FINAL ACCOUNTS OF NON-MANUFACTURING ENTITIES

FINAL ACCOUNTS OF NON-MANUFACTURING ENTITIES:-

Introduction:-

Non-Manufacturing entities are trading entities which are engaged in the purchase and sale of goods at profit without changing form of goods.

These entities do not process the goods.

      -      Profit is obtained by preparing Income statement (i.e trading A/c and profit and loss).

      -      Financial position of enterprises can be known by preparing Position statement (Balance Sheet).

(a) INCOME STATEMENT:-This statement is prepared at the close of year.

Income statement is divided into two parts for non-manufacturing concerns.

Trading Account:-

At the end of the year every business must ascertain it profit or loss. This is done in two-stage (I) finding out the gross profit (or gross loss) and then finding out net profit (or net loss).

Gross profit is the excess of the net sales (i.e. sales - sales return) over the cost of goods sold.

Cost of goods sold equal to opening stock + purchases during the year + freight inward - Closing Stock of goods.

The usual way to ascertain gross profit is by means of an account called the Trading Account.

In a Trading Firm where business consist of purchases and sales only, the Trading Account is debited with the;

Value of the opening stock, purchases made during the year; and

any other expenses which have been incurred to bring the purchased goods to the firm’s factory or otherwise to make the goods ready for sale.

The examples of such expenses are freight, customs duty and octroi duty on goods purchase.

In a manufacturing business, all expenditures which are incurred up to the time the goods are ready for sale is debited to trading account.

Examples are purchase of raw material, wages paid to workmen, fuel and power used to run the machinery, carriage on purchase etc.

In respect of Sales, the following point should be taken in to consideration: - If goods have been sold but not yet dispatched then the goods sold should not be included in the closing stock. Such goods should be kept apart.

If property in the goods has not yet passed to the buyer, then it should not be treated as a sale.  In such case the entry for sale should be reversed.

No sales out of the goods received on behalf of others should be treated as sale. Such sales have to be credited to the account of the consignor. If the sales have already credited to Sales Account, the following entry should be passed:

                                                      Sales Account                                               - Dr                             ****

                                                      To consignor's account                                                                  ****

Sale of Fixed Assets or of investment should be excluded from sales. Thus if old assets is sold, it must not be credited to sales Account. If it has been credited, the following entry should be passed:
                  Sales Account                             — Dr.                          ****

                                                                        To assets Account                                       ****

Goods  Sent  on Approval:-- Goods sent on 'approval' or 'on sale or return' basis, means the delivery of the goods to the customers with the option to retain or return them within a specified period. When such transactions are few, these transactions are accounted for as an ordinary sale. If at the year end goods are still lying with customers and the specified period has not yet expired, the original entry made for sale is cancelled. Like an ordinary closing stock, such goods are considered as stock lying with customers on behalf of sellers and are valued at cost.

                                              Format of  TRADING ACCOUNT  For the year ended 31^st March, 20…

The Profit and Loss Account starts with the credit from the Trading Account in respect of Gross Profit or Debit if there is Gross Loss. Thereafter, all those expenses, which have not been debited to trading account, arc debited to profit and loss account. If there are any incomes or gains, for e.g. rent received on premises sublet. interest on investments, discount received from suppliers, these will be credited to Profit and Loss Account

                  Format of Profit and Loss Account   (For the year ending on----)

(B) Position Statement:-Position statement mainly consist Balance sheet which shows assets, and liabilities and capital of business. For better understanding of financial position additional statement like cash flow statement, statement showing earning per share, value added statement etc. are prepared. The statement showing the financial state of affairs is called Balance Sheet.

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