FINANCIAL ACCOUNTING 2

CAT ONE.

QUESTION ONE

I) Trading profit and loss a/c as on 31 Dec 2020

Dr Particulars amount   Cr particulars amount

  opening stock 14000     sales 280000
  purchases 206000     closing stock 20000
sales
  expenses 50000        
  gross profit 30000        
             
total   300000       300000

II) Balance sheet as at 31 Dec 2020

Closing Capital = Opening capital + gross profit

= 100,000 + 30,000

= 130,000

Assets Amount Liabilities Amount

Closing stock 10000 Closing capital 130000
closing cash 20000 sundry creditor 15000
equipment/machinery 55000    
sundry debtors 60000    
       
total 145000   145000

QUESTION TWO
 a) Gross profit and Net profit
GROSS PROFIT
Is the leftover profit after deducting all the direct
expenses from the manufacturing process.
its main objective is to estimate a company’s
profitability.
It controls excess costs
It is difficult to make financial decision using gross
profit as it does not include expenses, taxes and
interest on loans
It shows the credit balance of the trading account
b) Capital and revenue
Capital expenditure
Incurred in acquiring or improving permanent
assets not meant for resale. May add value of an
existing asset
Increases earning capacity
It is usually a non-recurring outlay
It produces benefit over several years
Appear in balance sheet
c) Books of original entry
NET PROFIT
The residual income that an organization is left
with after paying off all the expenses for a
financial period
Its main objective is to determine company’s
performance
Shows a company’s performance in a year
This is a true profit that a company can use to
make business decisions for its development
it shows the credit balance for a profit and loss
account
Revenue Expenditure
is a routine expenditure incurred in the normal
course of business and includes cost of sales and
maintenance of fixed assets
Maintains earning capacity
Usually a recurring item
It is consumed within an accounting year
does not appear in balance sheet. Appear in
trading and profit and loss account
General Journal

To record the transactions not recorded in special journals

Special Journals

Special journals include further sub-journals; as given below:

Sales journal

To record sales invoices issued by the firm when selling goods on credit

Purchases journal

To record purchases invoices received by the business from suppliers, when buying goods on credit

Return inwards journal

To record sales returns from customers

Return outwards journal –

To record purchases returns to suppliers

Cash book

To record receipts or payments