1. FINAL ACCOUNTS OF A SOLE TRADER

2. Final Statements include:
Final accounts of a sole trader
The Trading Account
The Profit and Loss Account
The Balance Sheet

3. TRADING ACCOUNT
Final accounts of a sole trader
It is prepared to ascertain the gross profit or gross loss of a business concern for a given time period.
Gross Profit is difference between actual sale proceeds and cost of goods sold, including direct expenses.

4. TRADING ACCOUNT
Final accounts of a sole trader
Gross Profit = Net Sales – [Cost of goods sold + Direct production expenses]
Where,
Net Sales = Total sales – Sales returns
Cost of goods sold = Opening stock + Net Purchases – Closing stock
Net Purchases = Total purchases – Purchase returns

5. Features of Trading Account
Final accounts of a sole trader
It is a nominal account
It contains items of revenue nature only. No item of capital nature.
Its closing balance indicates gross profit or gross loss.
On debit side:
the cost of goods sold and
all expenses related to purchases.
On credit side:
sale proceeds
Credit balance
represents gross profit
and
Debit balance
represents gross loss.

6. Items that are recorded in a trading account:
Final accounts of a sole trader
Opening Stock
Previous years’ closing stock
The first item on the debit side of the trading account
Purchases and Purchase return
Purchase include cash and credit purchase of goods
Recorded on the debit side of the trading account after deducting purchase return
Direct expenses
Include manufacturing expenses like wages, rent, carriage inward, factory insurance, freight, fuel, etc
Recorded on the debit side of the trading account
Sales and Sales return
Include both cash and credit sales
Sales return is deducted from the total sales
Recorded on the credit side of the account
Closing Stock
The goods that remained unsold at the end of the accounting year
Recorded on the credit side of the trading account and also as an asset in the balance sheet
The last item on the credit side of the account

7. Format of Trading Account
Final accounts of a sole trader Dr Cr
Particulars
Amount
To Opening Stock
To Purchases
Less Purchase
Returns
To Direct Expenses
Wages
Carriage inwards
Freight
Import duty
Gas and Fuel
Octroi
Dock charges
Lighting
Factory expenses
Coal and coke
Water
Oil and Grease
Power
Royalty on
Production
To Gross Profit
Transferred to
Profit and Loss A/c
By Sales
Less Sales
By Closing Stock
By Gross Loss

8. Illustration 1 Final accounts of a sole trader
From the following particulars prepare a trading account:
Particulars Amount
Opening Stock ,000
Cash Purchases 55,000
Cash Sales 1,10,000
Return inwards 10,000
Return outwards 8,000
Credit Purchases 85,000
Credit Sales 1,65,000
Wages ,500
Carriage inwards 5,500
Fuel and Power 5,800
Freight 2,200
Lighting 3,000
Factory expenses 5,000
Closing Stock 80,000

9. Trading Account for the year ended…Dr Cr
Debit Rs
Credit
To Opening Stock
To Purchases:
Cash ,000
Credit ,000
1,40,000
Less:Returns
Outwards 8,000
To Wages
To Carriage inwards
To Fuel and Power
To Freight
To Lighting
To Factory expenses
To Gross profit transferred to profit and loss A/c
70,000
1,32,000
51,500
5,500
5,800
2,200
3,000
5,000
_______
3,45,000
By Sales:
Cash 1,10,000
Credit 1,65,000
2,75,000
Inwards 10,000
By Closing Stock
2,65,000
80,000
Final accounts of a sole trader

10. PROFIT AND LOSS ACCOUNT
Final accounts of a sole trader
It is prepared to calculate the net profit or net loss of a business concern for a given time period.
It is a statement that matches the gross profit and indirect revenues with the indirect expenses to show net profit or net loss.

11. Features of Profit and Loss Account
Final accounts of a sole trader
It is a nominal account
It is prepared after the trading account.
It starts with the gross profit transferred from the trading account.
On debit side:
Gross loss and indirect expenses.
On credit side:
Gross profit and indirect revenues.
Credit balance
represents net profit
and
Debit balance
represents net loss.

12. Items that are recorded in a profit and loss account:
Final accounts of a sole trader
Office and Administrative expenses
Expenses incurred on a day to day administration of business like office rent, salaries, stationary, etc
It is recorded on the debit side of the account
Selling and Distribution expenses
Expenses incurred on promoting sales and distribution of goods sold like advertisement, godown rent, carriage outward, commission on sales, brokerage, bad debt etc
Recorded on the debit side of the account
Financial expenses
Expenses incurred on obtaining funds like interest on loan, bank charges, discount allowed, etc
Abnormal Losses
Refer to losses which do not occur regularly like stocks destroyed in fire, lost in transit, theft, etc
Gross Loss
Gross loss, if any, is transferred from the trading account.

13. Items that are recorded in a profit and loss account:
Final accounts of a sole trader
Revenue Incomes
Incomes which arise out of ordinary course of business like discount received, commission received, etc
It is recorded on the credit side of the account
Non – Trading Incomes
Incomes which arises from non –trading activities such as interest received from investments, dividend received, rent income, etc
Recorded on the credit side of the account
Abnormal gains
Refer to gains which do not occur regularly like profit on sale of investments, profit on sale of fixed assets, etc
Gross Profit
It is transferred from the trading account.

