FC: POA Revision Notes (Final Accounts)
1: Introductory Concepts for Trading, Profit and Loss accounts (including Balance Sheet) Comes under one heading,Known as Final Accounts. Final Accounts: it is the financial statement made by the organization or rather a business at the end of the accounting period or 1 accounting year. Why must we do TPL? The object of preparing final accounts is to find out the profits earned or losses suffered during a particular accounting period and to present the true picture of final position of the firm Going Concern Concept which assumes the business is not going to be broke. To put in simply, the business is also assumed to remain in existence forever. Accounting Period Concept: the operating cycle of a business is divided into equal proportions for a short period of time to record timely accounting information. Prudence Concept:: states the presence of conservatism says that whenever there are alternative procedures or values, the accountant will choose the one that results in a lower profit, a lower asset value and a higher liability value.
2: Details of Trading, Profit & Loss Account On the top right are everything to has got to do with sales, including sales returns where goods are not sold successfully to customers and returned back to the business due to faulty good or often of a wrong specifications. The top left will start with the opening stock, followed by purchases. There are a few special wages that a business has to pay most of the time. These are carriage inwards (otherwise known as carriage or freight on purchases), custom duties (or duties on purchases) and wages on purchases (meant for the workers who are involved in helping with the repackaging of the goods. Together with the net purchases these things so far forms the total cost of goods available for sale. Cost of goods sold is obtained through the total cost of goods available for sale, deducting the closing stock. The wages (for own employees) are then [placed here.Round it up with the gross profit and total the current balance (together with the amount in sales part) The remaining are all revenue and expenses and the net profit or loss may be obtained by calculating.
3: Balance Sheet | Divided into 5 main sections, namely: Fixed assets, Current assets, Owner's equity, Long-term liabilities and Current liabilities. One of the major financial statements used by accountants and business owners. Shows a company's financial position at the end of a specified date. Tells the reader of a company's financial position in an accounting period, allowing someone to see what a company owns as well as what it owes to other parties as of the date indicated in the heading. For example: creditors. Similar to the Trading, Profit & Loss A/C, the balance sheet also has double columns, one for the workings, the other for the final amount. More details will be covered in the next page.
4: Balance Sheet (part 2) -Everything on the left off the balance sheet are known as tangible assets (includes both Fixed & Current Assets). -Fixed Assets: It is a long-term tangible property owned by a business to produce income and will not be easily converted into cash for more than one accounting year. -For example, it contains premises, land and buildings, Machinery, Motor vehicles, office equipments and etc...
5: Balance Sheet (part 3) -Just below Fixed Assets, Current Assets refer to all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets. -Owner's Equity is located on the right of the Balance Sheet. It consists of the opening capital, adding or deducting any profit or drawings respectively if any, and rounding off with the closing capital which has to be calculated by ourselves. -Below the owner's capital, are all the liabilities. Divided into 2 sections, there are the long-term liabilities and Current liabilities.
6: Definitions of the different liabilities:- -Long-term Liabilities only contains loan from bank and mortgage on premises. (Recorded on the balance sheet, a company's liabilities for leases, bond repayments and other items due in more than one accounting year.) Current Liabilities is a company's debts or obligations that are due within one year. Appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.
7: Quizzes 1.How many different sections are there in a profit and loss account? 2. Name the section of the profit and loss account that is used to calculate gross profit? 3. The profit and loss account provides information on what? 4. How is discount received shown in the final accounts? 5.Which of the following should be credited to the profit and loss account? 6. Mr. K incorrectly included a prepayment of insurance of $350 as an accrual. What is the affect on Net profit? 7. Which financial document will provide the net profit for the year? 8. Which account is gross profit found at? 9. Discount allowed of $50 is wrongly recorded as discount received. What will be the effect on Net Profit? 10. Is discount received in the Profit and Loss Account?
8: Answer to quizzes Ans: 3 Ans: Trading Account Ans: Business Activity Ans: as an income in the T,P&L account. Ans: Profit on sale of asset. Ans: understated by $700 Ans: Profit and Loss account Ans: Credit side of profit and loss account Ans: Net profit overstated by$100 Ans: Yes
9: Mind Map
10: Acknowledgments | http://dineshbakshi.com/igcse-gcse-accounting/final-accounts/interactive-quizzes/1217-profit-and-loss-account-grade-or-no-grade http://www.businessdictionary.com http://www.accountingcoach.com/online-accounting-course/05Xpg01.html
11: Credits | Group 6 Topic covered: Final Accounts(Trading, Profit and Loss A/c)(Balance sheet) Group Members: Justin Heng Wayne Goh Lim jing Jie Tan Kae Chuan