SS 2 Book keeping Third Term Lesson Notes
SS 2 OMEGA TERM
BOOK –KEEPING SCHEME OF WORK
WEEK
- Revision
2-4 Trading profit and loss account
5-7 Receipts and Payments Accounts
8-10 Income and Expenditure account
TRADING PROFIT AND LOSS ACCOUNTS
TRADING ACCOUNT: This is the account constructed for the purpose of finding the gross profit or loss of a business at a particular period. It is a revenue account and form part of the double entry system.
LAYOUT OF TRADING ACCOUNT
Trading Account for the year ended 31st dec. 19×9
# #
Opening stock xx sales xx
Add purchases xx less return inward x xx
Carriage inwards x ___
____
xx
less returns outward x
goods withdrawn x
____ xx
____
Xx
Less closing stock x
___
Cost of goods sold xx
Gross profit xx
_____ ____
Xx xx
___ ____
TERMINOLOGIES:
SALES: This represents the total cash and credit sales during the period .It is credited to trading account.
RETURNS INWARDS: This is the total value of goods returned to the seller by the customers out of goods previously sold to them .This is also known as sales return and must be deducted from the total sales
TURNOVER ;This is the total net sales during a period of time .This means sales less return inwards .
PURCHASES: This represents the total of the cash and credit purchases of goods for resale .It is debited to the trading account.
RETURNS OUTWARDS: This is the total value of goods returned to supplier out of the goods bought .It is also known as purchases returns
CARRIAGE INWARDS: Carriage inwards is the cost of transportation charged on goods purchased .Carriage inwards is the cost incurred in order to bring the goods purchased to the present location
CARRIAGE OUTWARDS; This is the cost of transportation charged on goods sold to customers .It is a selling expense and is debited to profit and loss account
COST OF GOODS SOLD: This is the total cost of goods actually sold by the organization
COST OF GOODS AVAILABLE FOR SALE: This is the addition of opening stock and purchases
STOCK OF GOODS:
- Opening stock: This represents goods available in a business at the beginning of the trading period
- Closing stock: This is the stock of goods unsold at the end of the trading period
PROFIT AND LOSS ACCOUNT:This is the account constructed by a business organization to show the net profit or net loss .Expenses incurred by the organization are debited while gross profit from trading and other gains are credited.
Note: the profit is carried to the capital account
The main purpose is to arrive at the net profit after charging all the expenses from the gross profit .
LAYOUT OF PROFIT AND LOSS ACCOUNT
# #
Expenses Gross profit xx
Discount allowed x discount received x
Telephone x
Lighting x
Legal charges x
General expenses x
Carriage outwards x
Postages x
Insurance x
Advertising x
Rent and rates x
Salaries & wages x
Commission payable x
Travelling expenses x
Sundry expenses x
Net profit x
_____ _____
Xx xx
____ ______
ADJUSTMENT IN THE PROFIT AND LOSS ACCOUNT
ACCRUALS AND PREPAYMENTS
- 1. ACCRUALS: Accruals concepts states that revenue and expenditure are recognized as they are earned or incurred and dealt with in the profit and loss account for the period to which they relate and not period they are paid and received.It can be divided into :Accrued income and Accrued expenses.
a.Accrued income: These are income which are due in respect of the current trading period but such income have not been received at the close of final account preparation.
Treatment in final account s
Cr: profit and loss account
assets in the balance sheet
DR income account CR
# #
Last year accrual x cash x
Profit and loss x current year accrual x
____ ___
Xx xx
____ ___
Bal b/d x
Illustration: write up the ledger accounts of Mr Johnson as at 31st Dec. 1996 showing the transfer to the final account .He earned commission from sales for the year 31st Dec. 1996 #8500:Owing as at 31st dec. 1995 #800: Owing at 31st Dec. 1996 #1450
Commission receivable account
# #
Bal b/f 800 cash 8500
Profit and loss 9150 bal b/d 1450
______ ____
9950 9950
______ ______
Bal b/f 1450
The balance of #1450 should be treated as current asset in the balance sheet
- Accrued Expenses: These are expenses ,which accrue but have not been discharged.
