FINAL ACCOUNTS:

Financial statements are the statements that are prepared at the end of the accounting period,
which is generally one year. These include income statement i.e. Trading and Profit & Loss account
and position statement i.e. Balance Sheet.

Objectives of financial statements:

Financial statements are prepared to ascertain the profits earned or losses incurred by a business concern
during a specified period and also to ascertain its financial position at the end of that specified period.
Financial statements are generally of two types:

(a) Income statement which comprises of Trading Account and Profit & Loss Account, and
(b) Position Statement i.e., the Balance Sheet.

Following are the objectives of preparing financial statements: -

1. Ascertaining the results of business operations: Every businessman wants to know the results
of the business operations of his enterprise during a particular period in terms of profits earned or
losses incurred. Income statement serves this purpose.

2. Ascertaining the financial position: financial statements show the financial position of the
business concern on a particular date which is generally the last date of the accounting period.
Position statement i.e. Balance Sheet is prepared for this purpose.

3. Source of information: Financial statements constitute an important source of information

regarding finance of a business unit which helps the finance manager to plan the financial
activities of the business and making proper utilization of the funds.

4. Helps in managerial decision making: The Manager can make comparative study of the
profitability of the concern by comparing the results of the current year with the results of the
previous years and make his/her managerial decisions accordingly.

5. An index of solvency of the concern: Financial statements also show the short term as well as
long term solvency of the concern. This helps the business enterprise in borrowing money from
bank and other financial institutions and/or buying goods on credit.

Capital Expenditure and Revenue Expenditure, Capital Receipts and Revenue Receipts

The preparation of Trading Account and Profit and Loss Account requires the knowledge of revenue
expenditure, revenue receipts and capital expenditure and capital receipts. The knowledge shall facilitate
the classification of revenue items and put them in the Trading account and Profit and Loss Account on
one hand and prepare Balance Sheet based on capital items (expenditure as well as receipts) on the other
hand.

Capital Expenditure refers to the expenditure incurred for acquiring fixed assets or assets which increase
the earning capacity of the business. The benefits of capital expenditure to the firm extend to number of

1
years. Examples of capital expenditure are expenditure incurred for acquiring a fixed asset such as
building, plant and machinery etc.

Revenue expenditure, on the other hand, is an expenditure incurred in the course of normal business
transactions of a concern and its benefits are availed of during the same accounting year. Salaries, carriage
etc. are examples of revenue expenditure.

There is another category of expenditure called deferred revenue expenditure. These are the expenses
incurred during one accounting year but are applicable wholly or in part in future periods. These
expenditures are otherwise of a revenue nature. Example of deferred revenue expenditure is heavy
expenditure on advertisement say for introducing a new product in the market, expenditure incurred on
research and development, etc.

Capital and Revenue Receipts

Capital receipts are receipts which do not arise out of normal course of business. Examples of such
receipts are sale of fixed assets, and raising of loans etc. Such receipts are not treated as income of the
enterprise.

Revenue receipts are receipts which arise during the normal course of business, Sale of goods, rent from
tenants, dividend received, etc. are some of the examples of revenue receipts. They are the items of
incomes of the business entity.

TRADING ACCOUNT

Income statement consists of Trading and Profit and Loss Account. A business firm either purchases
goods from others and sells them or manufactures and sells them to earn profit. This is known as trading
activities. A statement is prepared to know the results in terms of profit or loss of these activities. This
statement is called Trading Account. Trading Account is prepared to ascertain the results of the trading
activities of the business enterprise. It shows whether the selling of goods purchased or manufactured has
earned profit or incurred loss for the business unit. Cost of goods sold is subtracted from the net sales of
the business of that accounting year. In case the total sales value exceeds the cost of goods sold, the
difference is called Gross Profit. On the other hand, if the cost of goods sold exceeds the total net sales,
the difference is Gross Loss. All accounts related to cost of goods sold such as opening stock, net
purchases i.e. purchase less returns outward, direct expenses such as wages, carriage inward etc. and
closing stock with net sales (i.e. Sales minus Sales returns) are taken to the Trading Account. Then this
account is balanced. Credit balance shows the gross Profit and debit balance shows the gross loss.

The cost of goods is calculated as follows:

Cost of goods sold = opening stock + net purchases + all direct expenses – closing stock
Gross Profit = net sales – cost of goods sold.

