Preparing trading and profit and lose accounting?

This is the basic thing in accounting.

I am giving the example of a normal trading firm. A manufacturing firm would also have a manufacturing account where different factors like direct and indirect costs come in to get the cost of production and cost of sales. That would be the job of the costing dept.

1st we make the trading account.  Here  we begin with the opening  balance add purchases , less sales and closing stock. The balance is trading profit.

In P/L account we have to take into consideration other things like rent , depreciation etc.

In the balance sheet we have all the assets and liabilities of the firm

·         Some small firms make it annually

·         Some make it half yearly or quarterly

A computer can make a balance sheet ADHOC at any given date provided that the proper data is fed.

When an external audit is made of the books accounts the following should be considered.

·         It should be seen that personal expenses are shown as DRAWINGS  and not included in expenses.

·         The assets like land and building and plant and machinery are not  over/under valued.

·         Apart from the balance sheet ratio analysis is also used to know the financial status of the business.

Trading A/c gives gross profit or loss and after debiting expenses and crediting incomes in P&L A/c net profit is obtained , then Balance Sheet is maintained