Cambrige Notes: Income Statement and Statement of Financial Position: Other items

• The Trading and Profit and Loss Account (Income Statement) and Statement of Financial Position are almost always more complex in the real world when compared to the simple statements in these notes
• There are several more factors to be taken into consideration when preparing these final accounts
• These include:
• Sales and Purchases Returns
• Carriage inwards and Carriage outwards
• Opening stock from the previous trading period

Sales and Purchases Returns

• Both these items are dealt with in the Trading Account
• Sales Returns are deducted from the Sales figure
• The result is known as Net Sales or Net Turnover
• It is important to understand that typically Sales Returns only affect Credit Sales and Not Cash Sales
• Purchases Returns are deducted from the Purchases figure in the Trading Account

(Sales-Sales Returns)-(Opening Stock+(Purchases-Purchases Returns)-Closing Stock)=Gross Profit

Carriage Inwards

• Includes all the costs incurred in bringing purchases into the businesses
• For example: courier costs
• transport costs
• Freight charges
• postage costs etc
• Carriage inwards must be added to the cost of purchases in the Trading Account

Carriage Outwards

• These are the costs incurred when goods are delivered to customers
• For example the business might offer customers “free” delivery
• Carriage outwards in not part of the Sales figure
• Carriage Outwards are an expense item in the Profit and Loss Account

Closing and Opening  Stock

• In the second and subsequent years of business most businesses have stock remaining at the end of the year
• This stock is known as closing stock.
• It is deducted from the Total Goods available in the Trading Account
• The closing stock in the preceding year is treated as Opening stock in the subsequent period
• Opening Stock is added to Purchases so as to obtain the Cost of Goods Available in the Trading Account

Other expenses that appear in the Trading Account

• In addition to the items listed above
• The Trading Account must also include items such as import duty (this is added to purchases)
• Transport insurance
• Courier’s handling fees
• Any costs incurred in bringing goods into a salable condition including repairs

To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.