Final Accounts

1
Final Accounts
2

• References
• Chapter 7 to 10 (P. 59-113)

2
A Trial Balance (???)

• 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 Balance
• for the year ended 31 December, 2008
• Sales 1010
• Returns inwards 10
• Stock as at 1 January, 2008 100
• Purchases 530
• Returns outwards 20
• Carriages inwards 10
• Rental income 100
• Commission received 50
• Rent 120
• Commission 30
• Electricity 150
• Rates 50
•  
•  

4

• Land and building 1000
• Office Furniture 700
• Fittings 500
• Office equipment 500
• Machinery 1000
• Motor vehicles 500
• Debtors 1500
• Bank 400
• Cash 80
• Creditors 1000
• Bank overdraft 500
• Capital 3000
• Drawings 100
• Bank loan 1000
• Loan-Mr. Cheung 600
• 7280 7280
• Stock as at 31 December, 2008 is 120

5
B Trading A/C
Gross profit Net SalesgtCost of sales

• Function
• Calculate the gross profit or gross loss.

Net Sales-Cost of goods sold Gross profit /

Gross loss
Net Sales Sales Returns inwards
Cost of goods sold Opening stock (Net
PurchasesCarriage inwards) - Closing stock
Gross loss Cost of salesgtNet sales
Net Purchases Purchases Returns
outwards
6

• Put the above formulas (??) 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/C
• for the year ended 31 December, 2008
• Sales 1010
• LessReturns inwards 10
• Net Sales 1000
• LessCost of goods sold
• Stock as at 1 January,2006 100
• AddPurchases 530
• LessReturns outwards 20
• Net purchases 510
• AddCarriage inwards 10 520
• 620
• LessStock as at 31 December, 2006 120 500
• Gross profit 500

8

• Examples of horizontal form(T form)
• Leungs Company
• Trading A/C
• for the year ended 31 December, 2008
• Opening Stock 100 Sales 1010
• AddPurchases 530 LessReturns inwards
  10
• LessReturns outwards 20 Net Sales 1000
• Net purchases 510
• AddCarriage inwards 10 520
• 620
• LessClosing stock 120
• Cost of goods sold 500
• Gross profit c/d 500
• 1000 1000

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C Profit and loss A/C

• Functions calculate the net profit / net loss.

Net profit Gross profitIncomegtExpenses
Gross profitOther income-ExpensesNet profit /
Net loss
Net loss ExpensesgtGross profitIncome
Other income rental income commission income
Expensesrent and ratescommission electricity

10

• Put the above formulas (??) 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 loss
• for the year ended 31 December, 2008
• Gross profit 500
• Add Rental income 100
• Commission income 50
• 650
• LessExpenses
• Rent 120
• Commission 30
• Electricity 150
• Rates 50 350
• Net Profit 300
•  

12

• Examples of horizontal form (T form)
• Leungs Company
• Profit and loss A/C
• for the year ended 31 December, 2006
• Rent 120 Gross profit b/d 500
• Commission 30 Rental income 100
• Electricity 150 Commission income 50
• Rates 50
• Net profit 300
• 650 650

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D Balance Sheet

• Balance sheet is a statement to record the
  balances of assets, liabilities and capital at
  the end of the accounting period.

AssetsLiabilitiesCapital

• AssetsNon-current assetsCurrent assets
• LiabilitiesCurrent liabilitiesLong-term
  liabilities
• Capital
• Opening capitalNet profit-CapitalClosing capital

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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

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• 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

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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

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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

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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 liabilitiesWorking
Capital
20

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

21

• Leungs Company
• Balance Sheet
• as at 31 December, 2008
• Non-current assets
• Land and building 1000
• Furnitures 700
• Fixtures and fittings 500
• Office equipment 500
• Machinery 1000
• Motor vehicles 500 4200
•  

22

• Current assets
• Stock 120
• Debtors 1500
• Bank 400
• Cash 80 2100
•  LessCurrent liabilities
• Debtors 1000
• Bank overdraft 500 1500
• Working capital 600
• 4800

23

• Capital
• Capital as at 1 January, 2008 3000
• AddNet profit 400
• 3400
• LessDrawings 100
• Capital as at 31 December, 2008 3300
• Long-term Liabilities
• Bank loan 1000
• Loan-Mr. Cheung 500 1500
• 4800

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• Horizontal form (T form)
• Leungs Company
• Balance Sheet
• As at 31 December, 2006
• Fixed assets Capital
• Land and buildings 1000 Capital as at 1
  January, 2008 3000
• Furniture 700 AddNet profit 300
• Fixtures and fittings 500 3300
• Office equipment 500 LessDrawings
  100
• Machinery 1000 Capital as at 31
  December, 2008 3200
• Motor vehicles 500 4200 Long-term Liabilities
• Current assets Bank loan 1000
• Stock 120 Loan-Mr. Cheung 600 1600
• Debtors 1500 Current Liabilities
• Bank 400 Creditors 1000
• Cash 80 2100 Bank overdraft 500
  1500 6300 6300