Trading and Profit and Loss Account

Trading Account

As already discussed, first section of trading and profit and loss account is called trading account. The aim of preparing trading account is to find out gross profit or gross loss while that of second section is to find out net profit or net loss.

Preparation of Trading Account

Trading account is prepared mainly to know the profitability of the goods bought (or manufactured) sold by the businessman. The difference between selling price and cost of goods sold is the,5 earning of the businessman. Thus in order to calculate the gross earning, it is necessary to know:

(a) cost of goods sold.

(b) sales.

Total sales can be ascertained from the sales ledger. The cost of goods sold is, however, calculated. n order to calculate the cost of sales it is necessary to know its meaning. The 'cost of goods' includes the purchase price of the goods plus expenses relating to purchase of goods and brining the goods to the place of business. In order to calculate the cost of goods " we should deduct from the total cost of goods purchased the cost of goods in hand. We can study this phenomenon with the help of following formula:

Opening stock + cost of purchases - closing stock = cost of sales

As already discussed that the purpose of preparing trading account is to calculate the gross profit of the business. It can be described as excess of amount of 'Sales' over 'Cost of Sales'. This definition can be explained in terms of following equation:

Gross Profit = Sales-Cost of goods sold or (Sales + Closing Stock) -(Stock in the beginning + Purchases + Direct Expenses)

The opening stock and purchases along with buying and bringing expenses (direct exp.) are recorded the debit side whereas sales and closing stock is recorded on the credit side. If credit side is Jeater than the debit side the difference is written on the debit side as gross profit which is ultimately recorded on the credit side of profit and loss account. When the debit side exceeds the credit side, the difference is gross loss which is recorded at credit side and ultimately shown on the debit side of profit & loss account.

Usual Items in a Trading Account:

A) Debit Side

1. Opening Stock. It is the stock which remained unsold at the end of previous year. It must have been brought into books with the help of opening entry; so it always appears inside the trial balance. Generally, it is shown as first item at the debit side of trading account. Of course, in the first year of a business there will be no opening stock.

2. Purchases. It is normally second item on the debit side of trading account. 'Purchases' mean total purchases i.e. cash plus credit purchases. Any return outwards (purchases return) should be deducted out of purchases to find out the net purchases. Sometimes goods are received before the relevant invoice from the supplier. In such a situation, on the date of preparing final accounts an entry should be passed to debit the purchases account and to credit the suppliers' account with the cost of goods.

3. Buying Expenses. All expenses relating to purchase of goods are also debited in the trading account. These include-wages, carriage inwards freight, duty, clearing charges, dock charges, excise duty, octroi and import duty etc.

4. Manufacturing Expenses. Such expenses are incurred by businessmen to manufacture or to render the goods in saleable condition viz., motive power, gas fuel, stores, royalties, factory expenses, foreman and supervisor's salary etc.

Though manufacturing expenses are strictly to be taken in the manufacturing account since we are preparing only trading account, expenses of this type may also be included in the trading account.

(B) Credit Side

1. Sales. Sales mean total sales i.e. cash plus credit sales. If there are any sales returns, these should be deducted from sales. So net sales are credited to trading account. If an asset of the firm has been sold, it should not be included in the sales.

2. Closing Stock. It is the value of stock lying unsold in the godown or shop on the last date of accounting period. Normally closing stock is given outside the trial balance in that case it is shown on the credit side of trading account. But if it is given inside the trial balance, it is not to be shown on the credit side of trading account but appears only in the balance sheet as asset. Closing stock should be valued at cost or market price whichever is less.

Valuation of Closing Stock

The ascertain the value of closing stock it is necessary to make a complete inventory or list of all the items in the god own together with quantities. On the basis of physical observation the stock lists are prepared and the value of total stock is calculated on the basis of unit value. Thus, it is clear that stock-taking entails (i) inventorying, (ii) pricing. Each item is priced at cost, unless the market price is lower. Pricing an inventory at cost is easy if cost remains fixed. But prices remain fluctuating; so the valuation of stock is done on the basis of one of many valuation methods.

