THE MAIN FINAL ACCOUNTS

Question 1

Trading Account

Answer 1

The trading account reveals the gross profit of the business, defined as the difference between sales revenue and the direct costs of the goods sold (or cost of sales).

Question 2

Formulas for Trading Account

Answer 2

Gross Profit = Sales Revenue - Cost of Goods Sold
Cost of Sales = Opening Stock + Purchases - Closing Stock

Example of Trading Account:

Opening Stock: $10,000
Purchases: $30,000
Closing Stock: $12,000
Sales Revenue: $50,000
Calculation of Gross Profit:

Cost of Sales = $10,000 (Opening Stock) + $30,000 (Purchases) - $12,000 (Closing Stock) = $28,000
Gross Profit = $50,000 (Sales Revenue) - $28,000 (Cost of Sales) = $22,000

Question 3

Profit and Loss Account

Answer 3

Definition: The Profit and Loss Account (Income Statement) provides a summary of a company’s revenues, expenses, and overall profitability over a specific period.

Question 4

Profit and Loss Account

Answer 4

Definition: The Profit and Loss Account (Income Statement) provides a summary of a company’s revenues, expenses, and overall profitability over a specific periodand how it is distributed at the end of that period.

Question 5

Formulas for Profit and Loss Account

Answer 5

Profit Before Interest and Tax = Gross Profit - Operating Expenses
Profit Before Tax = Profit Before Interest and Tax - Interest Expenses
Profit for the Period = Profit Before Tax - Coorporation Tax

Question 6

Example of Profit and Loss Account

Answer 6

Gross Profit: $22,000 (from the Trading Account)
Operating Expenses: $12,000
Interest Expenses: $2,000
Income Tax Expense: $3,000
Calculation of Profit Before Interest and Tax:

Profit Before Interest and Tax = $22,000 (Gross Profit) - $12,000 (Operating Expenses) = $10,000
Calculation of Profit Before Tax:

Profit Before Tax = $10,000 (Profit Before Interest and Tax) - $2,000 (Interest Expenses) = $8,000
Calculation of Profit for the Period:

Profit for the Period = $8,000 (Profit Before Tax) - $3,000 (Income Tax Expense) = $5,000

Question 7

Appropriation Account

Answer 7

Definition: The Appropriation Account outlines the allocation of the company’s profits to various purposes, such as dividendsor retained profits

Question 8

Formula for Appropriation Account:

Answer 8

Retained Profit = Profit for the Period - Dividends

Question 9

Example of Appropriation Account

Answer 9

Example of Appropriation Account:

Profit for the Period: $5,000 (from the Profit and Loss Account)
Dividends Paid: $2,000
Transfers to Reserves: $1,000
Calculation of Retained Profit:

Retained Profit = $5,000 (Profit for the Period) - $2,000 (Dividends Paid) - $1,000 (Transfers to Reserves) = $2,000