Match each accounting item listed on the left with its correct accounting treatment in the preparation of the Trading Account and Profit and Loss Account of a sole trader.
- Carriage InwardsAdded to cost of purchases in the Trading Account
- Carriage OutwardsCharged as an operating expense in the Profit and Loss Account
- Goods withdrawn by owner for personal useDeducted from total purchases in the Trading Account
- Sales Returns (Returns Inwards)Deducted from gross sales in the Trading Account
Answer
Carriage Inwards matches with 'Added to cost of purchases in the Trading Account'; Carriage Outwards matches with 'Charged as an operating expense in the Profit and Loss Account'; Goods withdrawn by owner for personal use matches with 'Deducted from total purchases in the Trading Account'; Sales Returns matches with 'Deducted from gross sales in the Trading Account'.
Each item is matched to its established financial statement presentation: Carriage Inwards is a direct transport cost added to purchases; Carriage Outwards is an indirect selling expense charged to Profit and Loss; Goods withdrawn for personal use reduce purchases at cost; and Sales Returns are subtracted from gross sales to yield net sales.
Step-by-Step Solution
Key Concept
Classification of accounting items and adjustments in the Trading Account