Compiling Revenue Accounts Step By Step
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
Once you have labelled each item in the trial balance according to where it will go in the final accounts you can put together your revenue accounts as follows.
- 1.Write in the next available space in the ‘particulars’ column of the journal: ‘sales’.
- 2.In the debit column, enter the balance of your sales account.
- 3.Beneath the last entry in the ‘particulars’ column, write: ‘trading account’ (indenting it slightly).
- 4.Enter the same figure in the credit cash column.
- 5.In the next space in the ‘particulars’ column, write: ‘trading account’.
- 6.Enter in the debit/cash column the balance of your purchases account.
- 7.Write in the next space in the ‘particulars’ column (indenting slightly) the name of the account from which you are transferring (in this case ‘purchases’) and enter the value of purchases in the credit cash columns.
- 8.Repeat steps 5 to 8 for each of the other categories in the ‘cost of sales’ equation (see page 77).
- 9.When you have made all the entries relating to the trading account, write beneath them: ‘To close revenue and expense accounts and transfer the balances to the trading account’.
- 10.Now do the same for any other income accounts (items other than ‘trading income’, e.g. rents). Debit the accounts concerned. Credit your profit and loss account.
- 11.Now do the same for each of the overhead expense accounts. Debit your profit and loss account and credit each account concerned.
- 12.When you have made all the entries for your profit and loss account, write underneath: ‘To close expense accounts and transfer balances to profit and loss account.’
- 13.Now post to the ledger, including a trading, profit and loss account, exactly following the instructions you have just written in your journal (see page 42 for ledger posting). The trading, profit and loss account can be seen as two divisions of the same account, since they are written on the same page. The balance of the fomer is brought down to the latter, and marked: ‘Gross profit b/d’ (see opposite page, top).
- 14.Total up and balance all the ledger accounts concerned. This will mean closing all but the trading profit and loss account (except where an accrual or prepayment is present).
- 15.Mark the balance of profit and loss account: ‘Net profit c/d to capital account’.