SEMINAR 3

LECTURE NOTES CHAP 6: FINAL ACCOUNTS

Lecture Outline

2.1 Closing Entries A Summary

2.2 Final Accounts A Summary

2.1 CLOSING ENTRIES A SUMMARY

At the end of the accounting period, all nominal accounts (revenues and expenses) are
closed and the balances are being transferred to either Statement of Profit Or Loss
This is different from assets, liabilities and capital where the accounts are balance off at
the end of the accounting period and the balance will be transferred to the Statement of
Financial Position.

The closing entries for revenues and expenses are as follows:

Revenues
DR. Revenues account
CR. Statement of Profit Or Loss

Example
Sales
Jan 31 To Trading 1,700 Jan 1 Cash 100
Jan 31 Debtor 1,600
1,700 1,700

Rent Received
Jan 31 To Profit & Loss 1,000 Jan 1 Cash 500
Jan 31 Bank 500
1,000 1,000

Expenses
DR. Statement of Profit Or Loss
CR. Expenses account

Example
Purchases
Jan 28 Bank 1,000 Jan 31 To Trading 1,000

1,000 1,000

Salary
Jan 28 Bank 600 Jan 31 To Profit & Loss 600

600 600

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LECTURE NOTES CHAP 6: FINAL ACCOUNTS

2.2 FINAL ACCOUNTS A SUMMARY

A. STATEMENT OF PROFIT OR LOSS

All revenues and expenses pertaining to buying and selling of goods are recorded in the
Trading Account. The trading account is prepared so that we are able to know the
gross profit of a business organisation. Gross Profit is the excess of the value of goods
sold when it is compared with cost of goods sold.

Cost of goods sold comprises of purchases in addition to any available opening stock,
and deducting any unsold stock (closing stock) at the end of the accounting period.

As for sales and purchases they actually are the net amounts, i.e., sales less returns
inwards and purchases less return outwards respectively. At this point if you have
forgotten the meaning of returns inwards and returns outwards, please refer to chapter 4
on accounting for stock.

Once the gross profit is determined, it will be carried down to the Profit and Loss Account
and then added to other revenues of the trading organisation to arrive at total revenues.
Expenses are then deducted from this total revenues to arrive at the net profit.

Before you proceed please take note of these:

a. Gross profit or gross loss will be derived from the Trading account.
Sales > Cost of goods sold = Gross Profit
Sales < Cost of goods sold = Gross Loss

When sales are more than the cost of goods sold to customers, your company
records gross profit. However when sales are less than cost of goods sold to
customers, your company records a gross loss.

b. Net profit or net loss will be derived from the Profit and Loss account.
Revenues > Expenses = Net Profit
Revenues < Expenses = Net Loss

When revenues are more than expenses, your company records net profit.
However when expenses are greater than the revenues earned, then your
company records a net loss. Thus, you are able to know the performance of a
business by looking at the Statement of Profit Or Loss .

B. STATEMENT OF FINANCIAL POSITION

The purpose of the Statement of Financial Position is to show the financial standing of
the business in terms of its assets, liabilities and capital at a certain date. It is merely a
listing of balances of assets, owner's equity and liabilities. These balances are obtained
from the trial balance. In the Statement of Financial Position, assets are classified into
fixed assets and current assets whereas liabilities are classified into long term and
current liabilities. As for the owners equity section, capital invested by the owner will be
added to the net profit derived from the profit and loss account, and minus drawings
made by the owner.

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LECTURE NOTES CHAP 6: FINAL ACCOUNTS

C. ILLUSTRATION

From the following Trial Balance of ABC Trading, we will prepare Statement of Profit Or
Loss for the year ended 31 December 1999 and Statement of Financial Position as at
31 December 2013 using the vertical format.

