The aim of this section is to arrive at the correct figure for gross profit. Gross profit is the difference between sales and cost of sales. To arrive at gross profit you therefore have to deduct your cost of sales figure from your sales figure.
                                  £
sales                         2,000
less cost of sales       (500)
gross profit              1,500

The line underneath the figure of 500 instructs you to compute the figures in the column above the line i.e. to compute the value of 2,000 and 500. The bracket around the 500 tells you to deduct the 500 from the figure of 2,000 and not to add it.
The cost of sales figure is obtained by adding opening stock and purchases together and then deducting closing stock.
                                   £
opening stock           200
purchases                  600
less closing stock      (300)     500

The line underneath the 300 instructs us to compute the figures in the above column. The brackets around  the 300 tell us to deduct 300 and not add it. We therefore are told to compute 200 + 600 - 300 = 500 for cost of sales.
The total for cost of sales of 500 is not placed underneath the 300 but is moved one column to the right. This is so that we can deduct the 500 from the sales figure of 2,000 to give gross profit of 1,500 all in the same column. If we do not do this it looks very difficult to learn the rules as shown here:
                                 £                £
sales                                          2,000
less cost of sales
opening stock        200
purchases               600
closing stock         (300)           
                             (500)
gross profit                                1,500

The line above the 1,500 tells us to compute the figures in the column. However because the 500 cost of sales figure is in the first column it is not obviously  included in the calculation.
 

 The profit and loss account
The aim of this section is to arrive at a figure for the net profit. This is achieved by deducting the total expenses figure from the gross profit.
                               £                      £
gross profit                                  1,500
expenses
rent & rates            50
wages & salaries 1,000
advertising              10
travel                       25
light & heat             15
office expenses         10
miscellaneous           10
bank interest            20
depreciation            155
doubtful debts            4
bad debts                    1                 (1,300)
net profit                                           200

The line underneath the figure 1 tells us to compute the above figures in the same column as the line. This total comes to 1,300 and is placed in the same column as the gross profit figure of 1,500 so that it can be deducted from gross profit to give net profit of 200. The bracket around the total expenses figure of 1,300 is the instruction to deduct this figure form 1,500 and not to add it.
 

 The fixed assets
The aim of this section is to arrive at a value for the fixed assets.
The value required for adding on to other sections of the balance sheet is known as the total NET BOOK VALUE.
This is achieved by deducting accumulated depreciation from the cost for EACH of the main categories of fixed assets and then totaling the individual net book values.

                                 £        £        £
                               cost  depn   NBV

land & buildings     1000   50     950
plant & machinery    200   40     160
fixtures and fittings   300   90     210
motor vehicles           400  175    225
                                1900  355  1545

This layout tells us:

• to deduct 50 from 1000 to give us 950 which is the net book value of the land and buildings
• to deduct 40 from the 200 to give us 160 which is the net book value of plant and machinery
• to deduct 90 from 300 to give us 210 which is the net book value of fixtures and fittings
• to deduct 175 from 400 to give us a net book value for motor vehicles of 225

 The current assets
The aim of this section is to arrive at a value for the total of current assets. This is required in order to calculate a value for net current assets which is achieved by deducting the total current liabilities from the total for current assets.
Current liabilities  and net current assets are dealt with in the next section.
The total for current assets is the total of the figures present in the same column in the current assets section.
The line below 300 tells us to compute all the figures in this section. Note that the line below 1900 prevents us from accidentally adding in the fixed assets figures. The best way to remember the rules here is to tell ourselves that the line below 300 tells us to add up all the figures above the line in the same column until you come to another line when we must stop.
                          £                £
stocks               300
debtors             304
provision            (4)
prepayments       10
bank and cash  300            910

The figure of 910 is the total of the items in the column above the line below 300 i.e. 300 + 304 - 4 + 10 + 300
Note that the brackets around the 4 instruct us to deduct 4 from the total and not to add it.
The total of 910 is positioned one column to the right because it is necessary to deduct the total of current liabilities from this  figure to give net current assets. If the 910 is situated in the same column as the individual current assets it is more difficult to learn how to arrive at net current assets.
                                  £              £
Current assets
stocks                      300
debtors                    304
provision                  (4)
prepayments             10
bank and cash         300 
total current assets  910

Current liabilities
creditors                  100
accruals                    20
overdraft                 280          400
 
Net current assets                    510

Net current assets is 910 - 400 = 510
 

 The current liabilities
The aim of this section is to arrive at a value for the total of current liabilities. This is then deducted from the total for current assets to give net current assets.
                                   £            £
Current assets
stocks                      300
debtors                    304
provision                  (4)
prepayments             10
bank and cash         300 
total current assets                  910

Current liabilities
creditors                  100
accruals                    20
overdraft                 280          (400)
 
Net current assets                    510

Net current assets is 910 - 400 = 510
The line below the 280 instructs us to add up the figures in the above column until we reach another line. This means compute 280 + 20 + 100 = 400.  We stop after the 400 because we hit the line below the 300 bank figure. The line below the 400  and the brackets around it tells us  to deduct 400 from the figures in the same column and above it. This means to deduct 400 from the 910. we are not tempted to add in the fixed asset figures because we have underlined the total for depreciation of 355 which tells us to stop adding up columns in this column.
 
 The balance sheet totals
The aim of this section is to deal with the balance sheet totals.
                                 £        £        £
                               cost  depn   NBV

land & buildings     1000   50     950
plant & machinery    200   40     160
fixtures and fittings   300   90     210
motor vehicles           400  175    225
                                1900  355  1545
Current assets
stocks                      300
debtors                    304
provision                  (4)
prepayments             10
bank and cash         300 
total current assets            910

Current liabilities
creditors                  100
accruals                    20
overdraft                 28    (400)
 
Net current assets                      510
long term loan                           (55)
totals                                     £2,000
 
 

The line below the 55 and the brackets around it tell us to compute the figures in the column above the line until we reach another line.
This means we are to compute -55 + 510 + 1545 = 2000
We do not add in any figures above the line underneath 225[the motor vehicles net book value]
The figure of 2000 is known as the balance sheet figure and is always the same as the total of the balance sheet bottom which is handled in the next section.

 The bottom part of the balance sheet
The aim of this section is to calculate the totals for the bottom section of the balance sheet.
                            £
capital              1,500
profits               1,200
drawings            (700)
                         £2,000
The line below the figure of 700 and the brackets tell us to compute -700 + 1200 + 1500 = 2000

This total  is always the same as the above total and is referred to as the balance sheet balancing.