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Prepare Final Accounts for Sole Traders and Partnerships

   

Added on  2020-10-05

17 Pages4525 Words110 Views
Prepare final accounts for soletraders and partnerships

Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Identification reason for closing off the accounts and producing a trial balance................11.2 Presenting the process and limitation of preparation of final accounts with the help oftrail balance.................................................................................................................................21.3 Presenting the methods for account preparation from incomplete records..........................31.4 Presenting the reasons of imbalances resulting from incorrect double entry......................31.5 Defining the reasons for incomplete records arising from insufficient and inconsistenciesof the data provided.....................................................................................................................4TASK 2............................................................................................................................................42.1 Opening/closing capital of ABC Ltd.....................................................................................42.2 Opening/ closing bank account balance ...............................................................................52.3 Different ledger accounts of Romelu for year ended 31st December 2020 ........................52.4 Accounting balances through markup and margins..............................................................6TASK 3............................................................................................................................................63.1 Describing the components of set of accounts for a sole trade...........................................63.2 P&L of sole trader.................................................................................................................63.3 Balance sheet of sole trader for year ended 31 December 2020..........................................7TASK 4............................................................................................................................................84.1 Presenting key components of partnership agreement..........................................................84.2 Explaining key factors of partnership accountant................................................................9TASK 5............................................................................................................................................95.1 P&L account of partnership .................................................................................................95.2 and 5.3 Capital, Current account and Allocation of profits of partners.............................10TASK 6..........................................................................................................................................116.1 and 6.2 Calculation of partner capital account and financial statement...........................11CONCLUSION..............................................................................................................................12

INTRODUCTIONThere are different types of business organization under which business activities arecarried out by the owners of firm. Two of them are sole trader and partnership firm, the formerone is run an operated by a single person rather the latter one is carried out by two or moreindividuals. The final accounts reflect the financial position and performance of a businessthrough various financial statements. The present reports discuss on needs and process relatedwith preparation of final accounts. Along with his the legislative requirement to be fulfilled foraccounting of partnership firm is also resented. Further diffident types of financial statement andaccount are prepared for sole trader and partnership with the given information and data. TASK 11.1 Identification reason for closing off the accounts and producing a trial balanceReason for Closing off Accounts: The reason for closing of each and every ledgeraccount is done with a closing entries in each account. This takes place at the end accountingcycle as a set of trial journal entries. This serve as a purpose of transferring the balances of thetemporary accounts to zero. The process transfers these temporary account balances topermanent entries on the company's balance sheet. Temporary accounts that close each cycleinclude revenue, expense and dividends paid accounts (Bagleyand Abubaker, 2017). The mainpurpose served by closing entry is to reconcile the accounts of the company. The closing entriesare also recorded so that the retained earnings account of the organisation display actual rise inrevenues from the previous year and also shows any decreases from dividend payments andexpenses. However, the assets, Liabilities and owner's equity accounts are not closed. These arepermanent accounts and their ending balance act as the beginning balance for the comingfinancial year. The main reason being closing of the account is to reconcile the revenues andexpenses in trial balance and to start then ext years accounts with nil balance. Reason for preparing the Trial balance: This is a statement presenting the closingbalance of ledger account for a specific time period ans this is the first step in the process ofpreparation of final statement (Norman, 2017). The trial balances are prepared at the end ofaccounting/financial year. The ledger balances are segregated in the debit side rated with assetsand expenses rather the credit side of this statement contains balances of liabilities, capital,income accounts. The reason for preparation of trial balances is to ensure that every debit entry is1

recorded to a corresponding credit entry has been recorded in the books of account as per thedouble entry book keeping accounting system (Burcal, Trier and Wikstrom, 2017). The total ofthe trial balance if do not match, an investigation is done to see the reason of difference and sameis resolved before preparation of the final statements. This ensures that there is a chance of errorand omission in the financial statement prepared for an income year.1.2 Presenting the process and limitation of preparation of final accounts with the help of trailbalancePreparation of final account with the help of trial balance: Final accounts are defined as income statement and balance sheet of an organisation withtaking amount and figures form the trial balance year for an income year. The profits and lossaccounts are prepared by taking the revenues and expenses from the trial balances. Thisstatement is need to be prepared before preparation of balance sheet as the amount of net incomefrom this account is to be filled in the equity section. The net profits in P&L account shows theincrease or decrease in the values of equity of owner (Ekhasemomhe, 2016). After this thebalance is prepared by taking the amounts of assets and liabilities from the trial balance.Balances of all assets reflecting on the debit side of trial balance are posted on the asses side andthe credit balances of liabilities are posted n the liability side of the balance sheet. This giventhe total of both side to equate in case the amount do not equals certainly there is a mistake ofsomething has been left out. The closing balance that is net gain/loss is recorded in balance sheetto equate the both the sides. Limitation of this process:The process of taking the balances form the trial balances includes preparation of incomestatement and balance sheet. A minor error or omission in the trial balance reflects directly inthe final accounts of the organisation. In case a transaction is completely missed which was noteven journalised, can effect the final and profit or looses of the firm this can give misleadingfinal figures about the financial performance of the business (Hinks, Fohrbeck and Meager,2015). The major drawback the process of preparation of the financial statement from the trialbalances is it need significant level of precision to mitigate the changes of any error or omissionwhich is not possible practically. The procedures also do not provide substantial means to detect2

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