the Components Extract the necessary balances from the given information including assets, liabilities, income, and expenses.

2. Prepare the Trading Account Calculate the Gross Profit or Loss by determining the cost of goods sold and comparing it with sales.

• Sales Calculation: Sales = Sales + Sales Returns = 19,960 - 1,460 = ₹18,500

• Cost of goods sold (COGS): COGS = Opening Stock + Purchases - Closing Stock $$ \text{COGS} = 14,160 + 1,036,320 - 17,300 = ₹1,033,180 $$

• Gross Profit: $$ \text{Gross Profit} = \text{Sales} - \text{COGS} = 18,500 - 1,033,180 = ₹(1,014,680) $$ (Indicating a Gross Loss)

3. Prepare the Profit and Loss Account Include other incomes and expenses to derive the Net Profit or Loss.

• Net Expenses: Total Expenses = General Expenses + Wages + Rent and Rates + Bad Debts = 2,400 + 2,000 + 3,720 + 200 = ₹8,320

• Net Profit/Loss Calculation: $$ \text{Net Profit} = \text{Gross Profit} - \text{Total Expenses} = (1,014,680) - 8,320 = ₹(1,022,000) $$

4. Prepare the Balance Sheet List all the assets and liabilities while ensuring that the accounting equation balances.

• Assets:

  • Plant and Machinery: 9,500 - (10% depreciation on 9,500)
  • Stock: 17,300
  • Debtors: 480
  • Cash in Hand: 2,000 (Cash after adjustments)

• Total Assets: $$ \text{Total Assets} = (9,500 - 950) + 17,300 + 480 + 2,000 = ₹28,330 $$

• Liabilities:

  • Creditors: 10,000
  • Bank Overdraft: 2,910
  • Provision for Doubtful Debts: 1,050

• Total Liabilities: $$ \text{Total Liabilities} = 10,000 + 2,910 + 1,050 = ₹13,960 $$

5. Final Figures for Balance Sheet Ensure that Total Assets = Total Liabilities + Equity: $$ 28,330 = 13,960 + 14,370 $$ (Equity from Capital Account)