According to J.R. Batliboi, "A Balance Sheet is a statement prepared with a view to measure the exact financial position of a business on a certain fixed date."

Amount paid to workers who are directly engaged in loading, unloading and handling of goods purchased is known as wages

(i) Trading account provides information about Gross Profit or Grass Loss.
(ii) It provides an opportunity to safeguard against possible losses.
(iii) It provides information about direct expenses and direct incomes.

i) Direct expenses:
(a) Carriage inwards or Freight inwards
(b) Wages
ii) Direct expenses :
(a) Office expenses.
(b) Administration expenses
(c) Selling expenses

Fixed assets are those assets which are acquired or constructed for continued use in the business and last for many years such as land and building, plant and machinery, motor vehicles, furniture, etc.

(i) Trading refers to buying and selling of goods with the intention of making profit.
(ii) The trading accounts a nominal account which shows the result of buying and selling of goods for an accounting period.
(iii) Trading Account is prepared to find out the difference between the revenue from sales and cost of goods sold.
(iv) Cost of goods sold refers to directly related cost.

(i) The assets and liabilities shown in the balance sheet are grouped and presented in a particular order. The term 'grouping' means showing the items of similar nature under a common heading.
(ii) For example, the amount due from various customers will be shown under the head 'Sundry Debtors'.
(iii) Similarly, under the head 'Current Assets', the balance of cash, bank, debtors, stock and other current assets will be shown.
(iv) 'Marshalling' is the arrangement of various assets and liabilities in a proper order.
(v) Marshalling can be made in one of the following two ways :
(a) In the order of liquidity.
(b) In the order of permanence

(i) The balance sheet is a statement prepared for showing the financial position of the business summarising its assets and liabilities at a given date.
(ii) It is prepared at the end of the accounting period after the trading and profit and loss account have been prepared.
(iii) It is called a balance sheet because it is a statement of balances of ledger accounts which have not been closed even after the preparation of the trading and profit and loss account.

(i) The business entities are interested in knowing periodically the results of business operations carried on and the financial soundness of the business. In other words, they want to know the profitability and the financial position of the business. These can be ascertained by preparing the final accounts or financial statements.
(ii) The final accounts or financial statements include the following: 
1. Income Statement or Trading and Profit and Loss Account and
2. Position Statement or Balance Sheet.
(iii) The purposes of preparing the financial statements are:
1. To ascertain the financial performance of an enterprise and
2. To ascertain the financial position of an enterprise.
(iv) The income statement and balance sheet are prepared for these purposes respectively. Income statement gives the manner in which the profit or loss for an accounting period is arrived at.
(v) Hence, at the close of the accounting period, all nominal accounts (i.e. expenses, losses, revenues and gains) and accounts relating to goods (purchases, purchases returns, Sales, Sales returns and stock in hand at the beginning and at the end) are to be closed by transferring to the income statement or trading and profit and loss account.

Cost of goods sold = Opening stock + Net purchases + Direct expenses – Closing stock
= 20,000 + 70,000 + 10,000 - 30,000
= Rs. 70,000
Let the sales be                                              100
Less: Gross profit (20% on sales, i.e., 100)     20
Cost of goods sold                                           80
Therefore, percentage of Gross profit on Cost of goods sold is \(\frac{20}{80}\times 100=\) 25%
Gross profit = 25 % on Rs. 70,000 i.e: \(\frac{25}{100}\times 70,000=\) Rs. 17,500
Sales = Cost of goods sold + Gross profit
= 70,000 + 17,500 = Rs. 87,500.

Note: Freight outwards will not appear in trading account as it is not a direct expense.

(b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

(b) Both (A) and (R) are true and (R) is not the correct explanation of (A)