These could be called expenses owing or creditor for expenses e.g telephone , rates
Treatment in final accounts
Debited to profit and loss account
Current liability in the balance sheet.
Expenses account
# #
Cash paid x amount owing from last yr x
Owing during the trading yr x profit and loss x
____ ____
X x
__ ____
Illustration:Write up the ledger account of Okondo as at 31st Dec.1998
General expenses paid for the year #15000
General expenses owing at 31st Dec.1997 #3000
General expenses owing at 31st Dec.1998 #2700
# #
Cash 15000 BAL b/f 3000
BAL c/d 2700 profit and loss 14700
____ _____
17700 17700
____ _____
Bal b/d 2700
The balance of #2700 should be treated as current liability in the balance sheet
- PREPAYMENTS: Prepayments represents amount paid in the current period for a subsequent period. Expenses can be paid in advance and income can be received in advance. It can be referred to as prepaid or paid in advance.
- Expenses in advance: These are expenses like rent , insurance etc.which are paid in advance for subsequent period .Only the expenses for the must be charged to the profit and loss account
Treatment in final accounts
Reduction in expenses debited to profit and loss account
Current assets in the balance sheet
DR Expenses account CR
# #
Prepaid last year x prepaid next year x
Cash x profit and loss x
__ ___
X x
___ ____
Bal b/d x
Illustration:Write up the ledger accounts of Mr Victor as at 31st Dec. 1998 .He paid insurance of #5000 for the year ended 31st DEC. 1998 ;prepaid as at 31st Dec. 1997 #740 ;prepaid as at 31st Dec. 1998 #1000
DR Insurance account CR
# #
Prepaid last year 740 profit and loss 4740
Cash 5000 prepaid for next year 1000
____- _____
5740 5740
______ _____
Bal b/d 1000
The balance brought down of #1000 will be treated as current assets in the balance sheet
- Income in advance: These are income received by the organization during the current period which relates to the next trading period e.g. rent received in advance
Treatment in final account:
Decrease in income credited to the profit and loss
Current liability in the balance sheet
DR INCOM ACCOUNT CR
# #
Profit and loss x last year advance x
Advance for next year x cash x
____ ___
X x
____ ____
Bal b/d x
Illustration: Write up the ledger account of Mr. James as at 31st Dec. 1999. He earned commission of #30000 for the year 31st Dec. 1999.Prepaid at 31st Dec.1998 #7700; paid in advance at 31st Dec. 1999 was #6830
DR Commission account CR
# #
Profit and loss 30870 last year advance 7700
Advance for next year 6830 cash 30000
_____ _____
37700 37700
______ ____
Bal b/d 6830
EVALUATION:Show the journal entries and the appropriate accounts to make the following adjustments that were brought to your attention on 31st march this year after you have completed the trial balance for Sunshine Bakeries .Show how items will appear on the balance sheet this date
- Motor vehicle ,#11000000 have been revalued at #8600000
- commission owed to sales representative stands at #400000.The balance on this account is currently #1800000
ASSIGNMENT:State five differences between trading account and profit and loss account
RECEIPTS AND PAYMENTS,INCOME AND EXPENDITURE ACCOUNT
Receipts and payments account:
This is a statement of cash actually received and paid during a given period , Receipts being debited and payments credited .The receipts and payments account is a summary of the cash book
FEATURES OF RECEIPTS AND PAYMENTS ACCOUNT
1.It is a real account
- Balance represent cash in hand
- Only actual receipts and payments are recorded
4 Include capital and revenue items
DR receipts and payments account CR
# #
Bal b/f x rent x
Donation x wages x
Subscription x postage x
Dance receipt x stationery x
Refreshment x honorarium x
Annual dinner x meeting expenses x
___ ___
Xx xx
___ ____
INCOME AND EXPENDITURE ACCOUNT
This is the account which shows the summary of revenue and running cost of a non- profit making organization.It follows the same principles as the profit and loss account of a trading concern. It is part of the double entry and income is shown on the credit side and expenditure on the debit side .