14. Format of Profit and Loss Account
Final accounts of a sole trader Dr Cr
Particulars
Amount
To Gross Loss Transferred
from trading a/c
To Office and Administrative
Expenses
Rent, Rates and Taxes
Office Salaries
Printing and Stationary
Office lighting
Postage and Telegrams
Telephone charges
Legal charges
Audit fees
Insurance
General Expenses
Repairs and Renewals
Office Conveyance
Charity
Establishment Expenses
Stable Expenses
Upkeep of motors and car
Loss by fire & theft
Depreciation on assets
By Gross Profit Transferred
By Revenue Incomes
Discount Received
Commission Received
By Non-Operating Incomes
Interest
Dividend
Rent
Apprenticeship
Premium
Income from Other
sources
Miscellaneous receipts
By Abnormal Gains
Profit on sale of fixed
assets
Profit on sale of
investments
Bad debts recovered
By Net Loss transferred to
Capital A/c

15. Format of Profit and Loss Account
Final accounts of a sole trader Dr Cr
Particulars
Amount
To Selling and Distribution
Expenses
Advertisement
Carriage Outwards
Godown Rent
Trade Expenses
Travelling Expenses
Brokerage
Export duty
Packing expenses
Entertainment expenses
Agents’
Storage
Salesman’s salaries
and commission
Provision for bad and
doubtful debts

16. Format of Profit and Loss Account
Final accounts of a sole trader Dr Cr
Particulars
Amount
To Financial Expenses
Interest on loan
Interest on overdraft
Bank charges
Bills discounting
Interest on debentures
Loss in exchange
Discount allowed
Interest on capital
To Abnormal Losses
Goods lost in transit
Loss by fire
Cash defalcations
Loss on sale of Assets
To Net Profit Transferred to
Capital A/c

17. Illustration 2 Final accounts of a sole trader
From the following trial balance, prepare the Trading Account and Profit and Loss Account
Particulars Debit Credit
Stock in hand 50,000
Capital ,00,000
Cash at Bank 70,000
Furniture ,000
Purchases 1,20,000
Sales ,10,000
Return inwards 10,000
Return outwards 8,000
Wages 8,000
Carriage outwards 1,000
Fuel and Power 1,500
Electricity 2,000
Salaries ,000
Discount received 1,500
Debtors ,000
Creditors ,000
Closing stock at the end of the year was valued at Rs. 40,000
Final accounts of a sole trader

18. Trading Account for the year ended…Dr Cr
Final accounts of a sole trader
Particulars Rs
To Opening Stock
To Purchases:
1,20,000
Less:Returns
Outwards 8,000
To Wages
To Fuel and Power
To Gross profit transferred to profit and loss A/c
50,000
1,12,000
8,000
1,500
68,500
_______
2,40,000
By Sales:
2,10,000
Inwards 10,000
By Closing Stock
2,00,000
40,000
______

19. Profit and Loss Account for the year ended…Dr Cr
Final accounts of a sole trader
Debit Rs
Credit
To Salaries
To Electricity
To Carriage Outwards
To Net profit
transferred to
Capital A/c
15,000
2,000
1,000
52,000
_______
70,000
By Gross profit
By Discount
received
68,500
1,500
________

20. BALANCE SHEET
Final accounts of a sole trader
It sets out the assets and liabilities of an organisation as on a certain date.
It is not an account but only a statement of assets and liabilities.
It shows the status of the business as at a given moment of time.

21. Features of Balance Sheet
Final accounts of a sole trader
It contains personal and real accounts. However, the net result of Profit and Loss A/c is shown in the Balance Sheet
It is prepared only after profit and loss account.
It helps to know the earning capacity and financial health of the firm.
On the right side:
Assets
On the left side:
Liabilities
Excess of assets over liabilities
represents the capital of the owner

22. Format of Balance Sheet
Final accounts of a sole trader
Balance Sheet as at…
Liabilities
Amount
Assets
Owner’s Equity
Capital
Reserves
Profits
Long Term Liabilities
Debentures
Loans on mortgage
Current Liabilities
Sundry Creditors
Bills Payable
Bank Overdraft
Outstanding expenses
Income received in advance
Fixed Assets
Goodwill
Land and Buildings
Plant and Machinery
Furniture and Fixtures
Motor Vehicles
Investments
Current Assets
Stock in hand
Sundry Debtors
Bills Receivable
Cash at bank
Cash in hand
Accrued Income
Prepaid expenses
Fictitious Assets
Preliminary expenses

23. Illustration 2 Final accounts of a sole trader
From the following trial balance, prepare the Trading Account, Profit and Loss Account and Balance Sheet
Particulars Debit Credit
Stock in hand 50,000
Capital ,00,000
Cash at Bank 70,000
Furniture ,000
Purchases 1,20,000
Sales ,10,000
Return inwards 10,000
Return outwards 8,000
Wages 8,000
Carriage outwards 1,000
Fuel and Power 1,500
Electricity 2,000
Salaries ,000
Discount received 1,500
Debtors ,000
Creditors ,000
Closing stock at the end of the year was valued at Rs. 40,000
Final accounts of a sole trader

24. Trading Account for the year ended…Dr Cr
Final accounts of a sole trader
Particulars Rs
To Opening Stock
To Purchases:
1,20,000
Less:Returns
Outwards 8,000
To Wages
To Fuel and Power
To Gross profit transferred to profit and loss A/c
50,000
1,12,000
8,000
1,500
68,500
_______
2,40,000
By Sales:
2,10,000
Inwards 10,000
By Closing Stock
2,00,000
40,000
______

25. Profit and Loss Account for the year ended…Dr Cr
Final accounts of a sole trader
Debit Rs
Credit
To Salaries
To Electricity
To Carriage Outwards
To Net profit
transferred to
Capital A/c
15,000
2,000
1,000
52,000
_______
70,000
By Gross profit
By Discount
received
68,500
1,500
________

26. Balance Sheet for the year ended…
Final accounts of a sole trader
Liabilities Rs
Assets
Capital:
Opening Balance
2,00,000
AddNet profit 52,000
Creditors
2,52,000
30,000
_______
2,82,000
Furniture
Cash at Bank
Debtors
Closing Stock
82,000
70,000
90,000
40,000
________