Prepare the trading account and profit and loss account for Western Seti Company based on the trial balance provided.

Steps to Solve

1. Calculate Total Purchases First, we calculate the total purchases by subtracting the purchase return from the purchases. [ \text{Total Purchases} = \text{Purchases} - \text{Purchase Returns} = 270,000 - 4,000 = 266,000 ]

2. Calculate Total Expenses We need to account for wages, manufacturing expenses, rent, and office expenses. We also need to include the outstanding wages. [ \text{Total Expenses} = \text{Wages} + \text{Manufacturing Expenses} + \text{Rent} + \text{Office Expenses} + \text{Outstanding Wages} ] [ \text{Total Expenses} = 14,000 + 15,000 + 18,000 + 7,000 + 1,500 = 55,500 ]

3. Calculate Cost of Goods Sold (COGS) The COGS is given by the formula: [ \text{COGS} = \text{Opening Stock} + \text{Total Purchases} + \text{Total Expenses} - \text{Closing Stock} ] [ \text{COGS} = 45,000 + 266,000 + 55,500 - 49,000 = 317,500 ]

4. Calculate Gross Profit Gross profit is calculated by subtracting COGS from sales. [ \text{Gross Profit} = \text{Sales} - \text{COGS} ] [ \text{Gross Profit} = 380,000 - 317,500 = 62,500 ]

5. Calculate Net Profit Now, we need to calculate the net profit by subtracting other expenses, which include prepaid salaries, from gross profit. [ \text{Net Profit} = \text{Gross Profit} - \text{Prepaid Salaries} ] [ \text{Net Profit} = 62,500 - 1,000 = 61,500 ]

6. Prepare Trading Account Finally, present the trading account: [ \text{Trading Account:} ] Sales: 380,000

   Less: COGS: 317,500

   Gross Profit: 62,500

7. Prepare Profit and Loss Account Present the profit and loss account: [ \text{Profit and Loss Account:} ] Gross Profit: 62,500

   Less: Prepaid Salaries: 1,000

   Net Profit: 61,500