Preparing Trading and Profit and Loss Account and the Balance Sheet

To prepare a proper Trading and Profit and Loss Account and a Balance Sheet, one needs

complete information about expenses, incomes, assets and liabilities. In incomplete records, some

figures — such as cash purchases, cash sales, other cash payments and receipts, and the closing

balances of creditors and debtors — are readily available, but many others have to be worked out

indirectly, using the logic of double entry. The items that are most commonly missing and have

to be ascertained are:

• Opening capital
• Credit purchases
• Credit sales
• Bills payable accepted
• Bills receivable received
• Payments to creditors
• Payments to debtors
• Any other cash / bank related items.

Opening capital is found by preparing the statement of affairs at the beginning of the year. …