The preparation of trading account helps the trade to know the relationship between the costs be incurred and the revenues earned and the level of efficiency with which operations have been conducted. The ratio of gross profit to sales is very significant: it is arrived at :

Gross Profit X 100 / Sales

With the help of G.P. ratio he can ascertain as to how efficiently he is running the business higher the ratio, better will be the efficiency.

Closing Entries pertaining to trading Account

For transferring various accounts relating to goods and buying expenses, following closing entries recorded:

(i) For opening Stock: Debit trading account and credit stock account

(ii) For purchases: Debit trading account and credit purchases account, the amount being the et amount after deducting purchases returns.

(iii) For purchases returns: Debit purchases return account and credit purchases account.

(iv) For returns inwards: Debit sales account and credit sales return account

(v) For direct expenses: Debit trading account and credit direct expenses accounts individually.

(vi) For sales: Debit sales account and credit trading account. We will find that all the accounts as mentioned above will be closed with the exception of trading account

(vii) For closing stock: Debit closing stock account and credit trading account After recording above entries the trading account will be balanced and difference of two sides ascertained. If credit side is more the result is gross profit for which following entry is recorded.

(viii) For gross profit: Debit trading account and credit profit and loss account If the result is gross loss the above entry is reversed.

Profit and Loss Account

The profit and loss account is opened by recording the gross profit (on credit side) or gross loss (debit side).

For earning net profit a businessman has to incur many more expenses in addition to the direct expenses. Those expenses are deducted from profit (or added to gross loss), the resultant figure will be net profit or net loss.

The expenses which are recorded in profit and loss account are ailed 'indirect expenses'. These be classified as follows:

Selling and distribution expenses.

These comprise of following expenses:

(a) Salesmen's salary and commission

(b) Commission to agents

(c) Freight & carriage on sales

(d) Sales tax

(e) Bad debts

(f) Advertising

(g) Packing expenses

(h) Export duty

Administrative Expenses.

These include:

(a) Office salaries & wages

(b) Insurance

(c) Legal expenses

(d) Trade expenses

(e) Rates & taxes

(f) Audit fees

(g) Insurance

(h) Rent

(i) Printing and stationery

(j) Postage and telegrams

(k) Bank charges

Financial Expenses

These comprise:

(a) Discount allowed

(b) Interest on Capital

(c) Interest on loan

(d) Discount Charges on bill discounted

Maintenance, depreciations and Provisions etc.

These include following expenses

(a) Repairs

(b) Depreciation on assets

(c) Provision or reserve for doubtful debts

(d) Reserve for discount on debtors.

Along with above indirect expenses the debit side of profit and loss account comprises of various business losses also.

On the credit side of profit and loss account the items recorded are:

(a) Discount received

(b) Commission received

(c) Rent received

(d) Interest received

(e) Income from investments

(f) Profit on sale of assets

(g) Bad debts recovered

(h) Dividend received

(i) Apprenticeship premium etc.

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Police Auctions & Sheriffs Sales Offer an Incredible Range of Goods at a Fraction of Their Value

Police auctions and sheriffs sales are one of those things many people have heard of, but few are familiar with. You might have heard one of your friends or family members mention police auctions in passing, or read something about them in the local paper, but haven't given them much thought. What are police auctions, and how do they work? Where are they held and how can you attend one? Police auctions are held periodically, so it's not like you can just go to the local department and demand to see what's for auction.

To find out when a particular police auction is being held in your area, just visit your local police department's website and search for auctions or surplus auctions. Every state and local government website should have their auction times and locations listed somewhere on the site. It just takes a little bit of searching to find it. When you do, the website should have a way to contact whoever's in charge of the auction. If the website doesn't list the time or location, contact them and see when and where it is.

The types of goods you'll find at local police auctions are automobiles, jewelry, collectibles, furniture; almost anything you can think of that someone would own. Think of a police auction or sheriffs sale as a real life eBay auction, except cheaper. Since the property was seized, the government hasn't spent any money purchasing those items and can thus sell them for anything they can get. Like government auctions in general, they're truly a great way to find outstanding bargains.

