Final accounts of Sole Proprietorship Notes for ICSE Class 10 Commercial Studies Chapter 9

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Last Updated on August 19, 2024 by sanjjeett

Hello students, we are providing notes for ICSE class 10 commercial studies. The resources for ICSE Commercial Studies are very less. So, to help icse board students we have created chapterwise notes for class 10 commercial studies. In this article, you will find notes for ICSE Class 10 Commercial Studies Chapter 9 Final accounts of Sole Proprietorship. It is a part of Notes for ICSE Class 10 Commercial Studies series.

Chapter	Final accounts of Sole Proprietorship
Type of Material	Notes
Board	ICSE
Class	10
Subject	Commercial Studies
Unit	Unit 3 Finance and Accounting
Useful for	Class 10 Studying Students
Notes provided	Yes
Important Link	ICSE Class 10 Commercial Studies Chapterwise Notes

Notes on Final accounts of Sole Proprietorship for ICSE Class 10 Commercial Studies

Trading Account

In accounting, a trading account is a financial statement that summarizes the buying and selling activities of goods or merchandise during a specific accounting period. It is primarily used by businesses engaged in trading activities, such as retailers and wholesalers, to determine their gross profit or loss from trading operations. The trading account is the first part of the final accounts of a trading concern and is prepared before the preparation of the profit and loss account.

The trading account typically includes the following components:

1. Sales: The total value of goods sold during the accounting period is recorded as sales revenue. It represents the income generated from selling goods to customers.
2. Opening Stock: The value of unsold goods held in inventory at the beginning of the accounting period is recorded as the opening stock. It represents the cost of goods available for sale at the beginning of the period.
3. Purchases: The total value of goods purchased or acquired for resale during the accounting period is recorded as purchases. It includes both cash purchases and credit purchases.
4. Closing Stock: The value of unsold goods held in inventory at the end of the accounting period is recorded as the closing stock. It represents the cost of goods remaining in inventory at the end of the period.

Using these components, the trading account calculates the gross profit or gross loss for the period by comparing the value of goods sold (sales) with the cost of goods available for sale (opening stock + purchases) minus the value of goods remaining in inventory (closing stock).

The formula for calculating gross profit is:

Gross Profit = Sales – Cost of Goods Sold

Where Cost of Goods Sold (COGS) = Opening Stock + Purchases – Closing Stock

If the value of sales is greater than the cost of goods sold, the trading account shows a gross profit. Conversely, if the cost of goods sold exceeds the value of sales, the trading account shows a gross loss.

The trading account provides valuable insights into the profitability of a business’s core trading activities and helps management make informed decisions regarding pricing, inventory management, and overall business strategy. It is an essential tool for assessing the financial performance of trading businesses.

Profit and Loss Account

In accounting, a profit and loss account, also known as an income statement or statement of comprehensive income, is a financial statement that summarizes a company’s revenues, expenses, gains, and losses over a specific accounting period, typically one fiscal year or a quarter. It provides a snapshot of a company’s financial performance and shows whether the company has generated a net profit or incurred a net loss during the period.

The profit and loss account typically includes the following components:

1. Revenue: This section represents the total income earned by the company from its primary business activities, such as sales of goods, rendering of services, interest income, and other operating revenues.
2. Cost of Goods Sold (COGS): This section includes the direct costs associated with producing or acquiring the goods sold by the company. It typically includes the cost of raw materials, direct labor, and manufacturing overhead.
3. Gross Profit: Gross profit is calculated by subtracting the cost of goods sold from the total revenue. It represents the profit earned by the company before deducting operating expenses.
4. Operating Expenses: This section includes all expenses incurred by the company in the course of its normal operating activities, such as salaries and wages, rent, utilities, depreciation, marketing expenses, administrative expenses, and other overhead costs.
5. Operating Income (or Loss): Operating income is calculated by subtracting operating expenses from gross profit. It represents the profit or loss generated by the company from its core operating activities.
6. Other Income and Expenses: This section includes any additional income or expenses not directly related to the company’s primary business operations. It may include gains or losses from the sale of assets, interest income, interest expenses, and other non-operating items.
7. Profit Before Tax (PBT): Profit before tax is calculated by adding or subtracting other income and expenses from operating income. It represents the company’s profit or loss before deducting income taxes.
8. Income Tax Expense: This section represents the company’s income tax liability for the accounting period based on its taxable income.
9. Net Profit (or Loss) for the Period: Net profit is calculated by subtracting income tax expense from profit before tax. It represents the company’s profit or loss for the accounting period after accounting for all expenses and taxes.