Illustration 1
Calculate the cost of goods sold from the following information:
Opening stock Rs.10000
Closing stock Rs.8000
Purchases Rs.80000
Carriage on purchases Rs.2000
Wages Rs.6600

2
Solution:
Cost of goods sold = opening stock + purchases + direct expenses (carriage on purchases + wages) –
closing stock
= Rs. [10000 + 80000 + 8600 (i.e. 2000 + 6600) – 8000]
= Rs. 90600

Format of Trading Account

Trading Account for the year ending …………..

Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Opening Stock Sales

Purchases Less: sales returns
Less: purchase returns Closing stock
Direct expenses: Gross loss transferred to profit
Carriage inward / Carriage and loss account.
Freight
Wages
Wages & Salaries
Fuel and power
Motive power
Excise duty
Factory rent
Heating and lighting
Factory rent & insurance
Work managers salary
Dock Charges
Import Duty
Royalty
Octroi
Manufacturing Expenses
Factory Expenses
Gross profit transferred to profit
and loss account

PROFIT & LOSS ACCOUNT

Trading account is prepared to ascertain the Gross profit or Gross loss of the trading activities of the
business. But these are not the final results of business operations of an enterprise. Apart from direct
expenses, there are indirect expenses also. These may be divided into office and administrative expenses,
selling and distribution expenses, financial expenses, depreciation and maintenance charges etc. Similarly,
there can be income from sources other than sales revenue. These may be interest on investments,
discount received from creditors, commission received, etc. Another account is prepared in which all
indirect expenses and revenues from sources other than sales are written. This account when balanced
shows profit (or loss). This account is termed as Profit and Loss Account. The profit shown by this
account is called ‘net profit’ and if it shows loss it is known as ‘net loss’.

3
Format of Profit and Loss Account
Profit and Loss A/c of M/s ................….. for the year ended ...............
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Gross loss b/d Gross profit b/d

Salaries Discount received
Rent, rates and taxes Commission received
Insurance premium Dividend received
Advertising Interest on investment
Commission paid Rent received
Discount allowed Net loss transferred to capital
Repairs and renewals account
Bad debts
Establishment charges
Travelling expenses
Bank charges
Sales tax/value added tax
Depreciation on fixed assets
Net profit transferred to capital
account

Position Statement/Balance Sheet:

Position Statement or Balance Sheet is another basis of financial statement. Balance Sheet is a statement
prepared on a particular date, generally at the end of accounting year to ascertain the financial position of
the entity. It consists of assets on the one hand and liabilities on the other. Financial position of a business
is the list of assets owned by the business and the claims of various parties against these assets. The
statement prepared to show the financial position is termed as Balance Sheet. In the words of Francis R
Steal, “Balance Sheet is a screen picture of the financial position of a going business at a certain
moment.” In the words of Freeman, “A Balance Sheet is an item wise list of assets, liabilities and
proprietorship of a business at a certain date.”

4
ILLUSTRATION 1:
From the following information of M/s Nand lal and bros. for the year ending 31st March 2011,
prepare trading and profit and loss A/c for the year ended 31st march 2011:
Particulars Rs. Particulars Rs.

Stock 01.04.2010 5800 Sales 72000

Purchases-cash 42000 Return inward 2000
Purchases-credit 18000 Interest on investment 1500
Freight inward 1800 Discount received 1200
Wages 4500 Closing stock 7200
Carriage on sales 800
Telephone charges 1600
Electricity expenses 1200
Office rent paid 6000
Salaries 8000
Depreciation 1400

SOLUTION:
Books of M/s Nand Lal & Bros. Trading A/c for the year ended 31st March, 2011
Dr. Cr.
Particulars Amount (Rs) Particulars Amount
(Rs)

5
 Stock (01.04.2010) 5800 Sales 72000
Purchases Less: return inward (2000) 70000
Cash 42000
Credit 18000 60000 Gross loss transferred to profit 2100
Freight inward 1800 and loss A/c
Wages 4500

72100 72,100

Profit and Loss A/c

For the year ending 31st march 2011
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Gross loss transferred to profit and Interest on investment 1500

loss A/c 2100 Discount received 1200
Carriage on sale 800 Net loss transferred to capital A/c 18400
Telephone charges 1600
Electricity expenses 1200
Office rent 6000
Salaries 8000
Depreciation 1400
21100 21100

ILLUSTRATION 2:

From the following trial balance of M/s Vikram Brothers, prepare trading and profit and loss account for
the year ended 31st march 2011 and balance sheet as on that date:
Particulars Dr. Rs. Particulars Cr. Rs.

