TOTAL CHILD SCHOOL, PORT HARCOURTWEEK: 6
TOPIC: TRADING, PROFIT AND LOSS ACCOUNT
CLASS: JSS3
GENDER: MIXED
AVERAGE AGE: 12 YEARS
DURATION: 2 PERIODS (40min. for each period)
REFERENCE: WABP junior secondary business studies book 3 and
Classic business studies book 3
BEHAVIOURAL OBJECTIVES: By the end of the lesson, students should be able to:
PREVIOUS KNOWLEDGE: the students have been taught trial balance
Biblical Objective: To accurately determine business performance through proper trading and profit and loss accounts, ensuring honesty, accountability, and wise decision-making.
Biblical Truth: God expects faithfulness and integrity in measuring gains and losses, using results wisely rather than deceitfully.
Bible Verse: “Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?” — Luke 14:28 (NIV)
LESSON CONTENT
STEP 1: TRADING ACCOUNT: This is a final account which is prepared mainly to determine the gross profit or gross loss a certain trading period.
The title of trading account is “ Trading Account for the year ended 31st Dec. 20…”
PURCHASES: Purchases can be defined as goods bought for resale.
Purchases must be debited to trading account.
SALES: This is the amount collected and expected from goods sold.
OPENING STOCK: This is the value of goods in the store or warehouse at the beginning of an accounting period e.g January 1st, 2010.
CLOSING STOCK: Closing stock is the value of goods in the store or warehouse at the end of the trading period e.g Dec. 31st 2010.
RETURN OUTWARDS OR PURCHASES RETURN: These are goods returned to the suppliers. It must be deducted from the purchases for the period.
RETURN INWARDS OR SALES RETURN
These are goods returned by the customers. It must be deducted from sales for the period.
CARRIAGE INWARDS: This is the cost of transporting goods to the goods to the company. It is added to purchases.
CARRIAGE OUTWARD: This is the cost of transporting goods to the customers. It is called carriage on sales and must be treated as expenses.
COST OF GOODS AVAILABLE FOR SALE: This is amount arrived at after adding the purchase to opening stock.
i.e opening stock + purchases = cost of goods available for sale.
COST OF GOODS SOLD: This is the cost of goods actually sold
This is cost of goods available for sale – closing stock.
i.e opening stock + purchases – closing stock.
GROSS PROFIT: This can be defined as the profit arrived at before the expenses are deducted. This is the excess of sales over the cost of goods sold.
Gross profit or gross loss = net sales – cost of goods sold.
GOODS WITHDRAWN FOR OWNER’S USE
The goods withdrawn by the owner of the business is deducted from the purchases in the trading account. In the balance sheet. It must be added to drawings.
GOODS STOLEN OR DESTROYED: This is deducted from the purchases and posted to the expenses side of the profit and loss.
STEP 2: ITEMS OF TRADING ACCOUNT
1. Opening stock
2. Purchases
3. Closing stock
4. Return outward
5. Carriage inward
6. Cost of goods available for sale
7. Cost of goods sold
8. Sales
9. Returns inward
10. Gross profit or gross loss.
STEP 3: FORMAT OF TRADING ACCOUNT
Trading Account for the year ended 31st Dec. 1998
N N
Opening stock x Sales x
Add purchases x less return inward x x
Add carriage inward x
X
Less returns outwards x X
Cost of gds avail for sale x
Less closing stock x
Cost of goods sold x
Gross profit x
Xx xx
STEP 4 ILLUSTRATION
Prepare trading account given
N N
Stock 2, 368
Carriage inwards 310
Return inwards 205
Sales 18,600
Purchases 11,874
Stock at 31st Dec. 1996 was N3,000.
TRADING ACCOUNT FOR THE YEAR ENDED 31ST December 1996
N Opening stock 2,368 Purchases 11874 Add carriage inward 310 12,184
Cost of gds available 14,552 Less closing stock 3000 Cost of gds sold 11552 Gross profit 6843 18395 | N Sales 18,600 Less return inward 205 18395
18395 |
RATE OF TURNOVER: This is the number of times the average stock of a business is sold or replaced.
We can calculate the rate of turnover using the formula:
Cost of goods sold
Average stock
Average stock = opening stock + closing stock
2
EVALUATION
ASIGNMENT: The following information has been extracted from the books of Akinbode Enterprises
N
Sales 50,000
Opening stock 5,000
Purchases 20,000
Returns outward 1,000
Closing stock 2,500
Carriage inwards 2,500
Returns inward 2,500
You are required to prepare the trading account of the business for the year ended 31st Dec. 2010.