The balance represents surplus of income over expenditure and vice versa
FEATURES OF INCOME AND EXPENDITURE ACCOUNT
- Equivalent of profit and loss in a trading concern
- Balance represents surplus or deficiency
- Expenditure are debited and income credited i.e it is a nominal account.
- Adjustment for accruals and prepayments are made
- capital receipts and expenditure are not posted but only revenue items
LAYOUT OF INCOME AND EXPENDITURE ACCOUNT
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST DEC.19X9
# #
Expenditure income
Rent x subscription x
Printing x interest on investment x
Postage x entrance fees x
Depreciation x donation x
Honorarium x annual dinner x
Wages x letting of halls x
Stationery x rent received x
Meeting expenses x profit on bar x
Surplus of income over expenditure x interest on deposit x
Sales of ticket x
___ ____
Xx xx
____ ____
SIMILARITIES BETWEEN RECEIPTS AND PAYMENTS AND INCOME AND EXPENDITURE
- Both accounts follow the principles of double entry
- They are summaries of financial statements
- Both are prepared by non-profit making concern
- They are prepared to cover the same period
DIFFERENCES BETWEEN RECEIPTS AND PAYMENTS AND INCOME AND EXPENDITURE
RECEIPTS AND PAYMENTS INCOME AND EXPENDITURE
- Real account Nominal
- Only actual cash receipt and payments cash accruals and prepayments are
Are recorded included
- No record of depreciate give effect to depreciation
- Balance represent cash or bank overdraft balance represent surplus of income or expenditure
- Another name for cash book adopted another name for profit and loss adopted by clubs
Adopted by clubs
- Included capital and revenue items Only revenue items are recorded
- receipts is debited and payments expenditure is debited and income is credited
Credited.
Illustration:From the following prepare:
a.An income and expenditure for the Western club for the year ended 31st Dec. 1999
- A receipts and payments account
#
Subscription received for previous year 2000
“ “ current year 18000
Paid for:
Rent 5000
Transport 4000
Wages 6800
Supplies for refreshment 8500
Printing and stationery 3000
Repairs 1200
Salaries 10000
Receipts from:
Donations 6000
Refreshment 12500
Ticket 1000
Cash in hand:
1st JAN 1800
31ST Dec. 2800
Subscription for current year due and unpaid 3000
Accounts due but unpaid:Repair 800
Salaries 2200
DR Western club CR
INCOM AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST DEC.1999
# #
EXPENDITURE INCOME
Rent 5000 subscription(18000+2000-2000+3000) 12000
Transport 4000 donation 6000
Wages 6800 refreshment 12500
Supplies of refreshment 8500 tickets 1000
Printing and stationery 3000 excess of expenditure over income 1000
Repairs (1200+800) 2000
Salaries (10000+2200) 12200
___ ____
41500 41500
_____ _____
receipts and payments account for the year ended 31st 1999
# #
Bal b/f 1800 rent 5000
Subscription (1998) 2000 transport 4000
“ (1999) 18000 wages 6800
Donations 6000 supplies of refreshment 8500
Refreshment 12500 printing and stationery 3000
Tickets 1000 repairs 1200
Salaries 10000
Bal c/d 2800
_____ ______
41300 41300
_____ ____
EVALUATION: Give 5 differences between receipts and payments and income and expenditure account
ASSIGNMENT: From the following given below, make up the receipts and payments account for the Tiny Tots swimming club(TTSC) for the end of Dec this year:
Cash in hand: 1 January #245000
Receipts: subscriptions, #512000, donation, #822200 sale of swimming aids #235200 sales of refreshment #417200
Payments: Purchase of swimming aid #235200; purchase of refreshment; #280000, printing and stationery #19120 cleaning charges, #110000 cost of visits to other clubs #139600