Prepare Final Accounts of Sole Traders & Partnership
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Added on 2020-11-23
Prepare Final Accounts of Sole Traders & Partnership
Added on 2020-11-23
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Prepare Final Accountsof Sole Traders andPartnership
Table of ContentsINTRODUCTION...........................................................................................................................5TASK 1............................................................................................................................................51.1 Identify reasons for closing off accounts and producing a trial balance...............................51.2 Explain the process, and limitations, of preparing a set of final accounts from a trialbalance.........................................................................................................................................61.3 Describe the methods of constructing accounts from incomplete records............................71.4 Reasons for imbalances resulting from incorrect double entries...........................................81.5 Reasons for incomplete records arising from insufficient data and inconsistencies.............8TASK 2............................................................................................................................................92.1 Calculation of closing and opening capital using incomplete information...........................9Capital account:.........................................................................................................................92.2 Calculation of opening and closing cash/ bank account balance.........................................112.3 Preparation of sales and purchase ledger control accounts.................................................122.4 Calculation of account balances using mark ups and margins............................................13TASK 3..........................................................................................................................................133.1 Description of components of a set of final accounts for a sole trader................................133.2 Formulation of statement of profit and loss.........................................................................143.3 Formulation of statement of financial position....................................................................15TASK 4..........................................................................................................................................164.1Description of key components of a partnership agreement................................................164.2 Describe these key components of partnership accounts:...................................................16TASK 5..........................................................................................................................................175.1 Profit and loss account for a partnership.............................................................................175.2 Allocation of profit to partners after allowing for interest on capital, interest on drawingsand any salary paid to partner....................................................................................................185.3 Capital and current accounts of each partner.......................................................................18TASK 6..........................................................................................................................................196.1 Calculation of closing balances according to per capital and current accounts of eachpartner, including drawings.......................................................................................................196.2 Statement of Financial position as per compliance with partnership agreement.................20
INTRODUCTIONIn current time period, final accounts are developed by all business venture whether theyare sole trader, partnership firm and associations so it can help in analysing actual position andsituation of company. Along with this, it is essential for an organisation is to follow all theinstructions which are developed by country regulatory bodies so that financial statement can beformed in required format (.Russell-Jones, 2014). There are different types of accounts which areformulated by company in better manner. It includes profit and loss account, P&L appropriation,partner's capital, trading, balance sheet, partner's capital and current account etc. In sole traders,all the profits are required by owners and such firm are distributed to the partners in definedratio. The main purpose of this assignment is to describe about such needs and procedure ofdeveloping final accounts, make accounting records with the help of inappropriate informationand develop final accounts for sole traders. TASK 11.1 Identify reasons for closing off accounts and producing a trial balanceClosing off accounts:Closing off are entries that are prepare at the end of accounting period at Zero out alltransactions and transfer it into permanent accounts. On other words permanent accounts are thatare use for track accounting activities during the accounting period. In that accounts activitiesshould be track for longer time period in comparison to accounting period.Reasons for closing off accounts:Closing entries have some purposes of formation in which includes all revenues andexpenses should be defined in at last of closing entries (Paterson, 2016). The second reason offraming closing off accounts is income and revenues that earned by organisation go into retainedearnings with assumption that income of a year is held for future use. Closing entries eliminatesthe amount retained by amount paid out to the investors. With help of closing accounts it showsincrease in revenues in previous year and it shows decrease in payments and expenses inorganisation.Trial balance:Trial balance is bookkeeping worksheet in that balance of ledger should be compiled indebit and credit column and at last its total should be equal. Company prepare its trial balance
periodically, generally end of the reporting period. Purpose of trial balance is to bookkeepingsystem of organisation should be metamathematical correct.Reasons of framing trial balance:There are some important reasons of producing trial balance that are as follows:Helpful in find out transposition errors:sometimes in accounting transition errors occurs in that case trial balance helps in findout mistakes. It finds out differences of debit and credit balance and find out loop falls incalculations.Mis calculation error:These types of error and mistakes occurs due to the wrong calculation by candidates,when both sides of trial balance will not find with each other (Reid, 2018). If ledger balance isnot match correctly then it also creates problem in trial balance also. Duplication errors:sometimes during the calculation an individual take two times ledger balances in thatcase trial balance can not match. So it helps in find out duplication errors.Omission errors:when an individual at the time of calculation forget to put down ledger balance in trialbalance, then trial balance not match (Maynard, 2017). In that case all ledger account should bechecked and then it have to send in trial balance.Find out wrong side error:It helps in correct the errors when an individual at the time of calculation incorrectlywrite debit balances as credit balance in ledger account or in trial balance.1.2 Explain the process, and limitations, of preparing a set of final accounts from a trial balance.Trial balance is record in books in which all ledger accounts should be recorded, there aresome limitations and chain of activities that helps in accuracy in project. That are as follows:Process of preparing a final account:There are some specified steps of preparing final accounts in which includes beforestarting to prepare trial balance get ruler so that wrong facts and figures should be avoided anddecide in right way that each item is going in final account such as manufacturingaccount,trading account, income statements( profit and loss account) and Balance sheets allimportant components should be keenly observed. Before preparing it should be considered that
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