Cash in hand 500 Capital 70000

Motor car 25000 Discount received 2000
Drawings 48000 Sales 230000
Legal charges 1500 Creditors 46000
Plant and machinery 60000 Interest on investment 5200
Investments 40000 Purchases return 3800
Opening stock 35000 Bills payable 34000
Sales returns 2500
Salaries 12000
Discount allowed 600
Carriage inward 1800
Wages 21000
Postage 400
Debtors 60000
Interest 1500
Insurance premium 1200
purchases 80000
391000 391000

6
Closing stock as on 31.03.2011 Rs. 28000

Ans: Trading A/c

For the year ending 31st march 2011
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Opening stock 35000 Sales 230000

Purchases 80000 Less: sales returns 2500 227500
Less: purchase return 3800 76200 Closing stock 28000
Wages 21000
Carriage inward 1800
Gross profit transferred to profit
and loss A/c 121500
255500 255500

Profit and loss A/c

For the year ending 31st march 2011
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Salaries 12000 Gross profit transferred from

Insurance premium 1200 trading A/c 121500
Discount allowed 600 Discount received 2000
Postage 400 Interest on investments 5200
Interest 1500
Legal charges 1500
Net profit transferred to capital
A/c 111500
128700 128700

Balance Sheet
As on 31st march 2011
Liabilities Amount (Rs) Assets Amount (Rs)

7
Bills payable 34000 Cash in hand 500
Capital 70000 Debtors 60000
Add: net profit 111500 Closing stock 28000
Less: drawings 48000 133500 Investments 40000
Creditors 46000 Motor car 25000
Plant and machinery 60000
213500 213500

ILLUSTRATION 3:
Following is the trial balance extracted from the books of jasmine enterprises as on 31st march 2011.
Prepare trading and profit and loss account from the information given in trial balance for the year ending
31st march, 2011. Also prepare the balance sheet as on t hat date.
PARTICULARS DR. AMOUNT(RS) CR. AMOUNT (RS)

8
 Stock (01.04.2010) 18500
Purchases and sales 78500 154200
Return inwards and return outwards 2200 2500
Debtors and creditors 16500 18000
Bills receivable and bills payable 14000 21000
Commission paid 2000
Audit fees 1800
Building 65000
Furniture 12000
Salaries 14000
Telephone charges 4200
Insurance 2100
Discount allowed 1000
Octroi 1200
Wages 16000
Freight inward 2400
Bad debts 600
Depreciation 4200
Bank loan 32000
Cash in hand and at bank 25000
Capital 100000
Drawing 16500
machinery 30000
Total 327700 327700

Q.1)

Q.2)

9
Q.3)

10
Q.4)

11
ADJUSTMENTS AND THEIR INCORPORATION

The number and nature of adjustments differ from organisation to organisation. It depends upon the
volume and nature of activities in the organisation, However, certain adjustments are common in all types
of organisations. Moreover, while making adjustments you will have to follow the general principle of
double entry i.e. the amount is to be debited to one account and credited to another account. Thus in the
finanacial statements the item to be adjusted should appear at two places one representing the debit and
the other representing the credit.

Some of the items of adjustment and its accounting treatment in financial statements. These are as
under:
1. Closing Stock
2. Outstanding Expenses.
3. Prepaid Expenses
4. Accrued Income.
5. Income received in advance
6. Interest on Capital
7. Interests on Drawings
8. Depreciation.
9. Further Bad Debts.
10. Provision for Bad and Doubtful Debts.
11. Reserve for discount on debtors
12. Loss of stock by fire
13. Sale or return basis
14. Managers Commission
15. Reserve Fund
16. Hidden Adjustment

1. Closing Stock: Closing Stock is the stock of goods remaining unsold at the end of the accounting year.
Ordinarily this does not appear in the Trial Balance. Hence, this needs to be incorporated in financial
statements. This appears on the credit side of the Trading Account as well as Assets side of the Balance
Sheet.

