Opening Inventory 1,00,000 Purchases 6,72,000 Carriage Inwards 30,000 Wages 50,000 Sales 11,00,000 Returns inward 1,00,000 Returns outward 72,000 Closing Inventory 2,00,000 From the above information, prepare a Trading Account of M/s. ABC Traders for the year ended 31st March, 2017 and Pass necessary closing entries in the journal proper of M/s. ABC Traders.?

Question

Answer

Trading Account of M/s. ABC Traders for the year ended 31st March, 2017

| Particulars | Amount (in Rs.) |
| --- | --- |
| Opening Inventory | 1,00,000 |
| Add: Purchases | 6,72,000 |
| Add: Carriage Inwards | 30,000 |
| Less: Returns Outward | 72,000 |
| Cost of Goods Available for Sale | 7,30,000 |
| Less: Closing Inventory | 2,00,000 |
| Cost of Goods Sold | 5,30,000 |
| Gross Profit (Sales - Cost of Goods Sold) | 5,70,000 |

Journal Entries:

1. For Closing Inventory:

Closing Inventory A/c (Asset) 2,00,000
To Trading A/c (Expense) 2,00,000

2. For Gross Profit:

Trading A/c (Expense) 5,70,000
To Gross Profit A/c (Revenue) 5,70,000

Explanation:

The trading account is prepared to determine the gross profit or loss of a business. It includes all direct expenses like purchases, carriage inwards, wages, and returns inward, and indirect expenses are excluded. In this case, the opening inventory of M/s. ABC Traders was Rs. 1,00,000, purchases were Rs. 6,72,000, and carriage inwards were Rs. 30,000. The cost of goods available for sale was Rs. 7,30,000, and the closing inventory was Rs. 2,00,000. Therefore, the cost of goods sold was Rs. 5,30,000, and the gross profit was Rs. 5,70,000.

The closing entry for inventory is made to transfer the value of unsold inventory from the trading account to the balance sheet. The closing entry for gross profit is made to transfer the gross profit from the trading account to the profit and loss account.

Answer

H

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