As already discussed, the first section of the trading and profit and loss account is called a trading account. The purpose of creating a trading account is to establish gross profit or gross loss, while that of the second section is to establish a net profit or net loss.
Preparation of a merchant account
The merchant account is prepared primarily to know the profitability of the purchased (or manufactured) goods sold by the businessman. The difference between the sale price and the price of the goods sold is the profit of the businessman. In this way, in order to calculate the gross income, it is necessary to know:
(a) the price of the goods sold
Total sales can be determined from the trade book. However, the costs of the goods sold are calculated. In order to calculate the sales costs, it is necessary to know its significance. The "value of the goods" includes the purchase price of the goods, plus the costs associated with the purchase of the goods and the clearance of the goods to the place of business. In order to calculate the price of the commodity, the price of the commodity can be deducted from the total value of the purchased goods. We can study this phenomenon using the following formula:
Initial inventory + purchase costs = sales price
As already discussed, the purpose of creating a merchant account is to calculate the gross profit of the business, which can be described as exceeding the amount of Sales over Sales Expenses explained in the following way :
Gross profit = Sales – Value of the sold (direct + exposures) are reported on the debit side while sales and liquidity are reported by the credit side If the credit side is Jeater than the debit the difference is recorded on the debit side as gross profit, which is ultimately recorded on the credit side of the income statement. When the debit party exceeds the credit side, the difference is a gross loss that is reported to the credit side and in the end we are is accounted for in the debit side of the profit and loss account
Ordinary positions in a trading account :
A) Debit country
1. Opening fund. This is the stock that remained unsold at the end of the previous year. It must have been taken in books by opening the entrance; so it always appears in the test balance. In general, it is shown as the first item on the debit side of the merchant account. Of course, in the first year of business there will be no open fund
2. Purchases. Typically, this is the second position on the debit side of the merchant account. "Purchases" means total purchases, ie cash plus credit purchases. Each return (return of purchases) must be deducted from purchases to establish net purchases. Sometimes the goods are received before the corresponding invoice from the supplier. In such a situation, a record for debiting the purchase account and for crediting the supplier's bill at the cost of the goods
3 must be adopted at the date of drawing up the final accounts. Purchasing costs. All costs associated with the purchase of goods are also debited in the trading account. This includes: salaries, inland freight, customs fees, clearing fees, port charges, excise duties, import charges and fees, etc.
4. Manufacturing costs. Such costs are incurred by businessmen to produce or make the goods in a marketable state, for example, engine power, gas, stocks, fees, factory costs, salary and supervision, and so on.
While production costs are strictly taken into the production account because we only prepare a trading account, costs of this kind can also be included in the trading account
(B) Credit Side
1. Sales. Sales are total sales, ie. cash plus sales of credits. If there is any sales data, they should be deducted from sales. Thus, net sales are credited to a trading account. If a business asset has been sold, it should not be included in sales
2. Closed fund. The value of shares that are not sold in the hospital or store is on the last date of the reporting period. Typically, the closing of the shares is indicated outside the test balance, in which case it is displayed on the credit side of the trading account. However, if it is placed within the test balance, it should not be displayed on the credit side of the trading account, but appears only on the balance sheet as an asset. The final stock has to be valued at acquisition price or market price that is less
Final Warehouse Rating
Establishing the value of stock closure is necessary to make a complete inventory or a list of all items in God with quantities. Based on physical sighting, inventory inventories are prepared and the total inventory value is calculated based on the unit value. Thus, it is clear that the inventory implies (i) inventory, (ii) pricing. Each item is priced at a price unless the market price is lower. Pricing inventory at cost is easy if the price remains fixed. However, prices continue to fluctuate; so valuation of the shares is based on one of the many valuation methods
The preparation of the trading account helps the trade know the relationship between the costs incurred and the revenue received and the level of efficiency carried out. The ratio of gross profit to sales is very important: arrived at:
Gross profit X 100 / Sales
With the help of GM
Close Recordings relating to a merchant account
For transferring different (19659005) (i) Opening account: Debit and debit account
ii) For purchases: Debit trading account and Purchase on credit, the amount being the amount after deducting return on purchases. (iv) Inward Return: Debit Sales Account and Return Sales Account (v) Excess Expenditures: (vi) Out of Purchase: Debit Purchase Order Substitute Loan Repayment See All Accounts Reported at Excluding Open Trades Excluding Traded Account
(vii) For the closing of the shares: the two parties were found. If the credit side is greater, the result is a gross profit for which it is recorded after an entry.
(viii) For Gross Profit: Debit Trading Account and Credit Profit and Loss Account If the Result is a Gross Loss, the above Entry is Reversed
The Profit and Loss Statement is reflected through Gross Profit (Loan) or Gross Loss (Debit)
In order to earn a net profit, the businessman has to bear a lot of additional costs to direct costs. These costs are deducted from the profit (or added to the gross loss), the resulting value being net profit or net loss.
Expenses reported in the income statement are "indirect costs". They are classified as follows:
Sales and distribution costs
They consist of the following costs:
(a) salary and commission for traders
(19659005) (19659005) (19659005) (19659005) (e) bad debts
19659005] d) and taxes
f) Audit fees
Interest on capital
] Support, amortization (19659005) (19659005) (a) Repairs
(b) Depreciation of Assets
(c) Provision of doubtful debts reserve
(19659005) (b) received by the Commission
In the credit side of the statement of revenue and expenditure, (d) interest received
(e) investment income
(19659005) (h) dividends received
(i) apprenticeship allowance, etc.
Source by Anil Kumar Gupta