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Prepare final accounts for sole traders and partnerships: Assignment

   

Added on  2021-01-01

16 Pages4669 Words274 Views
Prepare final accounts for soletraders and partnerships

Table of ContentsINTRODUCTION................................................................................................................................3TASK 1.................................................................................................................................................31.1 Reasons for closing off accounts and producing a trial balance ..........................................31.2 The process, limitation of preparing a set of final accounts from a trial balance ................31.3 Methods of constructing accounts from incomplete records................................................41.4 Reasons for Imbalances resulting from incorrect double entries..........................................41.5 Reasons for incomplete records arising from insufficient data and inconsistencies within the data provided ..............................................................................................................................4TASK 2.................................................................................................................................................52.3 Sales and purchase leader control accounts .........................................................................62.4 Account balances using Mark Ups and margins .................................................................6TASK 3.................................................................................................................................................63.1 Components of set of finals accounts for a sole trader ........................................................63.2 Statement of profit and loss .................................................................................................73.3 Statement of financial position ............................................................................................8TASK 4.................................................................................................................................................94.1 Key components of partnership agreement...........................................................................94.2 Key components of partnership accounts ...........................................................................9TASK 5...............................................................................................................................................105.1 statement of profit and loss appropriation account ............................................................105.2 Allocation of profit to partners after allowing interest on capital and drawing .................115.3 capital account and current for each partner......................................................................12TASK 6 ..............................................................................................................................................136.1 and 6.2 statement of balance sheet.....................................................................................13CONCLUSION..................................................................................................................................13REFERENCES...................................................................................................................................14

INTRODUCTIONFinal accounts provide the information about the business profitability by preparing the finalaccounts such as profit and loss account, balance sheet etc. This assignment is based on the preparation of the final accounts of the sole trader and partnership. This study will include importance and process of preparing the final accounts. Moreover, this study will include the preparation of the final accounts by using the information provided in the study. Furthermore, this study will include the sole trader final accounts which will consist of profit and loss of the business,statement of financial position etc. Also, it will include the final account of partnership which will consist of their capital and current accounts.TASK 11.1 Reasons for closing off accounts and producing a trial balance Trial balance is prepared on the basis of the closing off the accounts present in the ledger as this statement is prepared for identifying the error present in the ledger account which is identified by considering the closing balance of the account prepared. The trial balance includes the debit and credit closing balances to determine the difference in the account balances. Balances relating to expenses and assets are presented on the debit column whereas the incomes and liabilities are shown on the credit side of the trial balance (Gransby, 2018). The main reason of the closing of the account is to bring the temporary account balance to zero. The closing of account assists in providing the excess of surplus balance either on debit or credit side of the account which helps in preparing the trial balance as this balance are considered for preparing the trial balance. The ledger account are close to determine the closing balance which is used in preparing the statements for the next accounting period. The trial balance is prepared to identify if there is any mistake in preparing the ledger accounts.1.2 The process, limitation of preparing a set of final accounts from a trial balance The Final accounts are prepared on the basis of Trial balance which assist in providing the information about the accuracy of the transaction present in the ledger account. It assists in identifying the error in the ledger account. The process of final account start with recording the information from the trial balance in to the income statement (LEUCIUC, 2018). First the expense which are shown in the trial balance are recorded on the debit side of the trading and profit and loss

statement. Then the incomes in the trial balance are recorded on the credit side of the profit and lossaccount that assist in identifying the net profit of the period. Moreover, the other debit balance of the trial balance are shown on the assets side of balance sheet and the credit balances are shown on the liabilities side on the balance sheet that assist in identify the financial position of the business onthe specific date. By preparing the final accounts from the trial balance can affect the final accountsas if the ledgers are prepared in the wrong manner then the trial balance will show the inaccurate balances which will reduce the accuracy of the final accounts as it will not show the profit and financial position of the firm (ACCOUNTS FOR INCOMPLETE RECORDS, 2017). If there is error of omission in the trial balance will affect the final accounts and will do not reflect the true and fair position of the financial statement.1.3 Methods of constructing accounts from incomplete recordsIncomplete records of the company are those for which the company does not have the accurate information. Account for these records are prepared using the accounting equations. Moreover, For preparing the accounts one aspect of transaction is recorded. The profit and loss statement is prepared by preparing the statement of affairs at the beginning and at the end of period. Moreover, the statement of assets and liabilities is prepared at the beginning and end to ascertain the change in capital. The incomplete records is the situation in which the organisation does not use double entry method of bookkeeping. The single -entry method is used in constructing accounts from the incomplete records. In the incomplete record only the personal accounts are considered. Single- entry system in which either one- sided or no entry is made. In this method of preparing accounts record of cash and personal accounts of debtors and creditors are maintained properly (Nuthall and Old, 2017). In this system information relating to assets, liabilities, incomes and expenses is partially recorded. This method is unsystematic of recording transactions and to determine the net profit information collected from the original vouchers such as sales invoice etc. Ass per this method the profit is estimated as the information is incomplete due to which the profit or loss recorded is estimated.1.4 Reasons for Imbalances resulting from incorrect double entries.The incorrect entries in the journal accounts result into unequal balances due to which thefinal accounts prepared are inaccurate and does not contain the true information relating to thetransactions. The main reasons of the imbalances includes the misappropriation of the amount in thedouble entries will give the inaccurate balances which will affect the final accounts and thus theprofit and loss statement will not show the correct not profit (Rant and et.al., 2017). Moreover, theincorrect transaction in the journal will cause the finals accounts to be inappropriate. Furthermore,

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