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Trading Accounts
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Aims & objectives The trading account Purpose of the trading account
The trading period Net sales/net purchases Trading and non-trading stock Stocktaking* purpose procedure valuation of stock Cost of goods sold Gross profit/loss On completion students should be able to: Present appropriate (simple) reports on stock and stocktaking* Record stock in accounts Calculate closing stock as per accounts* Operate the trading account in accordance with conventions of double entry* Prepare a trading account from given data Interpret information presented in a trading account* Calculate gross profit percentage
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The trading Account A Record of the goods or services
that were traded by a business during the previous trading period.
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The trading Period the length of time the final accounts are prepared for. Usually one year But May be any length of time Q2 page 346
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Gross profit / Gross loss
The difference between the total sales during the period and the total amount it cost the firm to purchase and prepare the goods for sale Sales - Cost of Sales
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Cost of sales The total amount it cost the firm to produce the goods they actually sold. (Opening Stock+ Purchases + Carriage Inwards + Import Duty) - Closing Stock
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Cost of goods available for sale
The total amount it cost the firm to produce the goods they actually sold + stock not sold yet (Opening Stock+ Purchases + Carriage Inwards + Import Duty) Or Cost of sales + Closing Stock
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Items on the trading account
Sales The value of the goods sold Sales Returns (returns in) The value of goods sold which were returned to the firm.
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Items on the trading account
Purchases The cost of goods purchased. Purchase Returns (returns out) The value of goods purchased which were returned by the firm.
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Items on the trading account
Opening Stock The cost of goods held in stock at the start of the period Closing Stock The cost of goods held in stock at the end of the. period.
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Items on the trading account
Carriage Inwards Transport costs of bringing goods into the factory.
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Items on the trading account
Import/Custom Duties Any taxes which the firm had to pay on goods they purchased from certain other countries.
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Sample question Sales €37,500 Purchases €18,000 Sales Returns €280
Purchases Returns €340 Opening Stock €2,200 Carriage Inwards €20 Customs Duties €50 Direct Wages €100 Closing Stock €6,000.
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= Purchases - Purchase Returns
TRADING PROFIT AND LOSS ACCOUNT and Appropriation A/c OF Deane Ltd. For year ended COLUMN 1 COLUMN 2 COLUMN 3 € Sales 35,700 Less Sales Returns (280) Net Sales 35,420 Less: Cost of Sales: Opening Stock (1 January 2010) 2,200 Add: Purchases 18,000 Less: Purchases Returns (340) Net Purchases 17,660 Add: Carriage Inwards 20 Add: Import Duty 50 Add: Direct Wages 100 Cost of Goods Available 20,030 Less: Closing Stock (31 Dec 2010) (6,000) Cost of Sales (14,030) Gross Profit 21,390 Net Sales = Sales - Sales Returns Solution Net Purchases = Purchases - Purchase Returns Cost of goods available = Opening Stock + Net Purchases + carriage in + duty + direct wages Cost of sales = cost of goods available - closing stock Gross Profit = Net Sales - Cost of sales
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Trading Account of Dean Ltd for year ended 31 December 2010
Column1 € Column 2 Column3 Sales 35,700 Less Sales Returns (280) 35,420 Less Cost of Sales Opening Stock(1Jan 2010) ,200 Add: Purchases 18,000 Less: Purchases Returns (340) ,660 Add: Carriage Inwards Add: Import Duty Add: Direct Wages Cost of Goods Available for Sale ,030 Less Closing Stock(31 Dec 2010) (6000) Cost of Sales (14,030) Gross Profit 21,390
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Q4 Trading Account of Clancy Ltd for year ended 31 December 2006
Column1 € Column 2 Column3 Sales 150000 Less Sales Returns Less Cost of Sales Opening Stock(1Jan 2010) 10000 Add: Purchases 60000 Less: Purchases Returns Add: Carriage Inwards Add: Import Duty Add: Direct Wages Cost of Goods Available for Sale 70000 Less Closing Stock(31 Dec 2010) (8000) Cost of Sales (62000) Gross Profit 88000
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Q5 Trading Account of o grady Ltd for year ended 30 nov 2006
Column1 € Column 2 Column3 Sales 200000 Less Sales Returns Less Cost of Sales Opening Stock(1Jan 2010) 40000 Add: Purchases 140000 Less: Purchases Returns Add: Carriage Inwards Add: Import Duty Add: Direct Wages Cost of Goods Available for Sale 180000 Less Closing Stock(31 Dec 2010) (30000) Cost of Sales (15000) Gross Profit 50000