However, you need to be prepared for other people wanting the items you want too. Since the property is so cheap, you can expect many other people will be lining up to get their grubby little hands on it. If you're not willing to spend the money necessary to bid competitively obtaining these items, then don't go to a police auction. It's that simple.

Police auctions can be wonderful resources if you want high-valued items for very cheap prices. If you think you could benefit from attending a police auction, find some local listings in the newspaper, or go through one of the government auction membership sites (you can find these sites by doing a Google search, or through one of the review sites like Government Auction Site Reviews at http://www.governmentauctionsitereviews.com). Like all things though, you need to research and be prepared for what you might experience there.

Mr. Ullman blogs about Government Auctions, Police Auctions, and Sheriffs Sales, and Reviews Government Auction Membership Sites at: Government Auction Site Reviews

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How to Find Office Depot Discount Codes and Online Coupons

Owning and operating your own business can be an extremely difficult endeavor. Employee relations, overhead costs, insufficient funds and demanding clients can all be stressful to a business owner. Purchasing office supplies is one of the primary expenses that can subtract substantial amounts of money from a small company's budget.

Items such as such as paper, pens, pencil holders, office furniture and electronic products are often costly. The prices of many products that may seem insignificant, like paperclips and rubber bands, can really add up over time. However, office managers can shop intelligently and effectively by using smart buying strategies and taking advantage of online Office Depot discount codes.

Office Depot promo codes can allow shoppers to save up to 7% on all purchases. How does your company gain access to this special type of savings? Businesses can receive a variety of bargains and special coupon codes by joining a discount bulk buying group. Discount bulk buying groups provide companies with easy and efficient ways to save on a substantial percentage of their overall costs.

Finding the right bulk buying group can take some time. Many groups offer savings and discount codes on more than one type of service or goods. Before you choose a buying group, it is imperative that you look at the specific needs and demands of your business. The buying organization may conveniently cater to a majority of your company's needs by providing savings on a myriad of services and Office Depot online coupons. Before deciding to enlist the services of a discount buying group, you may want to
consider the following:

• Do the services of the buying group complement the employees of my company? Will I use most of the offered discounts and special benefits that this group provides? Most companies are in need of paper and paper products and would benefit from using Office Depot promotional codes.


• Is there a start-up fee? Do not be fooled by the numerous online scams that ask for cash upfront. Many buying groups provide members with impressive savings and promo codes on goods and services without charging them a dime.


• Does the buying group offer convenient services that are easy to use? The employees of most companies are extremely busy and do not want to have to engage in a series of confusing steps or processes to obtain corporate discounts. Accommodating discounts should allow members to mention them or plug in various discount codes to obtain savings.

Purchasing items with Office Depot coupon codes from a discount buying organization, like ABNSave, is an excellent way to cut out expenditures from your company's budget. Not only does it allow your business to save money by reducing the overall cost of any supplies that you may need, but buying items in bulk is an invaluable technique that reduces the inclusive cost of your purchases. Paying for a year's supply of an individual item, like manila folders or highlighting markers, is more budget-savvy than buying three or four of those items at a time. Certain Office Depot supplies, like paper, stationary and pens will always be useful to a business and can be purchased in large amounts, saving the buyer even more money.

Allied Business Network is a discount buying group that provides members with money-saving promotional coupons, like Office Depot discount codes.

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Procurement Definition

Procurement can be defined as the purchase of merchandise or services at the optimum possible total cost in the correct amount and quality. These good and services are also purchased at the correct time and location for the express gain or use of government, company, business, or individuals by signing a contract.

The process of acquisition of goods or services required as raw material (direct procurement) or for operational purposes (indirect procurement) for a company or a person can be called procurement. The procurement process not only involves the purchasing of commodities but also quality and quantity checks. Usually, suppliers are listed and pre-determined by the procuring company. This makes the process smoother, promoting a good business relationship between the buyer and the supplier.