The adjustment entry will be:

Closing Stock A/c Dr
To Trading A/c
(Closing stock transferred to trading A/c)

The effect of the adjustment entry on financial statements is as under:

Trading A/c
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Closing Stock ………

Balance Sheet
12
 Liabilities Amount (Rs) Assets Amount (Rs)

Closing Stock ………

2. Outstanding Expenses: Expense which is related to the current accounting period but not yet paid
is known as Outstanding Expense. Suppose the accounts are closed on 31st December every year. Salary
for the month of December is due but not paid. It is an example of salary outstanding. Similarly, there are
some other items like Rent outstanding, Wages outstanding etc. In case of Salaries Outstanding following
adjustment entry will be made:
Salary A/c Dr.
To Salary Outstanding A/c
(Salary outstanding for the month of December)

In financial statements it will be recorded as:

Profit & Loss A/c
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Salaries
Add: salary outstanding

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Salary outstanding ……..

3. Prepaid expenses: A part of a certain expense paid may relate to the next accounting period. Such
expenses are called prepaid expense or expenses paid in advance. For example, insurance premium paid
in the current year may be for the year ending, the date of which falls in the next year. The part of
insurance premium which relates to next accounting year is the insurance premium paid in advance is
deducted from the amount paid and is shown as an item of asset. Similarly, such items may be rent
prepaid, tax prepaid etc.

Adjustment entry for prepaid Insurance Premium

Prepaid Insurance Premium A/c Dr
To Insurance Premium A/c
(Insurance premium paid in advance)

In financial statements, it is recorded as:

Profit & Loss A/c

Dr. Cr.

13
 Particulars Amount (Rs) Particulars Amount (Rs)

Insurance Premium
Less: Prepaid Insurance
premium

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Prepaid Insurance

4. Accrued income (Due but not received)

Accrued income means income earned but not received till the end of the accounting year. For example,
interest on securities or dividends on shares, which has become due but may be received on a date falling
in the next year. Such income does not appear in the trial balance but should be duly
accounted for in the year, because such income has accrued. Adjustment entry for the transaction :
suppose Rent receivable as it has become due but is not yet received

Rent Receivable (accrued) A/c Dr

To Rent Received A/c
(Amount of rent due but not received)

In financial statements, it will be recorded as;

Profit & Loss A/c
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Rent Received
Add: Rent Accrued

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Rent Accrued

5. Unearned income/income Received in Advance

When income is received before it becomes actually due it is called “unearned income” or “income
received in advance”. Since this income does not relate to the accounting year, it should be deducted from
the relevant head of income in the Profit & Loss A/c. It is a liability and hence is shown in the liability
side of the Balance Sheet. Example of such income is rent that has been received for the months of
January and February of the coming accounting year. Adjustment entry for the same is

Rent Received A/c Dr

14
 To Rent Received in Advance A/c
(Rent received in advance)

Profit & Loss A/c

Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Rent Received
Less: Rent received in
advance

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Rent Received in advance

OTHER ADJUSTMENTS
6. Interest on capital
As per business entity concept capital of the proprietor is a liability for the business. Like other loans
interest can be paid on capital also. In case it is decided to allow interest on capital, adjustment entry will
be as follows:
Interest on Capital A/c Dr
To Capital A/c
(Interest allowed on capital)
Profit & Loss A/c
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Interest on Capital

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Capital
Add: Interest on capital

7. Interest on drawings
Interest may also be charged on money withdrawn by the proprietor for household use. Following journal
entry is made.

Capital A/c Dr
To Interest on Drawings A/c
15
 (Interest on Drawings charged)

In financial statements, it will be shown as:.

Profit & Loss A/c
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Interest on Drawings

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Capital
Less: Interest on drawings

8. Depreciation
The value of fixed assets such as Plant and Machinery, Furniture and Fixtures, Land & Building, Motor
Vehicles etc. goes on reducing year after year due to wear and tear, obsolescence or for any other reason.
As the fixed assets are used for earning revenue the amount by which the value of a fixed asset decreases
is an item of expense, similar to other expenses. This is called depreciation. It should be charged to the
Profit and loss Account. The value of such assets should also be shown in the Balance Sheet at the
reduced value by the amount of depreciation. The adjustment entry for depreciation will be

Depreciation A/c Dr
To Asset ( by name ) Account
It will be shown in the Profit and Loss A/c and Balance sheet as under:
Profit & Loss A/c
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Depreciation on Plant &

machinery

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Plant & machinery

Less: Depreciation

9. Further bad debts

When the goods are sold on credit basis some of the debtors partly pay the due amount or do not pay at
all. If this amount cannot be recovered it is called bad debts and is a loss to the firm. This is entered on the
debit side
of the Profit & loss A/c. But then there may be amount of bad debt which was not recorded in the books
of accounts and hence did not appear in the Trial Balance. But the same was discovered before preparing
the financial statements. It is called further bad-debts. Following adjustment entry is made for the same :

