Lesson Notes By Weeks and Term - Junior Secondary School 3

TERM: 2ND TERM

SUBJECT: BUSINESS STUDIES

CLASS: JSS 3

WEEK THREE

TOPIC: TRADING ACCOUNT

Content:

1. Definition of Trading Account
2. Purpose of Trading Account
3. Terminologies Involved in the Preparation of Trading Account
4. Working Exercise (Trading Account)

Definition of Trading Account: The Trading Account can simply be defined as an account prepared after the preparation of the trial balance in order to ascertain either the gross profit or gross loss of a trading concern.

Purpose of Trading Account: The purpose of preparing the trading account is to ascertain the profitability or otherwise of the business i.e. to arrive at the gross profit or gross loss of a business.

Terminologies Involved in The Preparation of The Trading Account

1. Opening Stock: This is the value of the goods in stock at the beginning of a trading period.
2. Purchases: This is the value of both cash and credit purchases (ie total purchases) during a given trading period.
3. Purchases Returns or Returns Outwards: This is the value of goods which a business returned to its supplies for one reason or the other.
4. Net Purchases: This is equal to total purchases less returns outwards or purchases less purchases returns for a given trading period.
5. Cost Of Goods Available for Sale: This is arrived at by adding purchases to opening stock and deducting purchases returns (if any) from the above addition.
6. Closing Stock: This is the value of goods left unsold at the end of a given trading period.
7. Cost of Goods Sold: This is arrived at as follows:-

Opening stock + Purchases – Returns

Outwards – Closing stock or (cost of goods available for sales less closing stock).

1. Gross Profit: This is the excess of the net sales over cost of goods sold.
2. Gross Loss: This is the excess of cost of goods sold over the net sales.
3. Net Sales: This is equal to sales or sales revenue ie (cash and credit sales) less sales return or return inwards.
4. Returns Inwards or Sales Returns: This is the value of all goods returned by the customers of a business as not acceptable to them due to one reason or the other.
5. Sales: This is the total value of all cash and credit sales of a business in a given trading period.
6. Carriage Inwards: This is the carriage on purchases 

Working Exercise of a Trading Account

Question: From the following trial balance of Diligent Stores Ltd, Draw up a trading for the year ended 31st December 2009:-

PARTICULARS                                                                      

Stock at 31st December 2009 was N3, 000           

SOLUTION

DILIGENT STORES LTD

Trading, Profit & Loss Account For The Year Ended 31st December 2009

NOTE: The above trading account is prepared using the conventional or “T” method. The vertical method will be used later.

EVALUTION

1. Write a short note on trading account
2. State the purposes of preparing a profit and loss account.

READING ASSIGNMENT 

Business Studies by O.A. Lawal. Pages 72 to 76.

GENERAL REVISION QUESTIONS

1. What is a petty cash book? 
2. Mention three items that can appear in the petty cash book.
3. Who keeps the petty cash book?
4. Define imprest system.
5. What is the amount of money given to the petty cashier at the beginning of the period called?

WEEKEND ASSIGNMENT:

1. A return outward is __________ Purchases A. added to   B.  deducted from C.  Similar to    

1. not related to. 

1. Purchases returns is the same as    A.  purchases journal B. Returns outwards C.  net sale   D.  Returns outwards journal.
2. Which of the following statements is correct? A.  Net sales = sale + sale returns B.  Cost of goods sold = opening stock + closing stock C.  Gross profit = Net sales – cost of goods sold   D.  None of the above.
3. Which of the following is posted to trading account?  A.  Carriage outwards B.  Carriage inward   

1. Rent    D.  Discount received.

1. Which of the following equations is correct? A.  Net profit = Gross profit + other incomes – total expenses   B.  Net sales + closing stock = gross profit C.  opening stock + closing stock = cost of sales   D.  Sales – purchases = Net profit.

THEORY

1. Write short notes on Trading Account   

2. Prepare a format of a Trading Account showing its items