The synonyms for procurement, which are gain, purchase, buy, and acquire, can throw light on the meaning of procurement. The process of procurement may differ from company to company, and a government institution may have a slightly different procurement process compared to a private company.

Procurement can also be simply defined as the procedure in which goods or commodities are bought when prices are low. Procurement is advantageous if the goods are bought in bulk. E-procurement is another method in which the electronic media is used for acquiring or purchasing goods. Everything is processed electronically, from the search for the right bidder to the delivery and payoff.

The procurement procedure may differ according to the product and the uses of the product. Healthcare equipment needs to be efficient and reliable, and the procurement process is carried out meticulously in order to avoid the purchase of faulty apparatus. Another important factor that is usually included in the definitions of procurement is the amount in which the product is bought. This is important because the amounts of goods bought are inversely proportional to their cost.

Thus, procurement is a process that is carried out by almost every company and individual for its own personal gain or for profits, which involves buying of commodities by choosing the appropriate bidder.

Procurement provides detailed information on Procurement, Procurement Software, E Procurement Solutions, Procurement Management and more. Procurement is affiliated with India Offshore Outsourcing.

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Finding A New Home For Your Unwanted Goods

If you're planning to move house this spring, you'll no doubt notice that since your last move you've accumulated more things than you realised - books, clothes and electrical equipment - that you have little or no use for any longer. But rather than throwing them away or bringing them with you to clutter up your new abode, see if you can't find a better home for them and possibly make some money at the same time.

A quick way of getting rid of your unwanted goods is to attend a car boot sale. If you know of a local one that takes place regularly, you'll know where to go to peddle your wares, but if not there are a number of websites that advertise car boot sales across the UK. Naturally, potential buyers are looking for a bargain, and in exchange for a quick sale you should be prepared to accept a significantly lower price than you might get elsewhere, although you may be able to haggle in order to get a better price.

If you're looking for a slightly better price, you could look into using an online auction site. Most of these are reliable and allow users to rate others, meaning you can easily find out whether a potential buyer has a reliable track record or not. Most of these sites will also allow you to set a minimum acceptable bid price, or reservation price, guaranteeing that your items won't be sold for any less than you're looking for.

Another alternative is classifieds. These will allow you to find plenty of local buyers, and in recent years, online classifieds have become increasingly sophisticated, allowing you to include pictures and descriptive text rather than shorthand, to reach a large amount of interested buyers across the UK. Online classifieds also have the advantage of being more specialised, allowing you to find niche markets for almost anything imaginable.

You can also decide to give your unwanted items to charity - at least it guarantees you'll get rid of them and could, in future, help those less fortunate. If you don't have a particular charity in mind, the Charity Choice homepage has a complete listing of all registered charities in the UK and how to get in touch with them to find a branch near you.

So rather than holding onto things you no longer need or use, see if you can't give them a new home and possibly make some money in the process.

Andrew Regan is an online, freelance author from Scotland. He is a keen rugby player and enjoys travelling.

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Where to Get More USED Goods to Sell on eBay

Many people start their eBay business by auctioning items that they no longer want from their own home. While this is an excellent way to get used to how eBay works, it's not possible to build a sustainable business this way as eventually you will run out of things to sell! So where can you locate more used goods to sell on eBay?

Well, even though it is very easy to start selling stuff from around the home on eBay, many people still don't. Some people still don't have their own computer or they can't be bothered to learn about eBay. You could advertise the fact that YOU can sell their items for them on eBay. This is called "consignment" and is probably easiest done locally, though you could do it nationwide. They provide the product and you provide the expertise to sell it on eBay, either for a split of the profit or for a fee.

Alternatively, you can advertise the fact that "I will buy your (whatever your product line is)". You need to do a "Completed Listings" search on eBay to find out what price you are likely to get on eBay for that particular item so you will know how much you are prepared to pay to ensure that you make a profit.

