Download Frank Wood*s Business Accounting 1 Twelfth Edition

Slide 9.1
Chapter 9
Income statements and
statements of financial position:
further considerations
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.2
Learning objectives
After you have studied this chapter, you should
be able to:
• Explain the terms returns inwards, returns
outwards, carriage inwards and carriage
outwards
• Record returns inwards and returns outwards
in the income statement
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.3
Learning objectives (Continued)
• Explain the difference between the treatment
of carriage inwards and carriage outwards in
the income statement
• Explain why carriage inwards is treated as part
of the cost of purchasing goods
• Explain why carriage outwards is not treated
as part of the cost of purchasing goods
• Prepare an inventory account showing the
entries for opening and closing inventory
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.4
Learning objectives (Continued)
• Prepare an income statement and a statement
of financial position containing the
appropriate adjustments for returns, carriage
and other items that affect the calculation of
the cost of goods sold
• Explain why the costs of putting goods into a
saleable condition should be charged to the
trading account
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.5
Returns inwards and outwards
• The sales account deals with goods sold.
• The returns inwards account deals with goods
returned by customers.
• The purchases account deals with goods
purchased.
• The returns outwards account deals with
goods returned to the supplier.
• All four of these accounts need to be included
in a profit calculation.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.6
Gross profit calculation
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.7
The income statement
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.8
Carriage
• When goods are delivered by suppliers or sent
by customers the cost of transporting the
goods is often an additional charge to the
buyer – this charge is called ‘carriage’.
• When carriage is charged on goods purchased,
it is called carriage inwards.
• When carriage is charged on goods sent out, it
is called carriage outwards.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.9
Carriage in the accounts
• To ensure that the true cost of buying goods
for resale is always included in the calculation
of gross profit, carriage inwards is always
added to the cost of purchases in the trading
account.
• Carriage outwards is always entered in the
profit and loss account section of the income
statement. It is never included in the
calculation of gross profit.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.10
The income statement
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.11
Activity
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.12
Activity (Continued)
We also need to know the closing stock
figure for the year end, which was £5,500.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.13
Activity (Continued)
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.14
Activity (Continued)
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.15
Learning outcomes
You should have now learnt:
1.That returns inwards should be deducted from
sales in the trading account
2.That returns outwards should be deducted
from purchases in the trading account
3.That carriage inwards is shown as an expense
item in the trading account
4.That carriage outwards in shown as an
expense in the profit and loss account
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.16
Learning outcomes (Continued)
5. How to prepare the inventory account and
carry forward the balance from one period to
the next
6. That in the second and later years of a
business, both opening and closing inventory
are brought into the trading account
7. That it is normal practice to show cost of goods
sold as a separate figure in the trading account
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 9.17
Learning outcomes (Continued)
8. How to prepare an income statement that includes the
adjustments for carriage inwards and both opening and
closing inventory in the trading section and carriage
outwards as an expense in the profit and loss section
9. That expense items concerned with getting goods into a
saleable condition are charged in the trading account
10. That where there is import duty or insurance charged
on goods purchased, these costs are treated as part of
the cost of goods sold
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012