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Prepare Final Accounts of Sole Traders and Partnership

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Added on  2020-10-23

Prepare Final Accounts of Sole Traders and Partnership

   Added on 2020-10-23

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Prepare Final Accountsof Sole Traders andPartnership
Prepare Final Accounts of Sole Traders and Partnership_1
Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Reasons for closing off accounts and producing a trial balance...........................................11.2 Process and limitations of preparing a set of final accounts.................................................21.3 Methods of constructing accounts from incomplete records................................................21.4 Reasons for imbalances resulting from incorrect double entries..........................................31.5 Reasons for incomplete records arising from insufficient data and inconsistencies.............4TASK 2............................................................................................................................................42.1 Calculation of closing and opening capital using incomplete information...........................42.2 Calculation of opening and closing cash/ bank account balance..........................................52.3 Preparation of sales and purchase ledger control accounts...................................................62.4 Calculation of account balances using mark ups and margins..............................................7TASK 3............................................................................................................................................73.1 Description of components of a set of final accounts for a sole trader.................................73.2 Formulation of statement of profit and loss..........................................................................83.3 Formulation of statement of financial position.....................................................................9TASK 4..........................................................................................................................................114.1Description of key components of a partnership agreement................................................114.2 Description of key components of partnership accounts....................................................12TASK 5..........................................................................................................................................125.1 Preparation of statement of profit and loss appropriation account.....................................125.2 Determination of allocation of profits to parters.................................................................145.3 Preparation of capital and current accounts for each partner..............................................14TASK 6..........................................................................................................................................156.1 Calculation of closing balances on each partner's capital and current accounts.................156.2 Preparation of statement of financial position....................................................................15CONCLUSION..............................................................................................................................16REFERENCES..............................................................................................................................17
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INTRODUCTIONFinal accounts are formulated by all the business entities whether it is sole trader,corporate organisation or partnership firm as it can guide to analyse actual position and situationof the company. It is very important for all the enterprises to follow set guidelines of regulatoryauthorities of the country so that financial statements can be formulated in a set format. There arevarious types of accounts that are created by firms (Whiteley, 2017). These are trading, profitand loss, P & L appropriation, partner's capital and current account, balance sheet etc. In soletraders all the profits are acquired by the owner and in firms these are distributed to the partnersin a predetermined ratio. In this project report various topics are discussed such as needs andprocess of preparation of final accounts, formulation of accounting records with the help ofincomplete information and preparation of final accounts for sole traders. Legislative andaccounting requirements for partnership, formulation of P & L appropriation account andstatement of financial position are also covered in this assignment.TASK 11.1 Reasons for closing off accounts and producing a trial balanceIn all the business entities various ledger accounts such as income, expenses, sales,purchase, assets, liabilities are closed every year and then trial balance is generated. There arevarious reasons for closing off all of them are as follows:All of them are closed because balance of temporary account is transferred to permanentas they are generated for a specific financial period.Another reasons behind closing off is to determine that firm is generating profits or lossesfor a specific time period (Storey and et.al., 2016).Trial balance is produced to analyse that all the transactions are recorded accurately ornot.While formulating trial balance all the mathematical errors are detected that are madeduring the preparation of ledger and journals.Accountants may analyse the mistakes that are made by them previously in ledgeraccounts with the help of this statement.1
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1.2 Process and limitations of preparing a set of final accountsTrial balance is a statement in which closing balance of all ledger accounts is recorded.Process and limitation of formulating it are as follows:Process of generating final accounts:Firstly all the figures of trial balance and other information are analysed by theaccountants..Then items according to their nature are recorded in trading and Profit & loss account arerecorded. If there is any adjustments related to the transactions then these are consideredto calculate adjusted amount. In case of partnership firm profits are distributed to partnersand then their current and capital account are generated.Assess and liabilities are recorded in balance sheet and any type of provisions,depreciation are deducted from themAt last profits or losses are calculated and transferred to the balance sheet. It is alsoanalysed that both the column have same balance or not. If it does not match then itmeans mistakes are made during the formulation process of final accounts (Russell-Jones,2014). Limitations of Trial balance:Trial balance is not able to analyse all types of errors such as a transaction in whichwrong amount is recorded in both the related accounts. It may create issues whileformulation of final accounts as accurate amount cannot be recorded in the profit or lossaccount.In trial balance only errors can be determined it is not possible to assess their reasonsfrom this statement it will result in inappropriate final accounts as they are generated onthe basis of information which is recorded in it.The mistakes that are made by not following the right accounting principles. When theseare not considered then final accounts are not considered accurate (Trial balance and itslimitations, 2014).1.3 Methods of constructing accounts from incomplete recordsIn business entities different types of methods are used to construct accounts fromincomplete records available to the accountants. All of them are described below:2
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