C hapter 10: Trading and profit and loss

account and balance sheet:

Further considerations
Contents of chapter
This chapter takes the study of final accounts a few stages further. It shows how opening stock, carriage
inwards, returns outwards and cost of making goods ready for resale are used for calculating the cost of goods
sold.

Notes for teachers

The closing stock can only be found by conducting a stocktaking, i.e. counting, weighing, measuring etc.,
1
all the items in stock. These are then normally valued at what they cost.

Both opening and closing stocks have to be shown in the trading account. As the opening stock is already
2
a balance, this is transferred to the debit of the trading account. Closing stock has to be entered (i) as an
asset in the stock account and (ii) in the trading account.

Instead of showing opening stock on the debit side of the trading account, and closing stock as a credit,
3
accountants prefer to see a figure for cost of goods sold.

Carriage inwards is taken to be part of the cost of the goods bought. This means that it should be entered
4
in the trading account part.

Carriage outwards has nothing to do with the cost of the goods sold. It is simply a distribution expense.
5
Such expenses are shown in the profit and loss account part.

Cost of making goods ready for resale should be added to the cost of goods sold.
6

Returns inwards should be deducted from sales to calculate net sales and returns outwards should be
7
deducted from purchases to calculate net purchases.

When preparing departmental accounts, each expense is divided among the departments on a specific
8
basis.

Service providers do not need to prepare a trading account; their final accounts consist of a profit and loss
9
account and a balance sheet.

42
Answers to MCQs and exercises
10.1 D 10.2 D 10.3 C 10.4 B 10.5 C

10.6
(Horizontal)
W Chin
Trading Account for the year ended 31 December 20X5
$ $ $
Opening stock 6,924 Sales 38,742
Add Purchases 26,409 Less Returns inwards 890
Less Returns outwards 495 25,914
37,852
32,838
Add Carriage inwards 670
33,508
Less Closing stock 7,489
Cost of goods sold 26,019
Gross profit 11,833
37,852 37,852

(Vertical)
W Chin
Trading Account for the year ended 31 December 20X5
$ $ $
Sales 38,742
Less Returns inwards 890 37,852
Less Cost of goods sold:
Opening stock 6,924
Add Purchases 26,409
Less Returns outwards 495 25,914
32,838
Add Carriage inwards 670
33,508
Less Closing stock 7,489 26,019
Gross profit 11,833

10.7X
(Horizontal)
T Lee
Trading Account for the year ended 31 March 20X8
$ $ $
Opening stock 16,492 Sales 54,600
Add Purchases 36,905 Less Returns inwards 1,372
Less Returns outwards 2,896 34,009
53,228
50,501
Add Carriage inwards 1,122
51,623
Less Closing stock 18,504
Cost of goods sold 33,119
Gross profit 20,109
53,228 53,228

43
 (Vertical)
T Lee
Trading Account for the year ended 31 March 20X8
$ $ $
Sales 54,600
Less Returns inwards 1,372 53,228
Less Cost of goods sold:
Opening stock 16,492
Add Purchases 36,905
Less Returns outwards 2,896 34,009
50,501
Add Carriage inwards 1,122
51,623
Less Closing stock 18,504 33,119
Gross profit 20,109

10.8
(Horizontal)
T Ming
Trading and Profit and Loss Account for the year ended 31 December 20X6
$ $ $
Opening stock 5.690 Sales 52,790
Add Purchases 31,000 Less Returns inwards 490
Less Returns outwards 560 30,440 52,300
36,130
Add Carriage inwards 1,700
37,830
Less Closing stock 4,230
Cost of goods sold 33,600
Gross profit c/d 18,700
52,300 52,300
Salaries and wages 5,010 Gross profit b/d 18,700
Rent and rates 1,460
Motor expenses 3,120
General expenses 420
Carriage outwards 790
Net profit 7,900
18,700 18,700

