These are prepared at the end of a given trading period to determine the profit and losses of the... more These are prepared at the end of a given trading period to determine the profit and losses of the business, and also to show the financial position of the business at a given time. They includes; trading account, profit and loss account, trading profit and loss account and the balance sheet. They are also referred to as the final statements. The trading period is the duration through which the trading activities are carried out in the business before it decides to determines it performances in terms of profit or loss. It may be one week, month, six months or even a year depending on what the owner wants. Most of the business use one year as their trading period. It is also referred to as the accounting period. At the end of the accounting period, the following takes place; • All the accounts are balanced off • A trial balance is extracted • Profit or loss is determined • The balance sheet is prepared Determining the profit or loss of a business When a business sells its stock above the buying price/cost of acquiring the stock, it makes a profit, while if it sells below it makes a loss. The profit realized when the business sell it stock beyond the cost is what is referred to as the gross profit, while if it is a loss then it is referred to as a gross loss. It is referred to as the gross profit /loss because it has not been used to cater for the expenses that may have been incurred in selling that stock, such as the salary of the salesman, rent for the premises, water bills, etc. it therefore implies that the businessman cannot take the whole gross profit for its personal use but must first deduct the total cost of all other expenses that may have been incurred. The profit realized after the cost of all the expenses incurred has been deducted is what becomes the real profit for the owner of the business, and is referred to as Net profit. The net profit can be determined through calculation or preparation of profit and loss account. In calculating the gross profit, the following adjustments are put in place ■ Return inwards/Sales return:-these are goods that had been sold to the customers, but they have returned them to the business for one reason or the other. It therefore reduces the value of sales, and is therefore subtracted from sales to obtain the net sales Therefore Net sales = Sales – Return inwards ■ Return outwards/purchases return:-these are goods that had been bought from the suppliers to the business and have been returned to them for one reason or the other. It reduces the purchases and is therefore subtracted from the purchases to obtain the net purchases. 1 MR. ROBBY BUSINESS REVISION NOTES
These are prepared at the end of a given trading period to determine the profit and losses of the... more These are prepared at the end of a given trading period to determine the profit and losses of the business, and also to show the financial position of the business at a given time. They includes; trading account, profit and loss account, trading profit and loss account and the balance sheet. They are also referred to as the final statements. The trading period is the duration through which the trading activities are carried out in the business before it decides to determines it performances in terms of profit or loss. It may be one week, month, six months or even a year depending on what the owner wants. Most of the business use one year as their trading period. It is also referred to as the accounting period. At the end of the accounting period, the following takes place; • All the accounts are balanced off • A trial balance is extracted • Profit or loss is determined • The balance sheet is prepared Determining the profit or loss of a business When a business sells its stock above the buying price/cost of acquiring the stock, it makes a profit, while if it sells below it makes a loss. The profit realized when the business sell it stock beyond the cost is what is referred to as the gross profit, while if it is a loss then it is referred to as a gross loss. It is referred to as the gross profit /loss because it has not been used to cater for the expenses that may have been incurred in selling that stock, such as the salary of the salesman, rent for the premises, water bills, etc. it therefore implies that the businessman cannot take the whole gross profit for its personal use but must first deduct the total cost of all other expenses that may have been incurred. The profit realized after the cost of all the expenses incurred has been deducted is what becomes the real profit for the owner of the business, and is referred to as Net profit. The net profit can be determined through calculation or preparation of profit and loss account. In calculating the gross profit, the following adjustments are put in place ■ Return inwards/Sales return:-these are goods that had been sold to the customers, but they have returned them to the business for one reason or the other. It therefore reduces the value of sales, and is therefore subtracted from sales to obtain the net sales Therefore Net sales = Sales – Return inwards ■ Return outwards/purchases return:-these are goods that had been bought from the suppliers to the business and have been returned to them for one reason or the other. It reduces the purchases and is therefore subtracted from the purchases to obtain the net purchases. 1 MR. ROBBY BUSINESS REVISION NOTES
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