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Preparing Final Accounts of Sole Traders and Partnership

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Added on  2021-01-02

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1 Closing balances on each partner's capital and current accounts 15 6.2 Preparation of statement of financial position 16 CONCLUSION 17 REFERENCES 18 INTRODUCTION Final accounts are prepared by the an individuals and business entities and it provide help to analyse the financial positionof corporation. The present report discuss about various topics : reasons for closing off accounts and producing a trail balance, methods of constructing accounts from incomplete records, prepare sales and purchase ledger accounts, final accounts for sole traders, understand the legislative and

Preparing Final Accounts of Sole Traders and Partnership

   Added on 2021-01-02

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Prepare FinalAccounts of SoleTraders andPartnership
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Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11. 1 Closing off a/c and producing a trial balance.......................................................................11. 2 Process and limitations of preparing a set of final a/c..........................................................21. 3 Constructing accounts from incomplete records...................................................................21. 4 Reasons for imbalances resulting from incorrect double entries..........................................31. 5 Reasons for incomplete records arising from insufficient data ...........................................3TASK 2............................................................................................................................................42 . 1 Closing and opening capital using the incomplete information..........................................42 . 2 Opening and closing cash/ bank a/c balance........................................................................52 . 3 Sales and purchase ledger control accounts.........................................................................6TASK 3............................................................................................................................................73 . 1 Components of a set of final accounts for a sole trader.......................................................73. 2 Formulation of statement of P&L a/c...................................................................................83. 3 Statement of financial position............................................................................................9TASK 4..........................................................................................................................................114. 1 Key components of a partnership agreement......................................................................114 . 2 Components of partnership accounts ................................................................................12TASK 5..........................................................................................................................................125.1 Preparation of statement of P&L appropriation a/c.............................................................125 . 2 Allocation of profits to partners ........................................................................................145 . 3 Preparation of capital and current accounts.......................................................................14TASK 6..........................................................................................................................................156. 1 Closing balances on each partner's capital and current accounts........................................156.2 Preparation of statement of financial position.....................................................................16CONCLUSION .............................................................................................................................17REFERENCES..............................................................................................................................18
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INTRODUCTIONFinal accounts are prepared by the an individuals and business entities and it provide helpto analyse the financial position of corporation. It is prepared at the last stage of an accountingcycle and company can know that it is earning profit or not at the end of financial year. . Allprofits are acquired by owner of the sole trader and in the partnership firms it is distributedamong the partners as per the partnership deed. The present report discuss about various topics :reasons for closing off accounts and producing a trail balance, methods of constructing accountsfrom incomplete records, prepare sales and purchase ledger control accounts, final accounts forsole traders, understand the legislative and accounting requirements for partnership. Apart fromthis, report discuss about to prepare a statement of profit and loss account and statement offinancial position related to partnership. TASK 11. 1 Closing off a/c and producing a trial balanceTrail balance is prepare by an organisation to check mathematical accuracy whileconsidering double entry system of accounting. It is generally prepared at the end of reportingperiod. It is the process that helps organisation to check whether the particular account isshowing as asset or liability for the business. The main purpose to prepare trial balance is toknow that entries are made appropriate. Reasons to closing off account are as: All of them are closed because balance has transferred to permanent account from thetemporary account. To know that business entity is generating profits or losses for a particular period of time,it can be reason to closing off account.This also helps the sole traders to check and calculate the transactional summary for thewhole year (Storey and et. al., 2016).As the entries are transferred to trial balance, it helps in achieving the target of producingincome statement and balance sheet of the company.To closing entries, it is required. 1
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1. 2 Process and limitations of preparing a set of final a/cFinal accounts are prepared at the end of financial year and it provide help to know thefinancial position of an organisation. As a result, corporation can take its important decisionssuch as: future expansions and strategies which is helpful for company to get success andgrowth. Trail balance is a bookkeeping worksheet which contains the balances of all ledgers arecompiled into credit and debit account. Process of preparing final account are as follows:Analyse the list of items of trial balance and make necessary adjustments, record allexpenses in debit side of Trading- P&L Account and record the incomes in credit side ofTrading- P&L Account.Profits are distributed to parters in the case of partnership firm, after that capital andcurrent accounts are prepared. In the balance sheet all items related to assets and liabilities are recorded as per its nature.At the end profits and losses are calculated and transferred to balance sheet (Whiteley,2017).Limitations of trial balance while preparing final accountsIf there is any omission of an entry in the day book, then trial balance will not be able todetect it and final account will be misstated. Entry posted with wrong account will not be detected by trial balance and therefore finalaccounts will be prepared with wrong account only. Compensatory error will not affect the trial balance but affect the final accounts witherrors and omission.So there are various limitations of preparing final accounts and it provide falseinformation so it is necessary to make it as per the desired manner so that errors can beminimize.1. 3 Constructing accounts from incomplete records incomplete records are those which give false information to the reader as a resultfinancial statements can not be prepare in effective manner. So it is responsibility of anaccountant to record all financial transactions carefully so that chances of errors can beminimize. There are various methods that helps in preparation of accounts through incompleterecords which includes statement of affairs methods and margin and markup method. 2
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Statements of affairs method: It is to be noted that if opening capital is given but theclosing capital is not given then only one statement of affairs will be prepared to find closingcapital.Margin and mark-up method : With the help of margin percentage accountant cangather missing information. Accounting equation method : If there is amount of capital is missing than this methodcan be used in accounts. To consider the amount of capital outside liabilities are subtracted fromthe total assets. So these are the methods which are used to construct accounts from theincomplete records. 1. 4 Reasons for imbalances resulting from incorrect double entriesDue to the incorrect double entries trial balance cannot be prepare appropriate becauseaccounting standards and principle does not have followed. There are some other reasons such asOne transaction has mentioned in single account but in other account its treatment doesnot show. As an example, 4500 paid as rent in cash but wrongly it is recorded in bankaccount. Also, if a mathematical error, this can cause a problem too. Or perhaps creditedsomething that should have been debited or vice versa, or applied a transaction to thewrong account.If there is difference of amount in debit and credit side in single entry. If entry made inmore than one account than in trial balance difference can be create. As an example,imbalance result can be reflected if cash received from debtors is recorded two times indebtor & cash account. So these are some general reasons for imbalance resulting from incorrect double entries andit affect the trial balance and other financial statements. So it is important to record thetransactions more carefully so that chances of mistake can be minimize. 1. 5 Reasons for incomplete records arising from insufficient data In present era, it is observed that when bookkeeper of an individual entity do not haveaccurate and appropriate information to prepare following trail balance and final statementswhich led uncompleted accounts. Some of the primary reason are discussed below:Unintentional failure to record: In case when accountant of company forgets to reportimportant information then final account remain incomplete. Basically it happens3
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