The Two Types Of Application Software

This means that the business had no opening and closing inventories during the accounting period ended 30 June 2007. The usual practice is for business organisations to hold certain minimum level of inventories to meet future demand. This is handled in the Income Statement by adding the opening inventories to the purchases figure which gives rise to cost of goods available for sale and deducting the closing inventories figure resulting in cost of goods sold. Any account, which remains in the Trial Balance after the trading and Income statement have been prepared, represents either assets or liabilities that must be recorded in the Statement of Financial Position. This is a Statement that shows the Financial Position of a business as at the end of an accounting period. The war’s end eliminated the need for the excess profits tax and consequently it was repealed. We need to know the laws and rules so that we can utilize the laws in the favor of our clients while still protecting them. From the above Income Statement one can deduce that the business is a new one and also was able to sell the goods that were purchased during the year.

It is therefore worthy to note that carriage outwards is an Income statement item and for that reason is not included in the calculation of gross profit. • Debit Wages/Salaries Account with the Gross Salary. Being a contra account to the sales account means that it has a debit balance which when transferred to the sales account at the end of the accounting period will show the net sales or turnover of the organisation. Necessary adjustments for depreciation in the values of the assets at the end of the trading period. Being a contra account to the purchases account means that it has a credit balance which when transferred to the purchases account at the end of the accounting period will show the net purchases of the organisation. Despite such a drop the cash flow ratio of the firm increased, which is in line with the increase in net cash from operating activities.

The balance on the Income statement represents net profit or loss of the business or the firm. The balance on the Income statement will finally be transferred to the capital account in the statement of Financial Position. In this chapter, you are going to learn how to prepare a simple Comprehensive Income Statement and a statement of financial position for a sole trader who deals in the buying and selling of goods. The liabilities are entered in the Statement of Financial Position as deductions from assets of the firm, while income and gains are credited either to the Comprehensive Income Statement or to the Income statement. It is pertinent that, the component items in the Income Statement do not vary in any material effect from previous and subsequent accounts, as this will make it impossible for any analyst to make meaningful approximate comparison. We would like to thank all of our alumni, friends and supporters who make it possible for students to attend Kent State and achieve their education goals. You will also learn how to prepare final accounts of a sole trader who is involved in the manufacturing process. The sales and the returns inwards accounts are accounts in which are recorded the respective goods sold and goods returned by customers.

1. Sales during the period (less returns inwards). The usual practice is to maintain the sales account separately and not to deduct directly any goods that have been returned by customers during the accounting period. This is because carriage outwards is seen as expenses on sales and as a result is debited in the Income Statement. It is also in this account that the cost of obtaining the goods, usually referred to as cost of goods sold or simply as cost of sales is calculated. The effect of this entry is to close off the Income statement to the capital account. Where the resulting balance in the statement is a credit, a transfer will be made by debiting the Income statement and crediting the capital account of the proprietor. The main function of the Statement of Comprehensive Income is to ascertain the net Income statement resulting from the trading operations of the accounting period. • Debit provident fund account and credit Cash/Bank account with the amount paid • Debit Income tax account and credit cash/bank with the sum paid.

• Debit payroll payable account and credit cash/bank account with the amount paid. • Debit any other deduction account and credit cash/bank account with the amount paid. • Debit 12.5% Employer‟s Social Security Fund Account and credit cash or bank account with the amount paid. • Credit Income Tax Account. This is done by adding the carriage inwards to the purchases figure in the Income Statement. All purchasing and expenses, such as wages, carriage inwards, and other items which are incurred in putting the product in a saleable condition or location. 5. Other expenses, e.g., loss by fire, loss by defalcations. It is debited with the gross loss and with the General, Selling, Distribution and Administration expenses for the period, and is credited with the gross profit (if any) and any miscellaneous gains made, such as interest and discounts received. Debit balances recorded in the Trial Balance normally represent either assets, or losses and expenses.

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