FINANCIAL ACCOUNTING
,F- HAA .NET At AEEQ.UA/FtNnG-
• CHAPTER ONE •
[ Nature And Objectives Of Accounting ]
, HINA .NET#lAEEQuUAlFtNnG-
•
CHAPTER 10
10.1 THE NATURE OF PROFIT
•
main objective of entity =
show profit by selling goods / services
◦
profit =
compensation for initiatives from management 's side t compensation to owners for risk taken to invest in entity
AMT
•
PROFIT =
AMT RECEIVED FOR SALE -
PAID FOR GOOD
( income ) -
( expenses )
10.2 PROFIT DETERMINATION OF SERVICE -
PROVIDING ENTITIES
'
uses its assets , incurs expenses t applies skills / expertise to provide service
°
profit =
estimated by comparing income earned w/ expenses incurred in same period .
General ledger acc -
service
income xxx
income -
income ace .
plus : other income xxx
other income -
income ace .
less : expenses (x x x ) less : expenses
-
expense ace .
XXX
PROFIT
NET PROFIT -
convenience Used in closing -
off
S
ace
to make
reporting
.
easier
10.3 PROFIT DETERMINATION OF TRADING ENTITIES
PROFIT
•
traceries =
parch good to sell for
inventory @
is ↑
objective =
sell price ASAP t as many as possible
G- ROSS PROFIT =
RETURN ON SALES -
C -
O -
S
General ledger accounts : trade
sales sales returns ]
sales income count
xxx
-
( xxx )
less C O S convenience account
-
: -
( xxx )
-
less : C -
O -
S
trade account
_
✗✗✗
Gross profit lconvenienceacc )
G- ROSS PROFIT .
✗ ✗ ×
other income -
income account
plus : other income ✗✗ ✗
( xxx )
expense
-
less expenses account
( xxx )
:
less : trade expenses
p/ 1 account
(convenience
-
✗ ✗ ✗ NET PROFIT acc )
PROFIT
10.4 CONVENIENCE ACCOUNTS
During closing off certain created easier reporting
•
-
process =
accounts =
for
CONVENIENCE ACCOUNT ITEMS INCLUDED IN THE ACCOUNT PURCHASE OF THE ACCOUNT
•
cost Of sales opening stock, parch
, closing stock determine C -
O -
S
1- other items affecting cost of inv .
> trade account >
sales / C -
O 's > determine G- P
>
profit / loss account > G- P
,
other operating inc .
/ exp .
> determine Profit for period
period
•
Thus
,
income state . items =
grouped into 1 acc to determine p/1 for .
10.5 DETERMINING GROSS PROFIT
•
GP =
profit earned frm entity 's primary operations
Rie
R
.
Sales 15000 Sales 15000
profit frm equip-1 .
Sold 2000 less : C -
O -
S 11250
GROSS 3750
rent income 1500 PROFIT
c. 0 -
s 11250 v. determined separately
: indication of performance of
int . paid 800
trading entity regarding primary operations [ selling goods @ a profit ]
V ◦
advertising costs 300 '
expressed as a o of sales / cost price
V. aims G- Pi [ included
salaries 1400 entity =
for predetermined .
in budget ] s actual GPI .
=
determined periodically t
compare to
budgeted G- Pt .
, FINANCIAL AEEQ.UA/FtNnG- .
•
CHAPTER 10
the following factors play actual GP explains diff btwn BUDGETED / ACTUAL GP :
a role in
determining t
=
.
>
actual sales prices t discount allowed
>
actual purchases + discount received
>
loss of goods
>
accuracy of stock
taking + measurement of inventory .
G- P I. On sales price :
G- ROSS PROFIT 100
✗
sales ,
G- P -1. on cost price :
G- ROSS PROFIT 100
×
I
cost of sales
ie .
GP =
consistently realized @ 20 -1 .
On COST PRICE .
sale for year =
R 90000
CP G- p 100T
'
t =
SP . . 20 =
120
a) calculate C O S- -
100
=
90 000 ✗ 120 R 75000
,
b) calculate GP
20
=
90 000 × 120 R 15000
,
ie . GP =
consistently realised @ 20% on SP . Sales for the year
= R 90000
G- P
'
CP t =
SP . .
80 t 20 = 100
a) calculate C O S
- -
80
=
90 000 ✗ 100 R 72
000g
b) calculate GP
90000 ✗ ¥0 = R 18 000
,
10.6 ESTIMATING C. 0 'S
•
by determining G- P :
only CP of goods sold ( c. 0 -
s ) = matched w/ sales of corresp .
goods
inv
opening . xxx
plus : punch @ CP ✗✗ ✗
cost of items avail . for sale xxx
less :
closing inv .