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Q6 Trading Account of o delaney Ltd for year ended 30 nov 2006
Column1 € Column 2 Column3 Sales 60000 Less sales returns Less Cost of Sales Opening Stock(1Jan 2010) 15000 Add: Purchases 50000 Less: Purchases Returns Add: Carriage Inwards Add: Import Duty Add: Direct Wages Cost of Goods Available for Sale 65000 Less Closing Stock(31 Dec 2010) (3000) Cost of Sales (62000) Gross Profit (2000)
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Q7 Trading Account of o delaney Ltd for year ended 30 nov 2006
Column1 € Column 2 Column3 Sales 60000 Less sales returns 4000 56000 Less Cost of Sales Opening Stock(1Jan 2010) 9000 Add: Purchases 40000 Less: Purchases Returns 3000 37000 Add: Carriage Inwards Add: Import Duty Add: Direct Wages Cost of Goods Available for Sale 46000 Less Closing Stock(31 Dec 2010) (6500) Cost of Sales (39500) Gross Profit 16500
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Q8 Trading Account of hillside complexLtd for year ended 30 nov 2006
Column1 € Column 2 Column3 Sales 64000 Less sales returns 4000 60000 Less Cost of Sales Opening Stock(1Jan 2010) 10000 Add: Purchases 36000 Less: Purchases Returns 5000 31000 Add: Carriage Inwards 1500 Add: Import Duty Add: Direct Wages Cost of Goods Available for Sale 42500 Less Closing Stock(31 Dec 2010) (11500) Cost of Sales (31000) Gross Profit 29000
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Q12 Trading Account of hillside complexLtd for year ended 30 nov 2006
Column1 € Column 2 Column3 Sales 315000 Less sales returns 5000 310000 Less Cost of Sales Opening Stock(1Jan 2010) 15000 Add: Purchases 200000 Less: Purchases Returns 10000 190000 Add: Carriage Inwards 2000 Add: Import Duty 3000 Add: Direct Wages Cost of Goods Available for Sale 210000 Less Closing Stock(31 Dec 2010) (10000) Cost of Sales (200000) Gross Profit 110000
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Items on the trading account
Net Sales Sales - Sales Returns Net Purchases Purchases - Purchases Returns
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The price the firm paid for the goods (cost) Except
Valuing stock The price the firm paid for the goods (cost) Except If the selling price lower than cost I.e. if the goods have gone out of fashion
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Stock control ensure there is neither too much nor too little stock at any particular time
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Problems of overstocking
Money tied up in stock should be earning interest The stock may go out of date or out of fashion. Warehouse and insurance costs More security staff needed Risk of pilferage
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Problems with under stocking
Sales are lost Profits are lost Customers are lost Warehouse space is wasted.
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SETTING UP A STOCK CONTROL SYSTEM
Code every item in stock. Decide the correct level of stock for each item. Develop a method of recording stock. Carry out regular stocktaking.
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Optimum level = Ideal stock level
Stock terms Optimum level = Ideal stock level Minimum level = the lowest quantity that stock allowed fall to
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Maximum level = the quantity which stock levels must not exceed
Stock terms Maximum level = the quantity which stock levels must not exceed Reorder quantity = the quantity ordered each time
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This should be done at least once a year
Stocktaking means counting the amount of stock in the warehouse at a particular time. This should be done at least once a year
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Computerised Stock control
When a business is computerised, the Stock Quantity and value is always up to date. purchase invoices are keyed into the system - automatically increasing stock levels and adjusts the cost price if necessary. Each time a product is sold the bar code on the product is scanned and the stock count of the product is reduced by one The computer can generate orders if stock falls below minimum level
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Stock take procedure Close The warehouse Divide it into sections
Assign two people to each section. One counts & the other records Check & total stock sheets hand to the person in charge who produces rpt.
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Mark-Up and Margin Cost + profit = Selling Price
Mark-up and margin are expressed as percentages. E.G. Cost price €100 Selling price € Profit = €20 Mark-up - Profit expressed as a percentage of cost. Margin - Profit expressed as a percentage of selling price. Mark-Up = Profit x 100% Cost Price €20 x 100% €100 = 20% Margin = Selling Price €120 = 16.66%
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