LA 8 - Perpetual Trading Entity

Question 1

Trading section

Answer 1

Sales, Cost of sales etc

Question 2

Profit or Loss section

Answer 2

Income, expense, etc

Question 3

Step 1

Answer 3

Close debtors allowances off to sales account

Debit: Sales
Credit: Debtors allowances

Question 4

Step 2

Answer 4

Close net sales off to trading account

Debit: Sales
Credit: Trading account

Question 5

Step 3

Answer 5

Close inventory deficit/surplus off to cost of sales

Debit: Cost of sales
Credit: Inventory deficit

OR

Debit: Inventory Surplus
Credit: Cost of sales

(if inventory deficit/surplus)

Question 6

Step 4

Answer 6

Close net cost of sales off to trading account

Debit: Trading account
Credit: Cost of sales

Question 7

Step 5

Answer 7

Close gross profit off to profit or loss account

Debit: Trading account
Credit: Profit or loss account

Question 8

Step 6

Answer 8

Close income accounts off to profit or loss account

Debit: Income account
Credit: Profit or loss

Question 9

Step 7

Answer 9

Close expense accounts off to profit or loss account

Debit: Profit or loss
Credit: Expense account

Question 10

Step 8

Answer 10

Close net profit/loss off to capital account

IF PROFIT
* Debit: Profit or loss
* Credit: Capital

IF LOSS
* Debit: Capital
* Credit: Profit or loss

Gross profit (trading account) + Income - Expenses

Question 11

Step 9

Answer 11

Close drawings account off to capital account

Debit: Capital
Credit: Drawings