This article explains the procedure for preparing a worksheet for the following types of business:

  • Service rendering concerns
  • Trading concerns

Preparation of Worksheet for Service Rendering Concerns

Service rendering concerns are businesses that earn revenue from rendering services. The worksheet procedure for a service rendering concern is explained using the following example.

Example

Assuming that the books are closed monthly, prepare a worksheet for John Dry Cleaning Services from the following trial balances and adjustments on 30 April 2017:

  • Cash $8,460
  • Capital $10,015
  • Unexpired rent $1,200
  • Salaries paid $2.005
  • Revenue from services $5,250
  • Insurance expense paid in advance $500
  • Supplies in hand $2,000
  • Furniture $2,100
  • Equipment $4,000
  • Accounts payable $1,000
  • Telephone charges $1,000
  • Electricity charges $150

The adjustments are as follows:

  • Unexpired rent $1,000
  • Unpaid salaries $195
  • Services revenue receivable $750
  • Insurance expense for the month $200
  • Supplies consumed $500

Solution

Adjusting Entries Solution 1
Worksheet Solution 1

Preparation of Worksheet for Trading Concerns

Trading concerns are businesses that deal in selling and buying merchandise. In trading concerns, merchandise is purchased from the wholesale market or direct from the producer.

Merchandise is sold in the retail market at comparatively higher prices. Trading concerns derive a major part of their income from buying and selling merchandise rather than from rendering services.

Example

From the trial balance and adjustments shown below, prepare a worksheet.
Trial Balance For Trading Concern

Adjustments are as follows:

  • Closing inventory $2,500
  • Rent expenses $500
  • Depreciation charged on machinery $2,400
  • Advertisement payable $700
  • Rent earned $400

Solution

Adjusting Entries Solution 2
Worksheet Solution 2

Frequently Asked Questions

What are trading concerns?

Trading concerns are businesses that deal in selling and buying merchandise. In trading concerns, merchandise is purchased from the wholesale market or direct from the producer. Merchandise is sold in the retail market at comparatively higher prices. Trading concerns derive a major part of their income from buying and selling merchandise rather than from rendering services.

Are there other types of businesses?

Trading concerns are the only type of business that buy and sell merchandise. Service rendering concerns involve rendering services for a fee. They do not buy or sell goods at wholesale or retail prices.

What is required for starting a trading concern?

For starting a trading concern, apart from the internal factors there are external factors that are required for starting a trading concern. One of the external factors is having capital to start with. This implies that one has the financial capacity to purchase inventory. Another important factor is selling space or location for retailing merchandise. Factoring all these, one should be able to decide whether there's enough demand for the goods that will be bought and sold.

What are the advantages of operating trading concerns?

There are opportunities to make profit in trading concerns, since they purchase goods for resale at higher prices. Since there is also the possibility of making profit from volume sales, markets with high volume transactions can be explored by traders. One other advantage is that trading concerns are also in a position to sell goods on consignment basis. This kind of selling helps the business owner evade the risk of over purchasing or holding inventory, which is often perishable.

What are the disadvantages of operating a trading concern?

One disadvantage is that profits cannot be made without incurring losses. The trading business involves risk of overstocking or under stocking, which leads to wastage or loss in value respectively. Therefore, there's no guarantee that goods purchased will always be sold at profit since this depends on the buying and selling prices. Another disadvantage is that the business requires large capital inputs for purchase of inventory, Fixed Assets like building or machinery and Working Capital like cash or stocks.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.