16
 Bad Debts A/c Dr
To Debtors A/c
(Further bad debts recorded)

In Profit and Loss A/c and Balance sheet it is shown as under:

Profit & Loss A/c

Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Bad Debts
Add: further bad debts

Balance Sheet
Liabilities Amount (Rs) Assets Amount (Rs)

Sundry Debtors
Less: further bad debts

Illustration 1
From the following Trial Balance of M.B. Garments as on 31st December, 2011, prepare Trading A/c and
Profit & Loss A/c for the year ended 31st December, 2011 and Balance Sheet as on that date:
Name of the Account Dr. Amount (Rs) Cr. Amount (Rs)
Capital 80000
Cash in hand 570
Cash at bank 5600
Purchases 43200
Sales 78000
Wages 10400
Power 4730
Carriage inward 2040
–Carriage outward 3200
Stock (01.01.2011) 5660
Land & building 40000
Machinery 20000
Salaries 4000
Insurance 600
Sundry debtors 28000
Sundry creditors 10000
168000 168000
Following adjustments are to be accounted for:
(a) Stock on 31.12.2011 Rs. 10000
(b) Machinery to be depreciated @ 10% p.a. and building to be depreciated @ 2% p.a
(c) Salaries for the month of December outstanding were Rs. 1200
(d) Insurance premium was paid for one year ending 30th June 2012.

17
 Trading A/c
For the year ended 31st Dec 2011
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Stock 5660 Sales 78000

Purchase 43200 Closing stock 10000
Wages 10400
Power 4730
Carriage inward 2040
Gross profit transferred to
profit and loss A/c 21970
88000 88000

Profit and loss A/c

For the year ended 31st Dec 2011
Dr. Cr.
Particulars Amount Particulars Amount (Rs)

Carriage outward 3200 Gross profit transferred

Salaries 4000 from trading A/c
Add: salary outstanding 1200 5200 21970
Insurance 600
Less: prepaid insurance 300 300
Depreciation on machinery 2000
Depreciation on land and building
Net profit transferred to capital 800
account
10470
21970 21970

Balance Sheet as at 31st Dec, 2011

Liabilities Amount (Rs) Assets Amount (Rs)

Salary outstanding 1200 Cash in hand 570

Sundry creditors 10000 Cash at bank 5600
Capital 80000 Sundry debtors 28000
Add: net profit 10470 90470 Closing stock 10000
Prepaid insurance 300
Land & building 40000
Less: depreciation (800) 39200
Machinery 20000
Less: depreciation (2000) 18000

18
 101670 101670

From the following Trial Balance of Mustafa & Co., prepare Trading and Profit and loss A/c for the year
ending on 31st Dec. 2011 and Balance Sheet as on that date.
Name of the Account Dr. Amount (Rs) Name of the account Cr. Amount
Land and building 60000 Capital 150000
Plant and machinery 40000 Sundry creditors 30000
Bills receivable 8000 Sales 120000
Stock on 01.01.2011 40000 Reserve for bad and doubtful 4500
Purchases 51000 debts
Wages 20000 Loan (12% p.a) 10000
Coal, gas and coke 5800 Commission received 2000
Salaries 5000
Rent 2800
Cash at bank 25000
Sundry debtors 45000
Repairs 1800
Bad debts 5500
Sales returns 2000
Furniture and fixture 4000
Interest on loan 600
316500 316500
Solution:
Trading and profit and loss A/c of M/s Mustafa & Co. for the year ended on 31.12.2011
Dr. Cr.
Particulars Amount (Rs) Particulars Amount (Rs)

Opening stock 40000 Sales 120000

Purchases 51000 Less: sales returns 2000 118000
Wages 20000 Closing stock 30000
Add: outstanding 1000 21000
Coal, gas and coke 5800
Gross profit c/d 30200

148000 148000
Salaries Gross profit b/d
5000 30200
Rent 2800 Commission received
2000
Add: outstanding 500 Add: accrued
3300 1000
Repairs
1800
Bad debts 5500
Add: new reserve 2250
Less: old reserve 4500
3250
Interest on loan 600
Add: interest
Outstanding 600
1200
Depreciation on plant
2000
Depreciation on furniture
400

