Preparation of Final Accounts of Sole ProprietorsQ-1 | Final Accounts of Sole ProprietorsQuestion 4772 of 40
All Questions

Ad

Detailed Solution & Explanation

Trading account  Trading account shows the profit/loss made on a gross basis that is including only the direct cost of the goods.  In trading a/c, we credit the trading income like sale and Debit the cost of goods sold (opening stock + purchases (-) closing stock). Alternatively Opening Stock & purchases is debited & Closing stock is credited to trading account.  Other direct expenses related to purchase or manufacture of goods like carriage inward, wages, etc. are also debited here.  Purchase return & Sales returns will be deducted/adjusted from the purchases & sales respectively.  The balance is known as the gross profit or gross loss, which is trans- ferred to profit and loss A/c.  Non-corporate entities usually prepares trading A/c so as to know the gross margin available in its sale.  But at corporate level usually it is not prepared. In those cases the items of trading account gets incorporated in profit & loss account.

About This Chapter: Final Accounts

Paper

Paper 1: Accounting

Weightage

25-30%

Key Topics

Sole Proprietor, NPO, Manufacturing

This chapter covers Sole Proprietor, NPO, Manufacturing and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 25-30% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Trading Account

The first part of the final accounts prepared to ascertain the Gross Profit or Gross Loss from trading (buying and selling) activities during an accounting period. It includes opening stock, purchases, direct expenses, sales, and closing stock.

Related Comparison Tables

Revenue Expenditure vs Capital Expenditure: AccountsTrading Account vs P&L Account: Final Accounts ExplainedSLM vs WDV Depreciation: CA Foundation Accounts

More Questions from Preparation of Final Accounts of Sole Proprietors

Mr. A accepts two bills of exchange on June 1, 2024 for ₹ 1,50,000 and 60,000 drawn on him by Mr. B. The bill of exchange for ₹ 1,50,000 is for two months while the bill of exchange for 60,000 is for three months. Mr. B got the first bill discounted with the bank for ₹ 1,49,000 on June 3, 2024. On August 2, 2024 Mr. A requested Mr. B. to cancel both the bills and drew a new bill on him with the combined amount of both the bills along with interest @ 12% per annum for a period of two months. Before the due date of the renewed bill on September 3, 2024, Mr. A becomes insolvent and only 40 paise in a rupee could be recovered from his estate. You are required to give the journal entries in the books of Mr. B. [Jan. 2025, 5 Marks]

Discuss the limitations which must be kept in mind while evaluating the Financial Statements. [Nov. 2018, 4 Marks]

Profit and loss account

Balance sheet

Manufacturing A/c

Provision & Reserve

Ready to Master Preparation of Final Accounts of Sole Proprietors?

Practice all 40 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free