( xxx )
COST OF SALES XXX
10.7 THE CLOSING PROCESS
@
•
end of financial period s
ledger accounts regarding income state . items =
merged in convenience accounts to calc . Pll for period which ↑ or ↓ in
equity
•
General convenience accounts :
>
C. O -
S
>
trade account
>
profit and loss
CLOSING -
OFF PROCESS =
ILLUSTRATE AS FOLLOWS :
> CRJ > PJ > PRT
> > >
CPJ 5J SRJ
Closing -
Off an exp :
Dr :
expense
CR :
p/ I
,F- HAA .NET At AEEQ.UA/FtNnG-
• CHAPTER ONE •
[ Nature And Objectives Of Accounting ]
, HINA .NET#lAEEQuUAlFtNnG-
•
CHAPTER 10
10.1 THE NATURE OF PROFIT
•
main objective of entity =
show profit by selling goods / services
◦
profit =
compensation for initiatives from management 's side t compensation to owners for risk taken to invest in entity
AMT
•
PROFIT =
AMT RECEIVED FOR SALE -
PAID FOR GOOD
( income ) -
( expenses )
10.2 PROFIT DETERMINATION OF SERVICE -
PROVIDING ENTITIES
'
uses its assets , incurs expenses t applies skills / expertise to provide service
°
profit =
estimated by comparing income earned w/ expenses incurred in same period .
General ledger acc -
service
income xxx
income -
income ace .
plus : other income xxx
other income -
income ace .
less : expenses (x x x ) less : expenses
-
expense ace .
XXX
PROFIT
NET PROFIT -
convenience Used in closing -
off
S
ace
to make
reporting
.
easier
10.3 PROFIT DETERMINATION OF TRADING ENTITIES
PROFIT
•
traceries =
parch good to sell for
inventory @
is ↑
objective =
sell price ASAP t as many as possible
G- ROSS PROFIT =
RETURN ON SALES -
C -
O -
S
General ledger accounts : trade
sales sales returns ]
sales income count
xxx
-
( xxx )
less C O S convenience account
-
: -
( xxx )
-
less : C -
O -
S
trade account
_
✗✗✗
Gross profit lconvenienceacc )
G- ROSS PROFIT .
✗ ✗ ×
other income -
income account
plus : other income ✗✗ ✗
( xxx )
expense
-
less expenses account
( xxx )
:
less : trade expenses
p/ 1 account
(convenience
-
✗ ✗ ✗ NET PROFIT acc )
PROFIT
10.4 CONVENIENCE ACCOUNTS
During closing off certain created easier reporting
•
-
process =
accounts =
for
CONVENIENCE ACCOUNT ITEMS INCLUDED IN THE ACCOUNT PURCHASE OF THE ACCOUNT
•
cost Of sales opening stock, parch
, closing stock determine C -
O -
S
1- other items affecting cost of inv .
> trade account >
sales / C -
O 's > determine G- P
>
profit / loss account > G- P
,
other operating inc .
/ exp .
> determine Profit for period
period
•
Thus
,
income state . items =
grouped into 1 acc to determine p/1 for .
10.5 DETERMINING GROSS PROFIT
•
GP =
profit earned frm entity 's primary operations
Rie
R
.
Sales 15000 Sales 15000
profit frm equip-1 .
Sold 2000 less : C -
O -
S 11250
GROSS 3750
rent income 1500 PROFIT
c. 0 -
s 11250 v. determined separately
: indication of performance of
int . paid 800
trading entity regarding primary operations [ selling goods @ a profit ]
V ◦
advertising costs 300 '
expressed as a o of sales / cost price
V. aims G- Pi [ included
salaries 1400 entity =
for predetermined .
in budget ] s actual GPI .
=
determined periodically t
compare to
budgeted G- Pt .
, FINANCIAL AEEQ.UA/FtNnG- .
•
CHAPTER 10
the following factors play actual GP explains diff btwn BUDGETED / ACTUAL GP :
a role in
determining t
=
.
>
actual sales prices t discount allowed
>
actual purchases + discount received
>
loss of goods
>
accuracy of stock
taking + measurement of inventory .
G- P I. On sales price :
G- ROSS PROFIT 100
✗
sales ,
G- P -1. on cost price :
G- ROSS PROFIT 100
×
I
cost of sales
ie .
GP =
consistently realized @ 20 -1 .
On COST PRICE .
sale for year =
R 90000
CP G- p 100T
'
t =
SP . . 20 =
120
a) calculate C O S- -
100
=
90 000 ✗ 120 R 75000
,
b) calculate GP
20
=
90 000 × 120 R 15000
,
ie . GP =
consistently realised @ 20% on SP . Sales for the year
= R 90000
G- P
'
CP t =
SP . .
80 t 20 = 100
a) calculate C O S
- -
80
=
90 000 ✗ 100 R 72
000g
b) calculate GP
90000 ✗ ¥0 = R 18 000
,
10.6 ESTIMATING C. 0 'S
•
by determining G- P :
only CP of goods sold ( c. 0 -
s ) = matched w/ sales of corresp .
goods
inv
opening . xxx
plus : punch @ CP ✗✗ ✗
cost of items avail . for sale xxx
less :
closing inv .
( xxx )
COST OF SALES XXX
10.7 THE CLOSING PROCESS
@
•
end of financial period s
ledger accounts regarding income state . items =
merged in convenience accounts to calc . Pll for period which ↑ or ↓ in
equity
•
General convenience accounts :
>
C. O -
S
>
trade account
>
profit and loss
CLOSING -
OFF PROCESS =
ILLUSTRATE AS FOLLOWS :
> CRJ > PJ > PRT
> > >
CPJ 5J SRJ
Closing -
Off an exp :
Dr :
expense
CR :
p/ I
