*Final Accounts2

*A Trial BalanceA trial balance is a list of debit balances and credit balances in the books of accountsThe total of debit balances and the total of credit balances are equal. If not, errors are needed to identified. Trial balance is the basis for preparing final accounts (Trading and profit and loss A/C; Balance Sheet).

*Example of a Trial BalanceLeungs CompanyTrial Balancefor the year ended 31 December, 2008$ $

Sales1010Returns inwards10Stock as at 1 January, 2008100Purchases530Returns outwards20Carriages inwards10Rental income100Commission received50Rent120Commission30Electricity150Rates50Land and building1000Office Furniture700Fittings500Office equipment500Machinery1000Motor vehicles500Debtors1500Bank 400Cash80Creditors1000Bank overdraft500Capital3000Drawings100Bank loan1000LoanMr. Cheung600

*$ $Land and building1000Office Furniture700Fittings500Office equipment500Machinery1000Motor vehicles500Debtors1500Bank 400Cash80Creditors1000Bank overdraft500Capital3000Drawings100Bank loan1000LoanMr. Cheung600

72807280Stock as at 31 December, 2008 is $120

*B Trading A/CNet SalesCost of goods sold Gross profit / Gross loss Function: Calculate the gross profit or gross loss.Net Sales =Sales Returns inwardsCost of goods sold = Opening stock (Net Purchases+Carriage inwards) - Closing stockNet Purchases =Purchases Returns outwardsGross profit: Net Sales>Cost of salesGross loss: Cost of sales>Net sales

*Put the above formulas into a statement, a Trading A/C is formed.Trading A/c has vertical form and horizontal form.

*Examples of vertical formLeungs CompanyTrading A/Cfor the year ended 31 December, 2008$$$Sales1010LessReturns inwards 10Net Sales1000LessCost of goods soldStock as at 1 January,2006100AddPurchases530 LessReturns outwards 20 Net purchases510AddCarriage inwards 10520620LessStock as at 31 December, 2006120500Gross profit500

*Examples of horizontal formT formLeungs CompanyTrading A/Cfor the year ended 31 December, 2008 $ $ $Opening Stock 100 Sales1010AddPurchases 530 LessReturns inwards 10LessReturns outwards 20 Net Sales1000Net purchases 510AddCarriage inwards 10 520 620LessClosing stock 120Cost of goods sold 500Gross profit c/d 500 10001000

*CProfit and loss A/CGross profitOther incomeExpensesNet profit / Net lossFunctions: calculate the net profit / net loss.Other income= rental income + commission income+Expenses=rent and rates+commission+electricity+ Net profit: Gross profit+Income>ExpensesNet loss: Expenses>Gross profit+Income

*Put the above formulas into a statement, a Profit and loss A/C is formed.Trading A/c has vertical form and horizontal form.

*Vertical formLeungs CompanyProfit and lossfor the year ended 31 December, 2008$ $Gross profit500AddRental income100Commission income50650LessExpensesRent120Commission30Electricity150Rates50350Net Profit300

*Examples of horizontal form (T form)Leungs CompanyProfit and loss A/Cfor the year ended 31 December, 2006 $ $Rent120Gross profit b/d500Commission30Rental income100Electricity150Commission income 50Rates50Net profit300650650

*DBalance Sheet*AssetsFixed assetsCurrent assets**LiabilitiesCurrent liabilitiesLong-term liabilities***Capital:Opening capitalNet profitCapitalClosing capitalAssets*Liabilities**Capital***Balance sheet is a statement to record the balances of assets, liabilities and capital at the end of the accounting period.

*D1Fixed AssetsFixed assets have a long life and are to be used in the business.Fixed assets is not bought for resale.E.g. Land and building, Furniture, Fixtures and fitting, Office equipment, Machinery, Motor vehicles

*Fixed assets are listed in the order of permanency in the Balance Sheet are as follows:

Fixed assets Land and building Furniture Fixtures and fittings Office equipment Machinery Motor vehicles

*D2 Current assetsCurrent assets are likely to be converted into cash in the short term (i.e. within 1 year) or items having a short life.E.g. Stock, Debtors, Prepayment, Bank, Petty cash, Cash

*Current assets are listed starting the most difficult to be turned into cash, and the last one is Cash:

Current assets Stock Debtors Prepayment Bank Cash

*D3Long-term LiabilitiesLong-term liabilities liabilities which the company will have longer than 1 yeare.g. Bank loan, Loan: Mr. Cheung, Debentures

*D4Current liabilitiesCurrent liabilities are to be paid in the near future (i.e. within 1 year).e.g.Creditors, Accruals, Bank overdraft

Current assetsCurrent liabilitiesWorking Capital

*Balance Sheet has vertical form and horizontal form. The format of vertical is as follows:

*Leungs CompanyBalance Sheetas at 31 December, 2008$ $ $Fixed assetsLand and building1000Furnitures700Fixtures and fittings500Office equipment500Machinery1000Motor vehicles500 4200

* $ $ $Current assetsStock120Debtors1500Bank400Cash80 2100LessCurrent liabilitiesDebtors1000Bank overdraft500 1500Working capital 600 4800

* $ $ $CapitalCapital as at 1 January, 2008 3000AddNet profit 400 3400LessDrawings 100Capital as at 31 December, 2008 3300Long-term LiabilitiesBank loan 1000LoanMr. Cheung 500 1500 4800

*Horizontal form T formLeungs CompanyBalance SheetAs at 31 December, 2006$$$$Fixed assetsCapitalLand and buildings1000 Capital as at 1 January, 2008 3000Furniture700 AddNet profit 300Fixtures and fittings 500 3300Office equipment500 LessDrawings 100Machinery1000 Capital as at 31 December, 2008 3200Motor vehicles5004200Long-term LiabilitiesCurrent assets Bank loan1000Stock 120 Loan-Mr. Cheung600 1600Debtors1500Current LiabilitiesBank400 Creditors1000Cash802100 Bank overdraft 500 15006300 6300