Prepare final accounts for Sole Traders & Partnerships

PREPARE FINAL
ACCOUNTS FOR SOLE
TRADERS AND
PARTNERSHIPS

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Reasons for closing off accounts and producing a trial balance .....................................1
1.2 The process and limitations of preparing a set of final accounts from a trial balance ....1
1.3 The methods of constructing accounts from incomplete records.....................................2
1.4 Reasons for imbalances resulting from incorrect double entries......................................3
1.5 Reasons for incomplete records arising from insufficient data and inconsistencies with in
the data provided ...................................................................................................................3
TASK 2............................................................................................................................................4
2.1 Calculate opening and closing capital .............................................................................4
2.2 Calculate the opening and closing cash/bank account balance .......................................5
2.3 Sales and purchase ledger control accounts ....................................................................5
2.4 Account balances using mark ups and margins ...............................................................6
TASK 3............................................................................................................................................6
3.1 The components of a set of final accounts for a sole trader ............................................6
3.2 Statement of profit and loss for a sole trader....................................................................8
3.3 Statement of financial position for a sole trader ..............................................................8
TASK 4............................................................................................................................................9
4.1 The key components of a partnership agreement ............................................................9
4.2 Key components of partnership accounts ......................................................................10
TASK 5..........................................................................................................................................11
5.1 Statement of profit and loss appropriation account for a partnership ...........................11
5.2 Accurately determine the allocation of profit to partners after allowing for interest on
capital, interest on drawings and salary paid to partners......................................................13
5.3 Prepare the capital and current accounts of each partner...............................................13
TASK 6..........................................................................................................................................14
6.1 Calculate the closing balances on each partners' capital and current accounts, including
drawings...............................................................................................................................14
6.2 Statement of financial position, in compliance with the partnership agreement ...........15

CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Final accounts are the accounts, which are prepared by every organisation at the end of a
financial year. It provides actual position of an organisation and helps to manager for effective
decision making (Singhvi and BODHANWALA, 2018). Final accounts prepare by sole traders
and partnership whether net profit and loss own by owner in sole traders and in partnership it
will divide according to their proportion. It is important to prepare by business entities because it
provides all financial information to owners and related parties of business. In final account
includes trading account, profit and loss account and balance sheet. In partnership also prepare
P&L appropriation account to know profit share of each partner. This report focused on need and
process of final accounts, calculate opening and closing capital/cash/bank balance. Preparation of
sales and purchase ledger control accounts, statement of profit and loss, statement of financial
position is also discussed in this report. Along with identification of key components of a
partnership agreement and partner's capital accounts, partners' current accounts profit and loss
appropriation account for partnership to determine interest on capital, salary paid to partners and
interest on drawings also discussed in this report.
TASK 1
1.1 Reasons for closing off accounts and producing a trial balance
The reason for the closing off accounts is to ensure that each revenue and expenses
account will begin the next accounting year with a zero balance. It is important to complete the
accounting cycle for the current time period. It will help to determine of each transactions are
recorded in journal books and posting in ledger or not. After that it is important to produce a trial
balance to show all closing balance for determine every transactions (Arora, 2016). In trial
balance debit side amount match with credit side amount to shows each and every transaction are
recorded in final accounts. With the help of trial balance know about differences of each
accounts compare to previous year.
1.2 The process and limitations of preparing a set of final accounts from a trial balance
There is particular process to prepare final accounts from trial balance and it is followed
by every organisation. The final accounts are part of internal report of company that provides
actual information and performance of business. There is mention following process of
generating final accounts from trial balance -
1