Preparation of Final Accounts of Sole ProprietorsQ-1 | Final Accounts of Sole ProprietorsQuestion 5105 of 40
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Trading account

Options

A
B
C
D
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Correct Answer

✅ Option — Correct Option

All Options:

  • A
  • B
  • C
  • D

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.

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]

Trading account

Profit and loss account

Balance sheet

Manufacturing A/c

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