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Why Net Assets and the Capital Section on the Balance Sheet are Equal - Lab Report Example

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In the report, it is stated that the trial balance is used to list the accounts and their respective balances. It provides assurance that the debits and credits are mathematically equal after posting. Moreover, it can also be used to prepare the company’s financial statements such as the balance sheet and profit and loss.
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Why Net Assets and the Capital Section on the Balance Sheet are Equal
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Download file to see previous pages Using a table format, all the account names are written on the leftmost side of the trial balance. Two columns are then prepared on the right side of the account names. The left column is the debit side. The right column is the credit side. The balance of each account is then written either on the debit side or the credit side. The totals of the debit and credit balances are then calculated and compared to ensure that both amounts are equal.
The trading account shows the company’s gross profit or gross loss during the period. It shows how profitable the company is if one just takes into consideration the company’s direct expenses. It also enables the financial statement user to calculate the gross profit rate for any given period of time.
The trading account shows two major accounts: the cost of goods sold on the debit side and the sales on the credit side. The cost of goods sold shows the total direct cost incurred by the company. It includes the amounts of the opening stock, the purchases during the period, returned purchases, discounts received on purchases and the closing stock. The sales include the amounts of the sales and the sales returns and allowances.
The two major categories of the trading account are the sales (the credit side) and the cost of goods sold (the debit side). The net sales amount is calculated by deducting the sales returns and the sales discount from the sales amount. The cost of goods sold amount is calculated by adding total purchases during the period to the opening stock amount and then deducting the amounts of the returned purchases, the discounts received and the closing stock. Gross profit or gross loss is then calculated by deducting the cost of goods sold from the net sales.
The profit and loss account shows the overall profit or loss of the company for a given period. It shows gross profit or loss during the period and all indirect expenses during the same period. The profit and loss account is used to assess the overall profitability of the company. ...Download file to see next pagesRead More
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