Accounting Basics

ACCOUNTING BASICS

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WHAT IS TRADING ACCOUNT

IT DENOTES INCOME AND EXPENDITURE THE ITEMS INCLUDED IN IT ARE : 1. SALES 2. PRODUCTION EXPENDITURE 3. FACTORY EXPENDITURE 4. GROSS PROFIT OR GROSS LOSS.

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WHAT IS P & L ACCOUNT IT IS PREPARED AFTER TRADING ACCOUNT. IT INCLUDES FOLLOWING ITEMS : 1. EXPENDITURE – OTHER THAN FACTORY OR PRODUCTION RELATED EXPENDITURE 2. REVENUE OTHER THAN SALES IF YOU ARE NOT PREPARING TRADING ACCOUNT, THAN ALL THOSE ITEMS WILL COME IN P & L ACCOUNT. www.afterschoool.tkLET US CHANGE THE WORLD

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WHEN TRADING ACCOUNT IS NOT PREPARED? WHEN THE FIRM IS HAVING NO PRODUCTION ACTIVITIES – LIKE SERVICE UNITS – THE COMPANY MAY NOT PREPARE TRADING ACCOUNT. ALL REVENUE AND EXPENDITURE WILL GO TO P & L ACCOUNT

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EXAMPLE

PREPARE TRADING ACCOUNT FROM THE FOLLOWING INFORMATION: PURCHASE 100, WAGES : 100, OTHER EXP. 20 SALES : 500 OPENING STOCK : 100 CLOSING STOCK : 70

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SOLUTION

DEBIT AMOUNT OPENING STOCK PURCHASE  WAGES OTHER EXP

CREDIT  AMOUNT 100 100 SALES  500 100 CLOSING STOCK 70 20

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TIPS

DEBIT BALANCE ITEMS : (ALL EXPENDITURE, PURCHASE, GROSS PROFIT, OPENING STOCK ETC. ) CREDIT SIDE ITEMS : (SALES AND OTHER SUCH REVENUE, CLOSING STOCK).

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EXAMPLE OF P&L ACCOUNT PREPARE P&L ACCOUNT FROM FOLLOWING : GROSS PROFIT : 250, INTEREST RECEIVEED : 120, COMMISSION RECEIVEED : 30, SALARY : 100, POSTAGE : 10, RENT : 20, OTHER EXPENDITURE : 20, DEPRECIATION : 50 www.afterschoool.tkLET US CHANGE THE WORLD

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SOLUTION

TOTAL  NET PROFIT TOTAL 

200 TOTAL  200 400

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400

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TIPS DEBIT SIDE ITEMS : ALL EXPENDITURE, DEPRECIATION, OUTSTANDING EXPENDITURE (EXP. WHICH IS DUE BUT NOT PAID), CREDIT SIDE ITEMS : ALL INCOME, ACRUED INCOME (INCOME WHICH IS DUE BUT NOT YET RECEIVED) www.afterschoool.tkLET US CHANGE THE WORLD

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ADJUSTMENTS REQUIRED

CALCULATE DEPRECIATION CAREFULLY ADJUST FOR PREPAID AND OUTSTANDING EXPENDITURE, ACRUED INCOME AND INCOME RECEIVED IN ADVANCE

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