This being a trading business, the first step is to open a trading account for the purpose of finding the gross profit. The accounts now in the ledger to be closed into trading account are merchandise, inventory, and purchases, which are entered on the debit side; and sales account, which is entered on the credit side. The present inventory is now entered on the credit side; the two sides of the account are footed; and the difference or balance represents the gross gain or loss.
13. The trading account shows a credit balance or gross profit of $92.00. This balance is now closed into profit and loss, being entered on the credit side. The only revenue account now open is expense, which shows a debit balance of $38.00. This is a revenue expenditure, representing a loss, and is therefore transferred to the debit or loss side of profit and loss account.
Profit and loss shows a credit balance or net profit of $54.00. The balance closes into the account of the proprietor, where it is entered on the credit side increasing his net investment to $1,487.00.
NOTE—Complete postings from page 4 of the journal.
14. A balance sheet should now be prepared; and if our work is correct in every particular, the present worth will correspond in amount with the net investment shown by the proprietor's account.
| Balance Sheet, Nov. 30 | |||
| Assets | |||
| Cash | $535.62 | ||
| Accounts Receivable | 57.63 | ||
| ———— | |||
| $593.25 | |||
| Merchandise Inventory | 1,042.77 | 1,042.77 | 1,636.02 |
| ———— | |||
| Liabilities | |||
| Sundry Accounts Payable | 149.02 | 149.02 | |
| ———— | |||
| Present Worth | $1,487.00 | ||
Closing Entries, Trading and Profit and Loss Accounts