19
Net profit transferred to capital 16250
A/c

33200 33200

Balance Sheet as at 31st Dec, 2011

Liabilities Amount (Rs) Assets Amount (Rs)

Sundry creditors 30000 Cash in bank 25000

Loan 10000 Bill receivables 8000
Interest outstanding 600 Sundry debtors 45000
Outstanding expenses: Less: reserve 2250 42750
Wages 1000 Closing stock 30000
Rent 500 1500 Furniture & fixture 4000
Capital 150000 Less: depreciation 400 3600
Add: net profit 16250 166250 Plant 40000
Less: depreciation 2000 38000
Land & building 60000
Commission accrued 1000

208350 208350

20
21
22
23
Ans.

Gross Profit – Rs.1,35,930

Net Profit – Rs.1,13,650

B.S Total – Rs.1,47,650

24
The following Trial Balance of Amna Mushtaq Ahmed & Brothers on June 30th, 2020, Prepare Profit and
Loss Account and Balance Sheet.

Adjustments:

● Stock at the end of year Rs.5,200 and Three months Excise duties is due, but not paid Rs.30.

● 5 percent depreciation to be written-off on furniture and write-off further bad debts Rs.70.

● The provision for bad debts to be Rs.300 and provision for discount on debtor @ 2 % to be
made.

● During the year machinery was purchased for Rs.2,000, but was debited to Purchase account.

Gross Profit – Rs.13,560

Net Profit – Rs.10,083

B.S Total – Rs.19,173

25
26
27
Ans.

Gross Profit – Rs.1,28,200

Net Profit – Rs.1,04,760

B.S Total – Rs.2,38,360

28
29
30
31
32
Following is the Trial Balance as on 31st March, 2023. Prepare Trading and Profit and Loss
Account and Balance Sheet:
Particulars Dr. Amount Cr. Amount
Stock on 1st April, 2022 8,000
Sales 2,20,000
Purchases 1,26,000
Productive Wages 56,500
Salaries 16,000
Stores Consumed 6,050
Carriage 3,050
Rent 5,200
Insurance 1,320
Machinery 52,000
Building 67,000
Capital 1,45,600
Sundry Debtors 44,000
Sundry Creditors 20,000
Secured Loan 16,000
Furniture 3,350
General Expenses 2,600
Cash in Hand 1,930

33
 Bad Debts 1,020
Bank 6,580
Input CGST 3,000
Input SGST 3,000
Output CGST 2,500
Output SGST 2,500
Total 4,06,600 4,06,600

Stock on 31st March, 2023, Rs.20,600.

You are to make adjustments in respect of the following:
(a) Depreciate Machinery at 10% p.a.
(b) Make a provision @ 5% for Doubtful Debts.
(c) Further Bad Debts Rs.2,000
(d) Provide discount on debtors @ 2.5%.
(e) Rent Outstanding Rs.800.
(f) Insurance Prepaid Rs.120.

Solution:

Trading and Profit and Loss A/C

Particulars Amount Particulars Amount
To Opening Stock 8,000 By Sales 2,20,000
To Purchases 1,26,000 By Closing Stock 20,600
To Productive wages 56,500
To Stores consumed 6,050
To Carriage 3,050
To Gross Profit c/d 41,000
2,40,600 2,40,600
To Salaries 16,000 By Gross Profit b/d 41,000
To Rent 5,200
Add: Rent o/s 800 6,000
To Insurance 1,320
Less: Insurance prepaid (120) 1,200
To General expenses 2,600
To Bad debts 1,020
To Provision for doubtful debts 2,200
To Discount on debtors 1,045
To Dep. on Machinery 5,200
To Net Profit c/d 5,735
41,000 41,000

Balance Sheet
Liabilities Amount Assets Amount
Creditors 20,000 Cash in hand 1,930
Rent outstanding 800 Bank 6,580
Secured Loan 16,000 Sundry Debtors 44,000
34
 Less: Provision (2,200)
Discount (1,045) 40,755
Capital 1,45,600 Closing Stock 20,600
Add: Net Profit 5,735 1,51,335
Insurance prepaid 120
Input CGST 3,000
Less: Output CGST (2,500) 500
Input SGST 3,000
Less: Output SGST (2,500) 500
Machinery 52,000
Less: Depreciation (5,200) 46,800
Building 67,000
Furniture 3,350
1,88,135 1,88,135

35
36
37