Determining Profit or Loss

To determine whether a profit or loss has been made for a reporting period, the Profit and Loss Summary ledger is used.  This ledger matches the revenue earned for the reporting period with the expenses incurred in earning that revenue.

Net profit or net loss is the final profit or loss made by a business after taking into account all revenues and expenses for a reporting period. At the end of that reporting period, profit needs to be transferred to the owners account.

The closing entries, prepared at the end of the accounting period, perform two functions:

1. They close off individual revenue and expense accounts ready for the next reporting period

2. They transfer the balances of the revenue and expense accounts relating to that period to the Profit and Loss Summary ledger so that net profit or net loss can be determined.

There are four steps to follow as part of the process for determining profit or loss in the ledger at the end of a reporting period:

1. Close revenue accounts to the Profit and Loss Summary account
2. Close expense accounts to the Profit and Loss Summary account
3. Transfer the balance of the Profit and Loss Summary account to the Capital account. A debit balance in the Profit and Loss Summary account represents a profit and a credit balance is a loss.
4. Transfer Drawings to Capital and then balance the Capital account.

Example

For the attached set of ledgers, the following General Journal entries would be required to determine profit or loss in the General Ledger.

General Journal
Date	Details	Debit	Credit
Jun30	Sales	90,000
	Profit and Loss Summary		90,000
	Closing revenue accounts
	Profit and Loss Summary	60,000
	Cost of Sales		48,000
	Marketing Expenses		7,000
	Administrative Expenses		5,000
	Closing expense accounts
	Profit and Loss Summary	30,000
	Capital		30,000
	Transfer of net profit to capital
	Capital	26,000
	Drawings		26,000
	Transfer of drawings to capital

Profit and Loss Statement

The above format shows the correct layout for the profit and loss statement to adjusted gross profit. It is necessary to include all the items that are part of ‘getting stock into a condition and location ready for sale’ as part of the calculation of cost of goods sold.

Stock Losses and Gains

1. What is the role of a physical stocktake?
2. How is a stock loss / stock gain is recorded in the stock card.
3. In times of rising prices, how is a stock loss / stock gain treated in the stock card?
4. Show the General Journal entry required to record a stock loss / stock gain.
5. What is the effect of a stock loss / stock gain on assets, liabilites and owner’s equity?

Unit 4 Accounting Exam

All outcomes in Unit 4 will be examined.

All of the key knowledge and skills that underpin the outcomes is examinable.

Students will be required to apply the knowledge and skills of the accounting processes undertaken in Units 3 and 4. Students will not be required to calculate ratios used for analysis in the examination.

Students will not be required to use information and communications technology (ICT) in the examination.

All questions are compulsory.

The examination will be set by a panel appointed by the Victorian Curriculum and Assessment Authority.

Format

The examination will consist of two questions.

Students will complete the examination using a structured answer booklet.

Conditions

The examination will be completed under the following conditions:

• Duration: one and a half hours.

• Date: end-of-year, on a date to be published annually by the Victorian Curriculum and Assessment Authority.

• Victorian Curriculum and Assessment Authority examination rules will apply. Details of these rules are published annually in the VCE and VCAL Administrative Handbook.

• The examination will be marked by a panel appointed by the Victorian Curriculum and Assessment Authority.

Contribution to final assessment

The examination will contribute 33 per cent to the study score.

Past examination papers are available from the VCAA website

Mid-year Exam Result

This week VCE Accounting students around Victoria received their results for the recent June mid-year Accounting exam. Results my class at Waverley Christian College were extremely encouraging with 50% of the class (7 out of 14 students) receiving an A+ in the externally set and assessed examination. This is a real testimony to the dedication, commitment and hard work put in by my students. They have remained focused the whole year and worked together to support, encourage and spur each other on. Well done everyone! Click here to see the grade distributions in the accounting exam for the whole state.

Unit 3 Accounting Exam

The mid-year accounting examination contribute 33 per cent to the subject’s study score.

Duration: One and half hours.

All outcomes in Unit 3 will be examined. All of the key knowledge and skills that underpin the outcomes is examinable. The examination will assess a representative sample of the key knowledge and skills in Unit 3.

