POA term 2

• Assets are debited.
• Liabilities are credited.
• Purchases are debited.
• Sales are credited.
• Expenses are debited.
• Revenues are credited.
• Returns inward is debited.
• Returns outward are credited.
• Drawings are debited.
• Capital is credited.
• Provisions are credited.
• Bad Debts are debited.
• The Income Statement is a statement that is prepared for a sole trader to calculate the profits with the information taken from the trial balance. This statement is made up of five sections.
• Section 1: Net Sales - This section is made up of your sales and returns inwards. In this instance returns inwards is also called sale returns.
• Net Sales = Sales - Returns Inward
• Net sales also means final sale.
• Gross means not final.
• Section 2: Net Purchases - This section is made up of purchases, carriage inwards and returns outward.
• Carriage inwards is the money you spend on transport.
• Net Purchases = Purchases + Carriage inwards - Returns outward
• Section 3: Cost of goods available for sale - This section is made up of opening inventory and net purchases.
• Cost of goods available for sale = Opening inventory + Net Purchases
• Opening inventory - the inventory owned at the start of the year.
• Closing inventory - the inventory owned at the end of the year.
• Section 4: Cost of goods - This section is made up of cost of goods available for sale and closing inventory.
• Cost of goods sold = Cost of goods available for sale - Closing inventory
• Section 5: Gross Profit - This section is made up of Net Sales and Cost of goods sold.
• Gross Profit = Net Sales - Cost of goods sold
• Section 6 - Total Revenues: This section is made up of Gross profit and revenues.
• Total Revenues = Gross Profit + Revenues
• Section 7 - Net Profit: This section is made up Total Revenues and Expenses
• Net Profit = Total Revenues + Expenses