44
 (Vertical)
T Ming
Trading and Profit and Loss Account for the year ended 31 December 20X6
$ $ $
Sales 52,790
Less Returns inwards 490 52,300
Less Cost of goods sold:
Opening stock 5,690
Add Purchases 31,000
Less Returns outwards 560 30,440
36,130
Add Carriage inwards 1,700
37,830
Less Closing stock 4,230 33,600
Gross profit 18,700
Less Expenses:
Salaries and wages 5,010
Rent and rates 1,460
Motor expenses 3,120
General expenses 420
Carriage outwards 790 10,800
Net profit 7,900

10.9X
(Horizontal)
K Lo
Trading and Profit and Loss Account for the year ended 31 December 20X8
$ $ $
Opening stock 18,280 Sales 99,500
Add Purchases 64,570 Less Returns inwards 1,500
Less Returns outwards 1,580 62,990
98,000
81,270
Add Carriage inwards 210
81,480
Less Closing stock 17,360
Cost of goods sold 64,120
Gross profit c/d 33,880
98,000 98,000
Carriage outwards 490 Gross profit b/d 33,880
Salaries and wages 6,250
Rent and rates 1,750
Sundry expenses 360
Net profit 25,030
33,880 33,880

45
 (Vertical)
K Lo
Trading and Profit and Loss Account for the year ended 31 December 20X8
$ $ $
Sales 99,500
Less Returns inwards 1,500 98,000
Less Cost of goods sold:
Opening stock 18,280
Add Purchases 64,570
Less Returns outwards 1,580 62,990
81,270
Add Carriage inwards 210
81,480
Less Closing stock 17,360 64,120
Gross profit 33,880
Less Expenses:
Carriage outwards 490
Salaries and wages 6,250
Rent and rates 1,750
Sundry expenses 360 8,850
Net profit 25,030

10.10
(Horizontal)
S Mok
Trading and Profit and Loss Account for the year ended 30 September 20X6
$ $ $
Opening stock 2,368 Sales 18,600
Add Purchases 11,874 Less Returns inwards 205
Less Returns outwards 322 11,552
18,395
13,920
Add Carriage inwards 310
14,230
Less Closing stock 2,946
Cost of goods sold 11,284
Gross profit c/d 7,111
18,395 18,395
Carriage outwards 200 Gross profit b/d 7,111
Salaries and wages 3,862
Rent and rates 304
Insurance 78
Motor expenses 664
Office expenses 216
Lighting and heating expenses 166
General expenses 314
Net profit 1,307
7,111 7,111

46
 S Mok
Balance Sheet as at 30 September 20X6
Fixed Assets $ $ Capital $
Premises 5,000 Balance as at 1 October 20X5 12,636
Fixtures and fittings 350 Add Net profit for the year 1,307
Motor vehicles 1,800
13,943
7,150 Less Drawings 1,200
Current Assets 12,743
Stock 2,946 Current Liabilities
Debtors 3,896 Creditors 1,731
Bank 482 7,324
14,474 14,474

(Vertical)
S Mok
Trading and Profit and Loss Account for the year ended 30 September 20X6
$ $ $
Sales 18,600
Less Returns inwards 205 18,395
Less Cost of goods sold:
Opening stock 2,368
Add Purchases 11,874
Less Returns outwards 322 11,552
13,920
Add Carriage inwards 310
14,230
Less Closing stock 2,946 11,284
Gross profit 7,111
Less Expenses:
Carriage outwards 200
Salaries and wages 3,862
Rent and rates 304
Insurance 78
Motor expenses 664
Office expenses 216
Lighting and heating expenses 166
General expenses 314 5,804
Net profit 1,307

47
 S Mok
Balance Sheet as at 30 September 20X6
Fixed Assets $ $
Premises 5,000
Fixtures and fittings 350
Motor vehicles 1,800 7,150

Current Assets
Stock 2,946
Debtors 3,896
Bank 482
7,324
Less Current Liabilities
Creditors 1,731
Net current assets 5,593
12,743
Financed by:
Capital as at 1 October 20X5 12,636
Add Net profit for the year 1,307
13,943
Less Drawings 1,200
12,743

