Thank you for the lecture. Correct me if I am wrong – so in the beginning of the year, the cost of sales was 30000 of opening inventory, then you had additional 120,000 of purchases (which gives us 150,000). the closing inventory is what you had left at the end of the year (4000) and that’s mean you the gross cost of sales is 110,000?
For a sole trader, there is no ‘exact’ format, but what is in the lecture is the normal format. For limited companies there are strict rules and the format of the SOPL for limited companies is explained in a later lecture.
It is where the bank allows your normal current account to go negative. For example, suppose that at the moment I have $100 in the bank. I then go and spend $150 from my bank account. So my balance is now minus $50 (we say that I am $50 overdrawn).
I can only do this if the bank has given me permission to go negative/overdrawn – they will usually set a maximum amount allowed, depending on how good a customer I am.
They will charge interest on the overdrawn amount because they are effectively lending me money. It is only for short-term borrowing from the bank.
Hi. If a share holder in a limited liability company (or a sole proprietor) decides to give the company money (to help with revenue expenditure) and money is repaid to the shared holder / sole proprietor at a later date, will that also considered to payment of dividend or drawing (in the case of a sole proprieter )?
I know you mention that if an owner takes money from they business its drawings but what if they also work for the business in a management position. Are they still taking drawings when they pay themselves say a monthly.
The other question is if someone who owns a stake in a company(for example 30%) and works can take a salary and also draw money from the business.
If it is a sole trader (i.e. not a limited company) then anything the owner takes is drawings, even if they do work for the business.
If it is a limited company then anyone working for the company is paid a salary and there is no such things as drawings. If they also own shares in the company then they will get paid a dividend. This is all explained in the later lectures on limited companies.
Knowledge is one thing but imparting it is to master the art of teaching. This is something very special that not many people can do. I aspire to be as good of a teacher as you. Everything is broken down and explained clearly as if we were 4 year olds. Richard Feynman would be proud. Who thought I would genuinely find a subject as menial as accounting so much fun. Absolute Godsend
Sir, I have always struggled with these basic knowledge of accounting as subject but never took an active decision to learn them. As I am preparing for my March Financial Reporting exam, I planned to get my basics knowledge concrete. I find it more empowering to know actually what is going on in accounts. Makes me feel more confident. Thank you sir.
Is this just an unspoken rule, that you would look at the header and automatically know, and/or is it up to the person who creates the FS P&L as you said it can vary depending on the company.
Firstly, the layout in this lecture is for a sole trader – not for a limited companies (limited companies are covered in a later chapter and the layout of their financial statements is a little different and is dictated by law).
Second, you cannot be asked to prepare a set of financial statements in the Paper FA exam, but you could be presented with statements (or extracts from them) for either a sole trader a limited company in the exam, and so you should know how they are likely to be shown in the exam.
kyrb88says
OK, I think this is understood. Thank you
vaishali22says
Brilliant explanation, very easy to understand. Thank you!
BJakhongiRB says
Thank you for the lecture it was great but could you please explain me how cost of sales here related to sales revenue: $180 000
keroppii says
Thank you for the lecture. Correct me if I am wrong – so in the beginning of the year, the cost of sales was 30000 of opening inventory, then you had additional 120,000 of purchases (which gives us 150,000). the closing inventory is what you had left at the end of the year (4000) and that’s mean you the gross cost of sales is 110,000?
John Moffat says
You are correct (and is what I show in the lecture) except for the fact that the closing inventory is 40,000 and not 4,000.
halima2023 says
Really thanking much for the well detailed teaching .
John Moffat says
Thank you for your comment ๐
githerety says
Is that the exact format for the statement of profit or loss
John Moffat says
For a sole trader, there is no ‘exact’ format, but what is in the lecture is the normal format. For limited companies there are strict rules and the format of the SOPL for limited companies is explained in a later lecture.
arajabov-391 says
I have a little problem. Can you explain fully definition of bank overdraft
John Moffat says
It is where the bank allows your normal current account to go negative.
For example, suppose that at the moment I have $100 in the bank. I then go and spend $150 from my bank account. So my balance is now minus $50 (we say that I am $50 overdrawn).
I can only do this if the bank has given me permission to go negative/overdrawn – they will usually set a maximum amount allowed, depending on how good a customer I am.
