(Solution) Prepare final Accounts for Sole Traders and Partnerships

Prepare final accounts for sole
traders and partnerships

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Reasons for closing off and producing trial balance.............................................................1
1.2 Process and limitation of preparing final accounts...............................................................1
1.3 Methods of constructing accounts from incomplete records................................................2
1.4 Reasons for imbalance resulting from incorrect double entries............................................2
1.5 Reasons for incomplete records arising from insufficient data ............................................3
TASK 2............................................................................................................................................3
2.1 Calculation of opening and closing capital...........................................................................3
2.2 Calculation of opening and closing cash/ bank account......................................................4
2.3 Preparation of sales and purchase ledger control account....................................................5
2.4 Mark ups and margins...........................................................................................................6
TASK 3............................................................................................................................................6
3.1 Components of a set of final accounts..................................................................................6
3.2 statement of profit and loss...................................................................................................7
3.3 statement of financial position..............................................................................................8
TASK 4............................................................................................................................................9
4.1 Key components of partnership agreement...........................................................................9
4.2 Key components of partnership accounts...........................................................................10
TASK 5..........................................................................................................................................11
5.1 Statement of profit and loss appropriation account ............................................................11
5.2 The allocation of profit to partners after allowing for interest on capital, interest on
drawings and any salary paid to partner(s)...............................................................................12
5.3 capital and current accounts for each partner......................................................................12
TASK 6..........................................................................................................................................12
6.1 Calculation of closing balance of each partner's capital and current account.....................12

6.2 Statement of financial position............................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Final accounts are the financial statements that are required to analyse organisational
performance, position and financial health (Bain and Band, 2016). It guides the owners to make
appropriate decisions so that business can be operated effectively. Final accounts of partnership
firms and sole proprietorship are same but the profits are divided differently. The ratio of profit
distribution in partnership firms are pre decided by the partners. In a sole proprietorship firm all
the profit will be owned by owner of organization. This report is based on final accounts of sole
trader and partnership firm. Sole trader is the single owner of the company so only income
statement and balance sheet will be generated and in partnership firm with these accounts capital
and current account of partners also prepared. This assignment aims at need and process of
preparing final accounts from incomplete accounting records. Statement of profit and loss
account and financial positions relating to partnership have been created under this report.
TASK 1
1.1 Reasons for closing off and producing trial balance
The main reasons behind closing of revenue and expense accounts is that all accounts can
be recreated next year with zero balance base. The purpose is also to transfer the balances of
temporary accounts to permanent accounts. In closing process only expenses, revenues and
dividend accounts are closed because if their balance is being carried forward by the organisation
than this may create more liabilities (Barrow,Barrow and Brown, 2012).
Trial balance if prepared by the companies to detect mathematical errors in journal or
ledgers. It is also created to prove that all the debit balances are equal to credit balances. If the
total of both the amounts does not match than it depicts that there is an error in the ledger
accounts. Partners or owner of the firm formulate trail balance to analyse arithmetical accuracy
of the transactions.
1.2 Process and limitation of preparing final accounts
Trial balance is prepared for checking the mathematical accuracy. It is a statement in
which all balances of accounts are recorded. First of all, accounts of all the ledgers have been
closed , subsidiary and cash as well as bank account. After that a three column statement is
generated in which balances of all the accounts are recorded. That statement includes particulars,
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