10.11X (Horizontal)
K Sing
Trading and Profit and Loss Account for the year ended 31 March 20X6
$ $ $
Opening stock 18,100 Sales 92,300
Add Purchases 79,180 Gross loss c/d 2,606
Less Returns outwards 620 78,560 94,906
96,660
Add Carriage inwards 420
Packing goods 1,216
98,296
Less Closing stock 3,390
Cost of goods sold 94,906 94,906
Gross loss b/d 2,606 Net loss 27,895
Carriage outwards 1,570
Wages and salaries 18,240
Rent and rates 3,015
Telephone charges 1,624
Insurance 525
Sundry expenses 315
27,895 27,895

K Sing
Balance Sheet as at 31 March 20X6
Fixed Assets $ $ Capital $ $
Buildings 22,000 Balance as at 1 April 20X5 40,880
Less Net loss for the year 27,895
Current Assets Drawings 7,500 35,395
Stock 3,390 5,485
Debtors 14,320 Long-term Liabilities
Bank 2,970 Loan from K Kwok 20,000
Cash 965 21,645 Current Liabilities
Creditors 18,160
43,645 43,645

48
(Vertical)
K Sing
Trading and Profit and Loss Account for the year ended 31 March 20X6
$ $ $
Sales 92,300
Less Cost of goods sold:
Opening stock 18,100
Add Purchases 79,180
Less Returns outwards 620 78,560
96,660
Add Carriage inwards 420
Packing goods 1,216
98,296
Less Closing stock 3,390 94,906
Gross loss 2,606
Less Expenses:
Carriage outwards 1,570
Wages and salaries 18,240
Rent and rates 3,015
Telephone charges 1,624
Insurance 525
Sundry expenses 315 25,289
Net loss 27,895

K Sing
Balance Sheet as at 31 March 20X6
Fixed Assets $ $
Buildings 22,000

Current Assets
Stock 3,390
Debtors 14,320
Bank 2,970
Cash 965
21,645
Less Current Liabilities
Creditors 18,160
Net current assets 3,485
25,485
Less Long-term Liabilities
Loan from K Kwok 20,000
5,485
Financed by:
Capital as at 1 April 20X5 40,880
Less Net loss for the year 27,895
Drawings 7,500 35,395
5,485

49
 10.12
(Horizontal)
K Young
Trading and Profit and Loss Account for the year ended 30 April 20X7
$ $ $
Opening stock 3,776 Sales 18,600
Add Purchases 11,556 Less Returns inwards 440
Less Returns outwards 355 11,201 18,160
14,977
Add Carriage inwards 234
15,211
Less Closing stock 4,998
Cost of goods sold 10,213
Gross profit c/d 7,947
18,160 18,160
Carriage outwards 326 Gross profit b/d 7,947
Salaries and wages 2,447
Motor expenses 664
Rent 456
Rates 120
Sundry expenses 1,202
Net profit 2,732
7,947 7,947

K Young
Balance Sheet as at 30 April 20X7
Fixed Assets $ $ Capital $
Fixtures and fittings 600 Balance as at 1 May 20X6 12,844
Motor vehicles 2,400 Add Net profit for the year 2,732
3,000 15,576
Current Assets Less Drawings 2,050
Stock 4,998 13,526
Debtors 4,577
Bank 3,876 Current Liabilities
Cash 120 13,571 Creditors 3,045
16,571 16,571

50
(Vertical)
K Young
Trading and Profit and Loss Account for the year ended 30 April 20X7
$ $ $
Sales 18,600
Less Returns inwards 440 18,160
Less Cost of goods sold:
Opening stock 3,776
Add Purchases 11,556
Less Returns outwards 355 11,201
14,977
Add Carriage inwards 234
15,211
Less Closing stock 4,998 10,213
Gross profit 7,947
Less Expenses:
Carriage outwards 326
Salaries and wages 2,447
Motor expenses 664
Rent 456
Rates 120
Sundry expenses 1,202 5,215
Net profit 2,732

K Young
Balance Sheet as at 30 April 20X7
Fixed Assets $ $
Fixtures and fittings 600
Motor vehicles 2,400 3,000
Current Assets
Stock 4,998
Debtors 4,577
Bank 3,876
Cash 120
13,571
Less Current Liabilities
Creditors 3,045
Net current assets 10,526
13,526
Financed by:
Capital as at 1 May 20X6 12,844
Add Net profit for the year 2,732
15,576
Less Drawings 2,050
13,526

