Trading Accounts

1. Trading Accounts

2. Aims & objectives The trading account • Purpose of the trading account • The trading period • Net sales/net purchases • Trading and non-trading stock • Stocktaking* • purpose • procedure • valuation of stock • Cost of goods sold • Gross profit/loss • On completion students should be able to: • Present appropriate (simple) reports on stock and stocktaking* • Record stock in accounts • Calculate closing stock as per accounts* • Operate the trading account in accordance with conventions of double entry* • Prepare a trading account from given data • Interpret information presented in a trading account* • Calculate gross profit percentage

3. The trading Account A Record of the goods or services that were traded by a business during the previous trading period.

4. The trading Period the length of time the final accounts are prepared for. Usually one year But May be any length of time Q2 page 346

5. Gross profit / Gross loss The difference between the total sales during the period and the total amount it cost the firm to purchase and prepare the goods for sale • Sales - Cost of Sales

6. Cost of sales The total amount it cost the firm to produce the goods they actually sold. • (Opening Stock+ Purchases + Carriage Inwards + Import Duty) - Closing Stock

7. Cost of goods available for sale The total amount it cost the firm to produce the goods they actually sold + stock not sold yet (Opening Stock+ Purchases + Carriage Inwards + Import Duty) Or Cost of sales + Closing Stock

8. Items on the trading account Sales The value of the goods sold Sales Returns(returns in) The value of goods sold which were returned to the firm.

9. Items on the trading account Purchases The cost of goods purchased. Purchase Returns (returns out) The value of goods purchased which were returned by the firm.

10. Items on the trading account Opening Stock The cost of goods held in stock at the start of the period Closing Stock The cost of goods held in stock at the end of the. period.

11. Items on the trading account Carriage Inwards Transport costs of bringing goods into the factory.

12. Items on the trading account Import/Custom Duties Any taxes which the firm had to pay on goods they purchased from certain other countries.

13. Sample question Sales €37,500 Purchases €18,000 Sales Returns €280 Purchases Returns €340 Opening Stock €2,200 Carriage Inwards €20 Customs Duties €50 Direct Wages €100 Closing Stock €6,000.

14. Net Sales = Sales - Sales Returns Solution Net Purchases = Purchases - Purchase Returns Cost of goods available = Opening Stock + Net Purchases + carriage in + duty + direct wages Cost of sales = cost of goods available - closing stock Gross Profit = Net Sales - Cost of sales

15. Trading Account of Dean Ltd for year ended 31 December 2010

16. Q4 Trading Account of Clancy Ltd for year ended 31 December 2006

17. Q5 Trading Account of o grady Ltd for year ended 30 nov 2006

18. Q6 Trading Account of o delaney Ltd for year ended 30 nov 2006

19. Q7 Trading Account of o delaney Ltd for year ended 30 nov 2006

20. Q8 Trading Account of hillside complexLtd for year ended 30 nov 2006

21. Q12 Trading Account of hillside complexLtd for year ended 30 nov 2006

22. Items on the trading account Net Sales Sales - Sales Returns Net Purchases Purchases - Purchases Returns

23. Valuing stock The price the firm paid for the goods (cost) Except If the selling price lower than cost I.e. if the goods have gone out of fashion

24. Stock control • ensure there is neither too much nor too little stock at any particular time

25. Problems of overstocking • Money tied up in stock should be earning interest • The stock may go out of date or out of fashion. • Warehouse and insurance costs • More security staff needed • Risk of pilferage

26. Problems with under stocking • Sales are lost • Profits are lost • Customers are lost • Warehouse space is wasted.

27. SETTING UP A STOCK CONTROL SYSTEM • Code every item in stock. • Decide the correct level of stock for each item. • Develop a method of recording stock. • Carry out regular stocktaking.

28. Stock terms • Optimum level = Ideal stock level • Minimum level = the lowest quantity that stock allowed fall to

29. Stock terms • Maximum level = the quantity which stock levels must not exceed • Reorder quantity = the quantity ordered each time

30. Stocktaking • means counting the amount of stock in the warehouse at a particular time. • This should be done at least once a year

31. Computerised Stock control • When a business is computerised, the Stock Quantity and value is always up to date. • purchase invoices are keyed into the system - automatically increasing stock levels and adjusts the cost price if necessary. • Each time a product is sold the bar code on the product is scanned and the stock count of the product is reduced by one • The computer can generate orders if stock falls below minimum level

32. Stock take procedure • Close The warehouse • Divide it into sections • Assign two people to each section. • One counts & the other records • Check & total stock sheets • hand to the person in charge who produces rpt.

33. Mark-Up and Margin Cost + profit = Selling Price Mark-up and margin are expressed as percentages. E.G. Cost price €100 Selling price €120 ... Profit = €20 Mark-up - Profit expressed as a percentage of cost. Margin - Profit expressed as a percentage of selling price.