They will charge interest on the overdrawn amount because they are effectively lending me money. It is only for short-term borrowing from the bank.
blue87 says
Thank you
John Moffat says
You are welcome ๐
slimreaper says
Hi. If a share holder in a limited liability company (or a sole proprietor) decides to give the company money (to help with revenue expenditure) and money is repaid to the shared holder / sole proprietor at a later date, will that also considered to payment of dividend or drawing (in the case of a sole proprieter )?
John Moffat says
No. It is a loan to the company which is then repaid.
Judith99 says
Can investments be classified as a liability?
John Moffat says
If the business has made an investment then it is an asset.
slake says
Hello,
I know you mention that if an owner takes money from they business its drawings but what if they also work for the business in a management position. Are they still taking drawings when they pay themselves say a monthly.
The other question is if someone who owns a stake in a company(for example 30%) and works can take a salary and also draw money from the business.
Look forward to hearing from you.
Thanks
John Moffat says
If it is a sole trader (i.e. not a limited company) then anything the owner takes is drawings, even if they do work for the business.
If it is a limited company then anyone working for the company is paid a salary and there is no such things as drawings. If they also own shares in the company then they will get paid a dividend. This is all explained in the later lectures on limited companies.
Dekim says
Hi, sir what is the effect of return inward and return outward on statement of profit orloss
John Moffat says
They are both explained in a later lecture ๐
SwissCheese says
Knowledge is one thing but imparting it is to master the art of teaching. This is something very special that not many people can do. I aspire to be as good of a teacher as you. Everything is broken down and explained clearly as if we were 4 year olds. Richard Feynman would be proud. Who thought I would genuinely find a subject as menial as accounting so much fun. Absolute Godsend
John Moffat says
Thanks for your comment ๐
sepid8968 says
Thanks for your great teaching
John Moffat says
Thank you for your comment ๐
desilvaandrew says
Flawless teaching ! Very grateful !
John Moffat says
Thank you for your comment ๐
shobinya says
Sir,
I have always struggled with these basic knowledge of accounting as subject but never took an active decision to learn them. As I am preparing for my March Financial Reporting exam, I planned to get my basics knowledge concrete. I find it more empowering to know actually what is going on in accounts. Makes me feel more confident. Thank you sir.
Asif110 says
Sir, you are the best finance and accounts teacher I have been blessed with. I am really grateful to God you as a teacher are there.
Abebe.Walcott says
I’m from the island Jamaica and i must admit for a newbie, these lessons are very straight forward and got me hooked even more to accounting.
John Moffat says
Thank you for your comment ๐
kasie666 says
saaaammmmmeeeeeee lol
kandiero says
Rent Received & Interest received is it not part of the trading account?
Ruqayyah.Chitbauhal says
Can you help for this question?
Usefulness of indirect method for statement of cash flow for stakeholders?
John Moffat says
It helps them understand the relationship between the various financial statements.
surajnagesh says
Hi sir, so in terms of accounting the word “Purchases” means any good bought for resale.
In terms of accounting what would a purchase of non current asset be labeled ?
Thanks and kind regards.
surajnagesh says
Okay, please disregard the above.
I went through the next lecture and understood what you call the purchase of a non current asset.
A Capital expenditure.
๐
Asif110 says
You are the best finance and accounts teacher I have been blessed with. I am really grateful to God you as a teacher are there.
John Moffat says
Thank you for your comment ๐
kyrb88 says
When you are crediting and deducting from the right column, I don’t understand why you wouldn’t put the deduction as a minus. Such as;
Sales Rev – (110,000)
70,000
Gross Profit – 11,000
81,000
Expenses – (31,000)
50,000
Is this just an unspoken rule, that you would look at the header and automatically know, and/or is it up to the person who creates the FS P&L as you said it can vary depending on the company.
Thank you
kyrb88 says
Apologies, summary should be:
Sales Rev โ 180,000
Cost of Sales (110,000)
70,000
Gross Profit โ 11,000
81,000
Expenses โ (31,000)
Net Profit – 50,000
John Moffat says
Firstly, the layout in this lecture is for a sole trader – not for a limited companies (limited companies are covered in a later chapter and the layout of their financial statements is a little different and is dictated by law).
Second, you cannot be asked to prepare a set of financial statements in the Paper FA exam, but you could be presented with statements (or extracts from them) for either a sole trader a limited company in the exam, and so you should know how they are likely to be shown in the exam.
kyrb88 says
OK, I think this is understood. Thank you
vaishali22 says
Brilliant explanation, very easy to understand. Thank you!
John Moffat says
Thank you for your comment ๐