The examination will consist of two scenarios from which a series of questions will be derived. These questions will require students to apply the knowledge and skills of the accounting processes undertaken in Unit 3. Students will not be required to use information and communications technology (ICT) in the examination.

All questions are compulsory.

Students will complete the examination using a question book and an answer book.

Approved materials

Students sitting for examinations are permitted to bring normal stationery into the examination. This includes pens, pencils, highlighters, erasers, sharpeners and rulers.

Correction (white out) liquid/tape and blank sheets of paper are not allowed in any examination.

For Accounting, students are expected to bring specific materials into the examination as follows:

·        pencil (should be used where calculations are performed)

·        a scientific calculator.

Assessment criteria

The examination will address all of the criteria. All students will be examined against the following criteria.

1.      Understanding and appropriate use of accounting terminology.

2.      Understanding of the concepts and principles underlying the recording and reporting of financial data and information.

3.      Understanding of classification within the recording and reporting process.

4.      Knowledge of recording and reporting of financial data and information.

5.      Application of recording and reporting techniques to given scenarios.

6.      Analysis of the impact of the recording process on the business.

The examination will be set by a panel appointed by the VCAA.

The examination will be marked by a panel of assessors appointed by the VCAA.

Past Accounting examination papers are available from the VCAA website.

Balance Day Adjustments

When preparing the financial reports at the end of the reporting period the accountant will carry out adjustments to the accounts, which will ensure a closer matching of revenue and expenses for the reporting period. It is very important that only revenue earned and expenses incurred relevant to the reporting period are included.

The following is a list of balance day adjustments that may be necessary at the end of a reporting period.

·       Inclusion of expenses incurred but not yet paid or recorded (Accrued Expenses)

·       Elimination of expenses already paid but which relate to a future period (Prepaid Expenses)

·       Inclusion of revenue earned but not yet received or recorded (Accrued Revenue) (Covered in Unit 4)

·       Elimination of revenue received but which will not be earned until some future period (Prepaid Revenue) (Covered in Unit 4)

·       Adjustment for stock loss or gain

·       Depreciation of non-current assets.

Accounting Cadet Programs

An option you might like to consider if you are thinking about a career in Accounting, is a cadet program with one of Australia’s big Accounting firms. Cadet positions provide students with the opportunity to gain practical experience whilst studying at university over a period of four years. Whilst there are various cadet programs, they usually involve students working full-time and studying part-time throughout their first two years of university. The last two years of study is then undertaken full-time at university and is subsisdised by the accounting firm. On successful completion of their degree, cadets then have the opportunity to return to full-time employment with the accounting firm at a level higher than their Graduate peers.

Click here for information on Cadetships with Ernst & Young.

Accounting For Stock

 

It is important for any business (whether it is a large organisation or a sole trader business) to know how much and what type of stock they have on hand. Stock refers to all the goods a retailer has in store. It includes all items on the shelves and fixtures and all items in the storage areas.

The aim of stock control is to try to balance the amount of goods a retailer has in the store against the amount of sales that the store makes. A business will try to maximise it’s stock turnover while carrying the least amount of stock possible. Not enough stock leads to lost sales. Too much stock could lead to the need for marking down the stock in order to turn it over, which reduces the margin.

An effective stock control system will minimise stock loss through reducing errors, reducing waste and minimising theft. It will help reduce the costs associated with stock loss, increase sales and ultimately increase profits.

Efficient stock control reduces the risk of accidents and injury through good housekeeping, as well as reducing the costs of insurance, workers’ compensation payments and the time lost by injured staff. Having a neat, tidy clean store creates a very good impression with the customers, encouraging them to enter the store and make a purchase. It also helps staff feel positive and enjoy their working environment.

Efficient stock control, including stock rotation systems, means old stock does not accumulate and pass the use-by date or become obsolete or out of fashion.

In summary, efficient stock control policies and procedures reduce costs, increase sales and therefore increase profit.

 

Accounting Humour

Even though we follow the Accounting Principle of Conservatisim in our work as Accountants, we’re not all conservative. Watch this video for a bit of a laugh!