RAHUL FUTWARE While pursuing a B.Tech program in Leather Technology from Harcourt Butler Technological University, Kanpur during 2014 - 2018, Rahul had an exposure to how the leather is manufactured from a different type of raw material such as raw leather, plastic, canvas, jute, rubber, and cloth etc. and developed fascination towards making a career in Footwear industry. After evaluating various employment opportunities available to him for one year, Rahul decided to start his own entrepreneurial venture in footwear trading in August 2019. On May 23, 2019, he got Rs.14,00,000 as the maturity amount from the Educational Policy, his father purchased from LIC of India before 20 years for his higher education. With that money in hand, Rahul took a loan of Rs.6,00,000 from his elder sister to be repaid in 5 years with 10% simple interest to be paid monthly. Rahul started his own retail venture named 'RAHUL FUTWARE' on August 01, 2019 to sell luxurious leather shoes of different brands to the customers. Though Rahul had good knowledge about leather shoes, he found it difficult to manage his day to day sales and other financial requirements of the business. He appointed four employees for his store; two to manage office, inventory and business records and other two to look after the customers visiting his store. As the owner, Rahul was meticulous in maintaining vouchers, invoices, receipts etc. as generated from different transactions. At the end of August, 2019, he requested one of his friends Sridhar, who was continuing with his articleship with a chartered accounting firm, to let him know the financial position of his sole-trading firm. Sridhar, with the help of employees at the store and with available invoices, receipts, vouchers etc. highlighted the following summary of transactions and prepared a month-end balance sheet for Rahul. Summary of transactions during August, 2019: 1) Purchased stores equipment worth Rs.3.00.000 and furniture wort Rs.6,00,000 which come under 10% depreciation category. 2) He spent Rs.59,67,000 during the month for procurement of merchandize inventory. 3) He paid for the month electricity bill worth Rs.30,000; rent for the store Rs.50,000; utility charges Rs.8,000 and Wages& salaries of Rs.3,00,000 on August 31,2019. He also paid monthly interest on borrowings to his sister. 4) He was facing temporary cashflow problems for his personal affairs, which compelled him to take out Rs.8,00,000 from the store on different occasions. Month-end Balance Sheet: RAHUL FutWARE Balance Sheet as on August 31, 2019 (Amount in Rs.) Liabilities & OE Cash 17,50.000 Creditors (Merchandise) 22,10,000 22,95,000 10% LT Loan 6,00,000 Merchandize Inventory 18,00.000 Equipment 3,00,000 Less, Acc. Depn. (2.500) 2.97,500 Furniture - 6,00,000 Rahul, Capital (Adjusted) 39,27,500 Less, Acc. Depn. (5.000) 5,95.000 TOTAL 67.37.500 TOTAL 67.37.500 Assets Debtors Rahul could follow the summary of transactions so identified but could not make out what the Balance sheet was all about. He asked Sridhar about the quantum of profit the business generated during the month and how was it computed. Sridhar informed him that he would try to explain the concept of profit after calculating the following: (a) Collection from customers, (b) Sales, (c) COGS & (d) the Net Profit as per an Income Statement. Discuss how the items indicated above can be computed and why these are required to understand the mechanism of computing profit' earned by a merchandizing firm in an accounting period