If someone is advertising their stuff for sale in a newspaper or magazine, they probably know nothing about eBay. Again, you need to do your research so you can be confident about what price whatever they are advertising is likely to sell for on eBay. Look at eBay's "Completed Listings" for that item. If the item has been advertised for a while, you are likely to get a better deal as the seller will be getting desperate to sell. There are two ways to do this:

1. Contact the seller and offer to sell their item on eBay for a percentage or agree a price they want and you keep any excess. This avoids you having to buy the product. You will incur eBay's listing fee and your time, but no other capital outlay.

2. If you can get a bargain and are confident that you can sell on eBay at a profit, buy the item yourself and list it on eBay. This involves more risk but you keep all the profit. It is probably only worth doing this for higher price items, such as cars.

You can advertise your services on eBay by getting yourself registered on eBay's Trading Assistant Directory. To become a Trading Assistant, you need to meet the following requirements: have sold at least 4 items in the last 30 days; have a feedback score of at least 50; have a positive feedback score of at least 97%.

If you meet these requirements, you can create a profile in the Trading Assistants Directory by clicking the "Create/Edit Your Profile" link. You'll be able to describe your specialties, fees, terms, contact information, and drop-in hours (if any). Your profile will then appear in search results when people look for Trading Assistants in your area.

Martyn Boaden is the Author of "The Lazy Way To Wealth On eBay" and Founder of The Online Auction Resource Centre where you will find more information and all the resources that you will ever need to set up and run your successful and profitable eBay business. And for a limited time only you can get instant access to his popular eBay Business Box (worth $164 + $17 pm) for FREE by clicking this link: http://www.TheOnlineAuctionResourceCentre.com

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Why High Gas Prices Should Cause You to Worry

Why high gas prices these days? This is perhaps one of the most commonly heard question as crude oil prices continue its dramatic soar throughout the first half of 2008. Excessive demand coupled with a fixed supply of crude oil has resulted in gas prices soaring to unprecedented limits. This increase in prices has resulted in far reaching effects on the daily lives of the average consumer. In examining the effects of high gas prices, we offer you an insight on why high gas prices should cause you to worry.

The first thing you would notice with high gas prices would be a significant increase in fuel cost for your car. Yes, for the same amount of petrol which you would normally buy at your local gas station, you would now need to pay more. This result in increased cost on your part as travelling becomes an increasingly expensive affair. Indeed, with crude oil prices in excess of $120, travelling to work has never been more expensive. Thus, the immediate result of high crude oil prices would be an increase in cost of car travel.

Yet, the effect of high gas prices is in no way constrained merely to increased cost of travelling. A closer understanding would reveal far reaching consequences.

High gas prices often lead to a general increase in prices of goods and services. This is known as inflation. It is important to note that transport cost has to be factored in with relation to goods and services purchased by the average consumer. For instance, when you buy a new set of furniture, your local furniture store would often provide delivery of your new piece of furniture right up to your doorstep. However, given high gas prices, your furniture store would often have no choice but to pass on the rising cost to you as increased gas prices would mean eating into the store's profits. A similar situation is observed across other industries as suppliers of goods and services pass on higher transportation cost to consumers by marking up prices.

Subsequently, the value of money would be adversely affected given the general inflation caused by the increase on prices of goods and services. This means that the value of every dollar earned has decreased as it can now buy fewer and fewer goods. This provides a disincentive to work as the same amount of wage would now only be able to purchase a smaller amount of goods. This could also spell hardship for the poorest workers as they would be struggling near the level of poverty. Given a long time frame, this could possibly lead to social disturbances and crime.

Rounding things off, it is insufficient to think that high gas prices are only a cause of concern for consumers who drive. The fact is inflation is something very real and would affect all consumers given the increase in gas prices. Furthermore, given such a situation, we would now have to accept a lower real wage as our salary can now buy a lesser amount of goods and services as compared to before. Finally, social disturbances and crime in the long run would affect us in negative ways. Thus, high gas prices are indeed a cause of worry for us.

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