1
Final Accounts
References :Chapter 7 to 10 (P. 59-113)
2
2
A Trial Balance ( 試算表 )
A trial balance is a list of debit balances and credit balances in the books of accounts 。The total of debit balances and the total of credit balances are equal. If not, errors are needed to identitied. Trial balance is the basis for preparing final accounts (Trading and profit and loss A/C; Balance Sheet).
3
Examples of Trial Balance :Leungs Company
Trial Balancefor the year ended 31 December, 2008
$ $Sales 1010Returns inwards 10Stock as at 1 January, 2008 100Purchases 530Returns outwards 20Carriages inwards 10Rental income 100Commission received 50Rent 120Commission 30Electricity 150Rates 50
4
$ $Land and building 1000Office Furniture 700Fittings 500Office equipment 500Machinery 1000Motor vehicles 500Debtors 1500Bank 400Cash 80Creditors 1000Bank overdraft 500Capital 3000Drawings 100Bank loan 1000Loan - Mr. Cheung 600
7280 7280Stock as at 31 December, 2008 is $120
5
B Trading A/C
Net Sales - Cost of goods sold = Gross profit / Gross loss
• Function: Calculate the gross profit or gross loss.
Net Sales =Sales – Returns inwards
Cost of goods sold = Opening stock +(Net Purchases+Carriage inwards) - Closing stock
Net Purchases =Purchases – Returns outwards
Gross profit: Net Sales>Cost of sales
Gross loss: Cost of sales>Net sales
6
Put the above formulas ( 算式 ) into a statement, a Trading A/C is formed.Trading A/c has vertical form and horizontal form.
7
Examples of vertical form :Leungs Company
Trading A/Cfor the year ended 31 December, 2008
$ $ $Sales 1010Less : Returns inwards 10Net Sales 1000Less : Cost of goods sold
Stock as at 1 January,2006 100Add : Purchases 530 Less : Returns outwards 20 Net purchases 510Add : Carriage inwards 10 520
620Less : Stock as at 31 December, 2006 120
500Gross profit 500
8
Examples of horizontal form ( T form )Leungs Company
Trading A/Cfor the year ended 31 December, 2008
$ $ $Opening Stock 100 Sales 1010Add : Purchases 530 Less : Returns inwards 10Less : Returns outwards 20 Net Sales 1000Net purchases 510Add : Carriage inwards 10 520
620Less : Closing stock 120Cost of goods sold 500Gross profit c/d 500
1000 1000
9
C Profit and loss A/C
Gross profit + Other income - Expenses = Net profit / Net loss
•Functions: calculate the net profit / net loss.
Other income= rental income + commission income+…
Expenses=rent and rates+commission+electricity+ …
Net profit: Gross profit+Income>Expenses
Net loss: Expenses>Gross profit+Income
10
Put the above formulas ( 算式 ) into a statement, a Profit and loss A/C is formed.Trading A/c has vertical form and horizontal form.
11
Vertical form :Leungs Company
Profit and lossfor the year ended 31 December, 2008
$ $Gross profit 500Add : Rental income 100
Commission income 50650
Less : ExpensesRent 120Commission 30Electricity 150Rates 50 350
Net Profit 300
12
Examples of horizontal form (T form) :Leungs Company
Profit and loss A/Cfor the year ended 31 December, 2006
$ $Rent 120 Gross profit b/d 500Commission 30 Rental income 100Electricity 150 Commission income
50Rates 50Net profit 300
650 650
13
D Balance Sheet
*Assets = Non-current assets + Current assets**Liabilities = Current liabilities + Long-term liabilities***Capital:Opening capital + Net profit - Capital = Closing
capital
Assets* = Liabilities** + Capital***
Balance sheet is a statement to record the balances of assets, liabilities and capital at the end of the accounting period.
14
D1 Non-current Assets
Non-current assets have a long life and are to be used in the business.The non-current assets is not bought for resale.E.g. Land and building, Furniture, Fixtures and fitting, Office equipment, Machinery, Motor vehicles…
15
Non-current assets are listed in the order of “permanency” in the Balance Sheet are as follows:
Non-current assets Land and building Furniture Fixtures and fittings Office equipment Machinery Motor vehicles
16
D2 Current assets
Current assets are likely to be converted into cash in the short term (i.e. within 1 year) or items having a short life.E.g. Stock, Debtors, Prepayment, Bank, Petty cash, Cash…
17
Current assets are listed starting the most difficult to be turned into cash, and the last one is “Cash”:
Current assets Stock Debtors Prepayment Bank Cash
18
D3 Long-term Liabilities
Long-term liabilities do not have to have in the near future (i.e. longer than 1 year) e.g. Bank loan, Loan: Mr. Cheung, Debentures…
19
D4 Current liabilities
Current liabilities are to be paid in the near future (i.e. within 1 year).e.g. : Creditors, Accruals, Bank overdraft…
Current assets - Current liabilities = Working Capital
20
Balance Sheet has vertical form and horizontal form. The format of vertical is as follows:
21
Leungs CompanyBalance Sheet
as at 31 December, 2008$ $ $
Non-current assetsLand and building 1000Furnitures 700Fixtures and fittings 500Office equipment 500Machinery 1000Motor vehicles 500 4200
22
$ $ $Current assets
Stock 120Debtors 1500Bank 400Cash 80 2100
Less : Current liabilitiesDebtors 1000Bank overdraft 500 1500
Working capital 600
4800
23
$ $ $Capital
Capital as at 1 January, 2008 3000Add : Net profit 400 3400Less : Drawings 100Capital as at 31 December, 2008 3300
Long-term LiabilitiesBank loan 1000Loan - Mr. Cheung 500 1500
4800
24
Horizontal form ( T form ):Leungs Company
Balance SheetAs at 31 December, 2006
$ $ $ $Fixed assets Capital
Land and buildings 1000 Capital as at 1 January, 2008 3000Furniture 700 Add : Net profit 300Fixtures and fittings 500 3300Office equipment 500 Less : Drawings 100Machinery 1000 Capital as at 31 December, 2008 3200Motor vehicles 500 4200 Long-term Liabilities
Current assets Bank loan 1000Stock 120 Loan-Mr. Cheung 600 1600Debtors 1500 Current LiabilitiesBank 400 Creditors 1000Cash 80 2100 Bank overdraft 500 1500
6300 6300