51
 10.13X
(Horizontal)
L Shun
Trading and Profit and Loss Account for the year ended 30 September 20X8
$ $ $
Opening stock 23,910 Sales 130,900
Add Purchases 92,100 Less Returns inwards 550
Less Returns outwards 307 91,793 130,350
115,703
Add Carriage inwards 215
115,918
Less Closing stock 27,475
Cost of goods sold 88,443
Gross profit c/d 41,907
130,350 130,350
Carriage outwards 309 Gross profit b/d 41,907
Motor expenses 1,630
Rent and rates 2,970
Telephone charges 405
Wages and salaries 12,810
Insurance 492
Office expenses 1,377
Sundry expenses 284
Net profit 21,630
41,907 41,907

L Shun
Balance Sheet as at 30 September 20X8
Fixed Assets $ $ Capital $
Van 4,100 Balance as at 1 October 20X7 25,955
Office equipment 6,250 Add Net profit for the year 21,630
10,350 47,585
Current Assets Less Drawings 8,420
Stock 27,475 39,165
Debtors 12,300 Long-term Liabilities
Bank 3,115 Loan from P Tao 5,000
Cash 295 43,185
Current Liabilities
Creditors 9,370
53,535 53,535

52
(Vertical)
L Shun
Trading and Profit and Loss Account for the year ended 30 September 20X8
$ $ $
Sales 130,900
Less Returns inwards 550 130,350
Less Cost of goods sold:
Opening stock 23,910
Add Purchases 92,100
Less Returns outwards 307 91,793
115,703
Add Carriage inwards 215
115,918
Less Closing stock 27,475 88,443
Gross profit 41,907
Less Expenses:
Carriage outwards 309
Motor expenses 1,630
Rent and rates 2,970
Telephone charges 405
Wages and salaries 12,810
Insurance 492
Office expenses 1,377
Sundry expenses 284 20,277
Net profit 21,630

L Shun
Balance Sheet as at 30 September 20X8
Fixed Assets $ $
Van 4,100
Office equipment 6,250 10,350
Current Assets
Stock 27,475
Debtors 12,300
Bank 3,115
Cash 295
43,185
Less Current Liabilities
Creditors 9,370
Net current assets 33,815
44,165
Less Long-term Liabilities
Loan from P Tao 5,000
39,165
Financed by:
Capital as at 1 October 20X7 25,955
Add Net profit for the year 21,630
47,585
Less Drawings 8,420
39,165

53
 10.14 (Horizontal)
W Yeung
Trading and Profit and Loss Account for the year ended 31 December 20X7
$ $ $
Opening stock 3,130 Sales 123,670
Add Purchases 66,210 Less Returns inwards 920
Less Returns outwards 1,390 64,820
122,750
67,950
Add Carriage inwards 1,845
69,795
Less Closing stock 4,570
Cost of goods sold 65,225
Gross profit c/d 57,525
122,750 122,750
Salaries 9,600 Gross profit b/d 57,525
Stationery 385 Commission received 5,500
Rent 13,200
Management fees 2,750
Lighting expenses 2,440
Net profit 34,650
63,025 63,025

W Yeung
Balance Sheet as at 31 December 20X7
Fixed Assets $ $ Capital $
Buildings 106,000 Balance as at 1 January 20X7 105,000
Add Net profit for the year 34,650
Current Assets 139,650
Stock 4,570 Less Drawings 8,000
Debtors 5,300 131,650
Bank 16,300 Current Liabilities
Cash 4,160 30,330 Creditors 4,680
136,330 136,330

(Vertical)
W Yeung
Trading and Profit and Loss Account for the year ended 31 December 20X7
$ $ $
Sales 123,670
Less Returns inwards 920 122,750
Less Cost of goods sold:
Opening stock 3,130
Add Purchases 66,210
Less Returns outwards 1,390 64,820
67,950
Add Carriage inwards 1,845
69,795
Less Closing stock 4,570 65,225
Gross profit 57,525
Add Other revenues:
Commission received 5,500
63,025
Less Expenses:
Salaries 9,600
Stationery 385
Rent 13,200
Management fees 2,750
Lighting expenses 2,440 28,375
Net profit 34,650
54
 W Yeung
Balance Sheet as at 31 December 20X7
Fixed Assets $ $
Buildings 106,000

