Trading Account

The debit or left-hand side of the Trading Account will contain:

(a) commencing stock;

(b) purchase of goods or materials;

(c) wages and any other expenditure deemed to be directly connected with the creation of the sales.

On the credit side will be placed the total sales for the period, and the value of the closing stock. Total debits should come to less than total credits, and the differences represents gross profit on trading.

This amount will be entered as the final item on the debit side to cause the two sides to balance, and will be carried down as 'gross profit' to the credit side of the Profit and Loss Account.

Profit and Loss Account

The Profit and Loss Account then starts off with the gross trading profit on the right-hand side. The business may have other items of revenue, such as interest on money invested. If so, these items will also appear on the right-hand side.

Reserves And Provisions

(a) Depreciation of 10% has been written off fixtures and fittings and is charged in the income and expenditure account.

(b) Bad debts of £1280 have also been charged against profits, the jeweller evidently being satisfied that this amount cannot be recovered. Two other items of a provision nature appear in the balance sheet but do not figure in the income and expenditure account - namely Provision for doubtful debts £210 and write-off of part (20%) of goodwill (£950). Instead of being treated as expenses of the business these are treated as allocations of profits and thus are shown... see: Reserves And Provisions

Refunds, Personal And Business Finance 2017

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