2

Final Accounts

A Trial Balance
A trial balance is a list of debit balances and credit balances in the books of
accounts
The total of debit balances and the total of credit balances are equal. If
not, errors are needed to identified.
Trial balance is the basis for preparing final accounts (Trading and profit
and loss A/C; Balance Sheet).

Example of a Trial Balance

Leungs Company
Trial Balance
for the year ended 31 December, 2008
$

Sales1010
Returns inwards
10
Stock as at 1 January, 2008 100
Purchases
530
Returns outwards
20
Carriages inwards
10
Rental income
100
Commission received
50
Rent 120
Commission 30
Electricity
150
Rates
50
Land and building
1000
Office Furniture
700
Fittings
500
Office equipment
500
Machinery
1000
Motor vehicles
500
Debtors
1500
Bank
400
Cash 80
Creditors
1000
Bank overdraft
500
Capital
3000
Drawings
100
Bank loan
1000
Loan Mr. Cheung
600

Land and building

Office Furniture
Fittings
500
Office equipment
Machinery
1000
Motor vehicles
Debtors
1500
Bank 400
Cash 80
Creditors
1000
Bank overdraft
Capital3000
Drawings
100
Bank loan
1000
Loan Mr. Cheung
7280

1000
700
500
500

500

600

7280

Stock as at 31 December, 2008 is $120

B Trading A/C

Gross profit:
Net Sales>Cost of sales

Function:
Calculate the gross profit or gross loss.

Net Sales Cost of goods sold Gross profit /

Gross loss
Net Sales =
Sales Returns
inwards

Cost of goods sold =

Opening stock
(Net Purchases+Carriage inwards)
- Closing stock

Net Purchases =
Purchases Returns
outwards

Gross loss:
Cost of sales>Net sales
5

Put the above formulas into a

statement, a Trading A/C is formed.
Trading A/c has vertical form and
horizontal form.

Examples of vertical form

Leungs Company
Trading A/C
for the year ended 31 December, 2008
$
$

Sales 1010
Less Returns inwards
10
Net Sales 1000
Less Cost of goods sold
Stock as at 1 January,2006 100
Add Purchases
530
Less Returns outwards
20
Net purchases 510
Add Carriage inwards
10 520
620
Less Stock as at 31 December, 2006
Gross profit
500

120

500

Examples of horizontal form T form

Leungs Company
Trading A/C
for the year ended 31 December, 2008
$ $
$
Opening Stock
1010
Add Purchases

100

Sales

530
Less Returns inwards 10
Less Returns outwards 20
Net Sales
1000
Net purchases
510
Add Carriage inwards 10 520
620
Less Closing stock
120
Cost of goods sold
500
Gross profit c/d
500
1000
8
1000

C Profit and loss A/C

Functions: calculate the net profit /
net loss.
Net profit:

Gross profit+Income>Expenses

Gross profit Other income Expenses Net profit / Net los

Net loss:
Other income=
Expenses>Gross profit+Income
rental income + commission income+
Expenses=rent and rates+commission
+electricity+
9

Put the above formulas into a

statement, a Profit and loss A/C is
formed.
Trading A/c has vertical form and
horizontal form.

10

Vertical form
Leungs Company
Profit and loss
for the year ended 31 December, 2008
$
$
Gross profit 500
Add
Rental income
100
Commission income 50
650
Less Expenses
Rent
120
Commission
30
Electricity
150
Rates
50
350
Net Profit 300

11

Examples of horizontal form (T form)

Leungs Company
Profit and loss A/C
for the year ended 31 December, 2006
$ $
Rent 120 Gross profit b/d
500
Commission
30 Rental income 100
Electricity 150 Commission income
50
Rates
50
Net profit 300
650
650
12

D Balance Sheet
Balance sheet is a statement to
record the balances of assets,
liabilities and capital at the end of the
accounting
period.
Assets*
Liabilities**
Capital***
*Assets Fixed assets Current assets
**Liabilities Current liabilities Long-term liabilities
***Capital:
Opening capital Net profit Capital Closing
capital
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D1 Fixed Assets
Fixed assets have a long life and are
to be used in the business.
Fixed assets is not bought for
resale.
E.g. Land and building, Furniture,
Fixtures and fitting, Office
equipment, Machinery, Motor
vehicles
14

Fixed assets are listed in the order

of permanency in the Balance
Sheet are as follows:
Fixed assets
Land and building
Furniture
Fixtures and fittings
Office equipment
Machinery
Motor vehicles
15

D2 Current assets
Current assets are likely to be
converted into cash in the short
term (i.e. within 1 year) or items
having a short life.
E.g. Stock, Debtors, Prepayment,
Bank, Petty cash, Cash

16

Current assets are listed starting

the most difficult to be turned into
cash, and the last one is Cash:
Current assets
Stock
Debtors
Prepayment
Bank
Cash
17

D3 Long-term Liabilities
Long-term liabilities liabilities
which the company will have
longer than 1 year
e.g. Bank loan, Loan: Mr. Cheung,
Debentures

18

D4 Current liabilities
Current liabilities are to be paid in
the near future (i.e. within 1 year).
e.g. Creditors, Accruals, Bank
overdraft

Current assets Current liabilities Working Capita

19

Balance Sheet has vertical form

and horizontal form.
The format of vertical is as follows:

20

Leungs Company
Balance Sheet
as at 31 December, 2008
$
$
$
Fixed assets
Land and building 1000
Furnitures
700
Fixtures and fittings
500
Office equipment 500
Machinery
1000
Motor vehicles
500 4200

21

$
$
$
Current assets
Stock 120
Debtors 1500
Bank
400
Cash
80
2100
Less Current liabilities
Debtors 1000
Bank overdraft
500
1500
Working capital
600
4800

22

$
$
$
Capital
Capital as at 1 January, 2008
3000
Add Net profit
400
3400
Less Drawings
100
Capital as at 31 December, 2008 3300
Long-term Liabilities
Bank loan
1000
Loan Mr. Cheung
500 1500
4800
23

Horizontal form T form

Leungs Company
Balance Sheet
As at 31 December, 2006
$
$
$
$
Fixed assets Capital
Land and buildings
1000
Capital as at 1 January, 2008 3000
Furniture 700
Add Net profit
300
Fixtures and fittings
500
3300
Office equipment 500
Less Drawings
100
Machinery 1000
Capital as at 31 December, 2008 3200
Motor vehicles
500
4200 Long-term Liabilities
Current assets
Bank loan 1000
Stock
120
Loan-Mr. Cheung 600
1600
Debtors
1500 Current Liabilities
Bank
400
Creditors
1000
Cash
80
2100
Bank overdraft 500 1500 6300
6300

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