ABC Trading
Trial Balance as at 31 December 1999

Particulars Debit Credit

Sales 100,000
Purchases 45,000
Returns Inwards 100
Returns Outwards 140
Carriage Outwards 330
Opening Stock 1,200
Electricity, Telephone and Water 200
Discount Allowed 130
Discount Received 180
Salary 3,400
Repairs of Motor Vehicle 690
Printing and Stationery 300
Debtors 8,000
Creditors 13,000
Long Term Loan 10,000
Bank 19,500
Cash 500
Motor Vehicle 30,000
Furniture and Fittings 20,400
Capital 7,230
Drawings 800

130,550 130,550

Stock as at 31 December 1999 RM3,000

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LECTURE NOTES CHAP 6: FINAL ACCOUNTS

ABC Trading
Statement of Profit orLoss Account for the year ended
31 December 2013

RM RM RM

Sales 100,000
Less : Sales Ret/Ret Inwards (100)
Net Sales 99,900
Less : Cost of goods sold
Opening Stock 1,200
Purchases 45,000
Less : Purchases Ret/Ret Outwards (140)
44,860
46,060
Less : Closing Stock (3,000)
43,060
Gross Profit 56,840

Add : Revenues
Discount Received 180
57,020
Less : Expenses
Electricity, Telephone and Water 200
Salary 3,400
Printing and Stationary 300
Discount Allowed 130
Repairs Expense 690
Carriage Outwards 330
(5,050)
Net Profit 51,970

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LECTURE NOTES CHAP 6: FINAL ACCOUNTS

ABC
Statement of Financial Position as at 31 December 1999
RM RM RM

Fixed Assets Cost

Motor Vehicle 30,000
Fixtures and Fittings 20,400
50,400

Current Assets
Closing Stock 3,000
Debtors 8,000
Cash at Bank 19,500
Cash in Hand 500 31,000

81,400

Financed by :
Owners Equity
Capital 7,230
Add : Net Profit 51,970
Less : Drawings (800)
58,400
Long Term Liabilities
Long Term Loan 10,000

Current Liabilities
Creditors 13,000
81,400

1. From the following trial balance of RM Book Store, draw up

Statement of Profit Or Loss for the year ended 30 September 2013, and
a Statement of Financial Position as at that date:

Particulars Debit Credit

Stock on 1 October 2012 2,368

Carriage Outwards 200
Carriage Inwards 310
Returns Outwards 322
Purchases 11,874
Sales 18,600
Salaries and Wages 3,862
Rent 304

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LECTURE NOTES CHAP 6: FINAL ACCOUNTS

Insurance 78
Repairs of Motor Vehicle 664
Office Expenses 216
Travelling Expenses 166
General Expenses 314
Premises 5,555
Fixtures and Fittings 1800
Trade Debtors 3,896
Trade Creditors 1,731
Cash at bank 482
Drawings 1,200
Capital 12,636
33,289 33,289

Stock as at 30 September 2013 was RM2900.

2. R & D Trading drew up the following trial balance as at 30 June 2013. You are
required to draft the Statement of Profit Or Loss for the year ended 30 June
2013 and a Statement of Financial Position as at that date.

Debit
Particulars Credit
General Expenses 284
Administrative Expenses 1,377
Insurance 492
Wages and Salaries 12,815
Telephone and Electricity 400
Rent Expense 2,970
Motor Expenses 1,630
Carriage Outwards 309
Carriage Inwards 215
Returns Inwards and Outwards 550 307
Purchases and Sales 94,795 130,000
Office Equipment 4,100
Motor Van 6,260
Stock on 1 July 1998 23,900
Debtors and Creditors 12,720 9,370
Bank Overdraft 900
Cash in Hand 295
Drawings 8,420
Capital 30,955
171,532 171,532

Stock as at 30 June 2013 was RM20,400

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LECTURE NOTES CHAP 6: FINAL ACCOUNTS

3. Mrs. Sheila, the owner of MSC Enterprise extracted the following Trial
Balance as at 31 March 2013:

Particulars Debit Credit

Purchases 75,300
Sales 122,640
Returns Inwards and Outwards 460 310
Commission Received 2,410
Discount Allowed and Received 550 650
Rent 19,800
Advertisement 7,000
Electricity and Water 860
Repairs of Motor Vehicles 2,850
Wages and Salaries 15,750
Printing and Stationary 4,640
Carriage Inwards 2,350
Interest on Loan 1,200
Insurance 1,800
Motor Vehicles 35,000
Plant and Machinery 35,500
Fixtures and Fittings 6,300
Stocks at 1 April 1997 13,160
Debtors and Creditors 27,320 13,830
Bank 25,680
10% Loan ACF Finance 18,000
Drawings 8,600
Capital 126,280
284,120 284,120

Prepare Statement of Profit Or Loss for the year ended 31 March 2013 and
Statement of Financial Position as at that date taking into account the closing
stock of RM18,610.