The profit and loss account provides valuable insights into a company’s financial performance, profitability, and efficiency in managing its operations. It is an essential tool for investors, creditors, and management for evaluating the company’s financial health and making informed decisions.

Balance Sheet

In accounting, a balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time, usually at the end of a reporting period such as a fiscal year or quarter. It presents a summary of a company’s assets, liabilities, and shareholders’ equity, also known as owner’s equity or net worth. The balance sheet follows the fundamental accounting equation:

Assets = Liabilities + Shareholders’ Equity

The balance sheet is divided into two main sections:

1. Assets:
   Assets represent the resources owned by the company that have economic value and are expected to provide future benefits. They are classified into two categories based on their liquidity and nature:
   a) Current Assets: Current assets are assets that are expected to be converted into cash or used up within one year or the normal operating cycle of the business, whichever is longer. Examples include cash and cash equivalents, accounts receivable, inventory, prepaid expenses, and short- term investments.
   b) Non-current Assets (or Fixed Assets): Non-current assets are assets that are expected to provide economic benefits beyond one year or the normal operating cycle of the business. Examples include property, plant, and equipment (PP&E), long-term investments, intangible assets such as patents and trademarks, and long-term prepaid expenses.
2. Liabilities:
   Liabilities represent the company’s obligations or debts to third parties, including creditors, suppliers, and lenders. Like assets, liabilities are also classified into two categories:

a) Current Liabilities: Current liabilities are obligations that are due and payable within one year or the normal operating cycle of the business, whichever is longer. Examples include accounts payable, short-term loans, accrued expenses, and deferred revenue.

b) Non-current Liabilities: Non-current liabilities are obligations that are not due for settlement within one year or the normal operating cycle of the business. Examples include long- term loans, bonds payable, deferred tax liabilities, and pension obligations.

3. Shareholders’ Equity:

Shareholders’ equity represents the residual interest in the assets of the company after deducting its liabilities. It represents the amount of capital contributed by the shareholders plus retained earnings, which are the accumulated profits or losses generated by the company since its inception. Shareholders’ equity is calculated as:

Shareholders’ Equity = Total Assets – Total Liabilities

The balance sheet provides important information about a company’s financial health, liquidity, solvency, and overall financial strength. It is used by investors, creditors, analysts, and management to assess the company’s ability to meet its financial obligations, its leverage or debt levels, and its capacity for future growth and profitability.

Also check

• Sources of Raising Capital Notes for ICSE Class 10 Commercial Studies Chapter 13
• Capital Market Notes for ICSE Class 10 Commercial Studies Chapter 12
• Budgeting Notes for ICSE Class 10 Commercial Studies Chapter 11
• Costs Notes for ICSE Class 10 Commercial Studies Chapter 10
• Final accounts of Sole Proprietorship Notes for ICSE Class 10 Commercial Studies Chapter 9
• Capital and Revenue Notes for ICSE Class 10 Commercial Studies Chapter 8
• E-commerce Notes for ICSE Class 10 Commercial Studies Chapter 7
• Consumer Protection Notes for ICSE Class 10 Commercial Studies Chapter 6
• Advertising and Sales promotion Notes for ICSE Class 10 Commercial Studies Chapter 5
• Pricing Notes for ICSE Class 10 Commercial Studies Chapter 4
• ICSE Class 10 Commercial Studies Notes
• Product and Service Notes for ICSE Class 10 Commercial Studies Chapter 3
• Marketing Notes for ICSE Class 10 Commercial Studies Chapter 2
• Stakeholders in Commercial Organisations Notes for ICSE Class 10 Commercial Studies Chapter 1

Topics covered in ICSE Class 10 Commercial Studies Chapter 9 Final accounts of Sole Proprietorship

8.1	Meaning and preparation of Trading account
8.2	Profit and Loss account, and Balance sheet based on the given trial balance with the adjustment of closing stock only
8.3	Preparation of manufacturing account
8.4	Profit and loss on sale of assets
8.5	Intangible and fictitious assets

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