References： Chapter 7 to 10 (P. 59-113) 2 Final Accounts References： Chapter 7 to 10 (P. 59-113)

A Trial Balance (試算表) 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 identitied. Trial balance is the basis for preparing final accounts (Trading and profit and loss A/C; Balance Sheet).

Examples of Trial Balance： Leungs Company Trial Balance for the year ended 31 December, 2008 $ $ Sales 1010 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  

Stock as at 31 December, 2008 is $120 $ $ 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 7280 7280 Stock as at 31 December, 2008 is $120

B Trading A/C Function: Calculate the gross profit or gross loss. 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 Gross loss: Cost of sales>Net sales Net Purchases = Purchases – Returns outwards

Put the above formulas (算式) into a statement, a Trading A/C is formed. Trading A/c has vertical form and horizontal form.

for the year ended 31 December, 2008 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 120 500 Gross profit 500

for the year ended 31 December, 2008 Examples of horizontal form（T form） Leungs Company Trading A/C for the year ended 31 December, 2008 $ $ $ Opening Stock 100 Sales 1010 Add：Purchases 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 1000

C Profit and loss A/C Functions: calculate the net profit / net loss. Gross profit+Income>Expenses Gross profit＋Other income－Expenses＝Net profit / Net loss Net loss: Expenses>Gross profit+Income Other income= rental income + commission income+… Expenses=rent and rates+commission +electricity+ …

Put the above formulas (算式) into a statement, a Profit and loss A/C is formed. Trading A/c has vertical form and horizontal form.

for the year ended 31 December, 2008 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  

for the year ended 31 December, 2006 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

Assets*＝Liabilities**＋Capital*** 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＝Non-current assets＋Current assets **Liabilities＝Current liabilities＋Long-term liabilities ***Capital: Opening capital＋Net profit－Capital＝Closing capital

D1 Non-current Assets Non-current assets have a long life and are to be used in the business. The non-current assets is not bought for resale. E.g. Land and building, Furniture, Fixtures and fitting, Office equipment, Machinery, Motor vehicles…

Non-current assets are listed in the order of “permanency” in the Balance Sheet are as follows: Land and building Furniture Fixtures and fittings Office equipment Machinery Motor vehicles

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…

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

D3 Long-term Liabilities Long-term liabilities do not have to have in the near future (i.e. longer than 1 year) e.g. Bank loan, Loan: Mr. Cheung, Debentures…

Current assets－Current liabilities＝Working Capital 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 Capital

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

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

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

$ $ $ 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

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