Current Assets
Stock 4,570
Debtors 5,300
Bank 16,300
Cash 4,160
30,330
Less Current Liabilities
Creditors 4,680
Net current assets 25,650
131,650
Financed by:
Capital as at 1 January 20X7 105,000
Add Net profit for the year 34,650
139,650
Less Drawings 8,000
131,650

10.15X (Horizontal)
D Loi
Trading and Profit and Loss Account for the year ended 31 December 20X5
$ $ $ $
Opening stock 1,645 Sales 28,365
Add Purchases 19,114 Less Returns inwards 493 27,872
Less Returns outwards 573 18,541
20,186
Add Carriage inwards 560
20,746
Less Closing stock 1,908
Cost of goods sold 18,838
Gross profit c/d 9,034
27,872 27,872
Wages 8,210 Gross profit b/d 9,034
Rent 5,500 Net loss 9,686
Travelling expenses 925
Carriage outwards 885
Utilities 2,733
Interest 467
18,720 18,720

D Loi
Balance Sheet as at 31 December 20X5
Fixed Assets $ $ Capital $ $
Office equipment 7,220 Balance as at 1 January 20X5 12,000
Shop fixtures 1,885 9,105 Less Net loss for the year 9,686
Drawings 1,300 10,986
Current Assets 1,014
Stock 1,908 Long-term Liabilities
Debtors 533 Bank loan 10,000
Bank 2,703
Cash 1,290 6,434 Current Liabilities
Creditors 4,525
15,539 15,539

55
 (Vertical)
D Loi
Trading and Profit and Loss Account for the year ended 31 December 20X5
$ $ $
Sales 28,365
Less Returns inwards 493 27,872
Less Cost of goods sold:
Opening stock 1,645
Add Purchases 19,114
Less Returns outwards 573 18,541
20,186
Add Carriage inwards 560
20,746
Less Closing stock 1,908 18,838
Gross profit 9,034
Less Expenses:
Wages 8,210
Rent 5,500
Travelling expenses 925
Carriage outwards 885
Utilities 2,733
Interest 467 18,720
Net loss (9,686)

D Loi
Balance Sheet as at 31 December 20X5
Fixed Assets $ $
Office equipments 7,220
Shop fixtures 1,885 9,105

Current Assets
Stock 1,908
Debtors 533
Bank 2,703
Cash 1,290
6,434
Less Current Liabilities
Creditors 4,525
Net current assets 1,909
11,014
Less Long-term Liabilities
Bank loan 10,000
1,014
Financed by:
Capital as at 1 January 20X5 12,000
Less Net loss for the year 9,686
Drawings 1,300 10,986
1,014

56
10.16
Poons Department Store
Trading Account for the year ended 31 December 20X8
Electrical Furniture Leisure Goods
Department Department Department
$ $ $ $ $ $
Sales 22,000 56,000 43,300
Less Cost of goods sold:
Opening stock 1,150 1,300 840
Add Purchases 19,400 51,700 38,000
20,550 53,000 38,840
Less Closing stock 4,300 16,250 8,100 44,900 3,900 34,940
Gross profit 5,750 11,100 8,360

10.17X
W Chen
Trading and Profit and Loss Account for the year ended 31 March 20X6
Department A Department B
$ $ $ $
Sales 60,000 40,000
Less Cost of goods sold:
Opening stock 2,500 2,000
Add Purchases 32,000 28,200
34,500 30,200
Less Closing stock 1,700 32,800 950 29,250
Gross profit 27,200 10,750
Less Expenses:
Wages 8,000 10,000
Gas 750 500
Rates 272 408
Fire insurance 1,500 2,250
Lighting and air conditioning 480 720
Repairs 120 180
Telephone expenses 336 504
Cleaning 532 798
Accountancy charges 2,340 1,560
General expenses 300 14,630 200 17,120
Net profit/Net loss 12,570 (6,370)

57