Introduction to bookkeeping and accounting
Introduction to bookkeeping and accounting

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Introduction to bookkeeping and accounting

3.8 Summary

  • Profit = Income – Expenses (P = I – E).
  • Gross profit = Sales – Cost of sales.
  • Net profit = Sales – Cost of sales – Other expenses.
  • In this course, goods bought for sale are initially treated as an expense (purchases) in the accounts.
  • Goods bought for sale that are unsold at the period end are an asset called stock and are carried forward to the next accounting period.
  • Closing stock at the period end must be deducted from purchases in order for the cost of sales for the period to be worked out.
  • The balance sheet at the end of a period reflects the following expanded accounting equation:
  • Capital + (Income – Expenses) =Assets – Liabilities
  • The accounting equation can also be represented as:

    Assets + Expenses = Capital + Liabilities + Income

  • Capital + Liability + Income accounts are increased via credit entries and decreased via debit entries.
  • The trial balance (TB) records all the credit or debit balances from the accounts.
  • The P&L account and the balance sheet can be produced from the TB.
B190_1

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371