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Trading: buying goods for resale; will hold inventories (stocks of goods)
Manufacturing: converting raw materials to finished products; will hold inventories (stocks) of
R.,
W. and
F..
Transactions of a trading company
200
140
What is the profit on the sale of 70 items?
Matching the cost of goods sold against the amount earned by the sale of the goods.
In accounting, that calculation might be set out as follows:
Financial Accounting
Business transactions of the entity A L = OI
Spreadsheet analysing transactions and events into elements of the accounting equation
Date Transaction or event Assets Ownership interest
Cash Inventory
(stock)
Expense Revenue
Remove 70 items from warehouse to meet customers request
Financial Accounting
Manufacturing goods for resale
Transactions of a manufacturing business
Business transactions of the entity A L = OI
Financial Accounting
Spreadsheet analysing transactions and events into elements of the accounting equation
Date Transaction or event Assets Ownership interest
Cash at
bank
Raw
materials
inventory
(stock)
Work in
progress
Finished
goods
Revenue+ Expenses
Financial Accounting
Using the accounting equation to analyse transactions
A L = OI
Financial Accounting
ASSETS LIABILITIES OWNERSHIP INTEREST
Date Business transactions Cash at
bank
Inventory
(stock of
goods)
Fixed
assets and
receivables
Liabilities Capital
contributed
/withdrawn
Revenue
+
Expenses
May 1
Financial Accounting
Financial Accounting
Statement of cash flows for the month of May Year 20xx
Financial Accounting
In business, it is not always possible to discover the cost of each item sold. There is no time to
pause and collect the information.
Financial Accounting
Statement of financial position (balance sheet) at 31 May Year 20xx
Accounting
equation
Non-current (fixed) assets
Current assets
Debit entries in a
ledger account
Credit entries in
a ledger
account
Left-hand side of the equation
Right-hand side of the equation
Transactions of a trading company: debit and credit entries
Debit Credit
