Sole Trader Accounting- Hand out 3- Preparing End of year financial statements

Jaheim James is the owner of a wholesale business that provides local retailers with household
goods. His business’s financial year ended on 31 December 2018 when the following trial
balance was extracted from the business’s books of account.

Trial Balance at 31 December 2018

$ $
Accounts Payable 57 000
Accounts receivable 48 000
Bank loan (repayable 2019) 200 000
Capital 1 633 000
Carriage inwards 11 000
Carriage outwards 16 000
Cash at bank 15 000
Drawings 64 000
Inventory at 1 January 2018 114 000
Non-current assets 1800 000
Operating expenses 475 000
Purchases 945 000
Returns inwards 7 000
Returns outwards 19 000
Revenue 1 586 000

3 495 000 3 495 000

Additional information. The business’s inventory of unsold goods on 31December 2018 was
valued at $73.

a. The income statement (trading account in vertical format, profit and loss account in
horizontal format) for the year ended 31 December 2018
b. The statement of financial position (balance sheet) at 31 December 2018 (classified) in
horizontal format in order of permanence.

Prepared by Ms. Percival

 2. Vernika Edwards owns Cashews, a health food business. The following trial balance
was prepared on 31 December 2018

Trial balance at 31 December 2018

$ $
Accounts payable 11721
Accounts receivable 3369
Bank overdraft 4605
Capital 361 395
Carriage inwards 3372
Carriage outwards 4149
Discount allowed 828
Discount received 971
Drawings 32447
Insurance 5484
Inventory at 1 January 2018 23 307
Non-current assets 338 300
Petty cash in hand 45
Purchases 148 494
Returns inwards 3 372
Returns outwards 2720
Revenue 249501
Wages 67 746

630913 630913
Inventory of unsold goods on 31 December 2018 valued at $11 708
Prepare the following:
a. The income statement (trading account in vertical format, profit and loss account in
horizontal format) for the year ended 31 December 2018.
b. The statement of financial position (balance sheet) at 31 December 2018(classified)
in horizontal format in order of permanence.

Prepared by Ms. Percival

 Vertical and Horizontal format for the profit and loss account

Applying what you know about using the vertical format for the trading account, it is now
possible to look at how a vertical profit and loss account should appear.

Ilustration

Ganesh has produced the following profit and loss account for his business using the horizontal
format.

Ganesh
Income statement (profit and loss account) for the year ended 31 July 2018
$ $
Carriage 4 000 Gross profit 85 000
Discount allowed 1 000 Discount received 3 000
General expenses 5 000
Rent 7 000
Wages 28 000
Net profit 43 000

88 000 88 000

Ganesh
Income statement(profit and loss account) for the year ended 31 July 2018( Vertical format)
$ $
Gross profit 85 000
Discount received 3 000
88 000
Carriage outwards 4000
Discounts allowed 1000
General expenses 5000
Rent 7000
Wages 28000 45 000
Net profit 43 000

Prepared by Ms. Percival

 Practice question

Question 1. Brith has produced his business’s profit and loss account in a horizontal form as
follows.

Brith Persaud Income statement (profit and loss account) for the year ended 31 may 2018
$ $
Administration 21 000 Gross profit 171 000
expenses Discount received 8 000

Electricity 27 000

Insurance 24 000

Interest on bank loan 8 000

Wages and salaries 78 000

Net Profit 21 000

179 000 179 000

Task:Redraft this profit and loss account in the Vertical format.

Question 2: Sophie is preparing her business’s end of year financial statements. The business
has made a gross profit of $98 000. The following information has been extracted from the books
of accounts for the year under review, ended 3 September 2018.

Carriage outwards 9200

Dsicounts allowed 4700

Discounts received 5900

Electricity charges 10 200

General expenses 11 300

Rent 27 900

Prepared by Ms. Percival

Salaries 38 500

Water charges 8400

Prepare the business’s profit and loss account in a vertical format for the year ended 30
September 2018.

Prepared by Ms. Percival