UNIT- 4 PREPARATION OF FINANCIAL STATEMENTS AND

UNIT -5
RATIO ANALYSIS

Introduction to Financial Accounting

Meaning of Accounting: Book-keeping is an art of recording the business transactions in the

books of original entry and the ledges. Accountancy begins where Book-keeping ends.
Accountancy means the compiliation of accounts in such a way that one is in a position to know
the state of affairs of the business. The work of an accountant is to analyse, interpret and review
the accounts and draw conclusion with a view to guide the management.
Book – Keeping: Book – Keeping involves the chronological recording of financial transactions
in a set of books in a systematic manner.
Accounting: Accounting is concerned with the maintenance of accounts giving stress to the
design of the system of records, the preparation of reports based on the recorded data and the
interpretation of the reports.
Financial accounting is a specialized branch of accounting that keeps track of a company's
financial transactions. Using standardized guidelines, the transactions are recorded, summarized,
and presented in a financial report or financial statement such as an income statement or a
balance sheet.

Companies issue financial statements on a routine schedule. The statements are considered
external because they are given to people outside of the company, with the primary recipients
being owners/stockholders, as well as certain lenders. If a corporation's stock is publicly traded,
however, its financial statements (and other financial reportings) tend to be widely circulated,
and information will likely reach secondary recipients such as competitors, customers,
employees, labor organizations, and investment analysts.
Double Entry Book Keeping: Double entry is the fundamental concept underlying present-day
bookkeeping and accounting. Double-entry accounting is based on the fact that every financial
transaction has equal and opposite effects in at least two different accounts. It is used to satisfy
the equation Assets =Liabilities+Equity, in which each entry is recorded to maintain the
relationship. In the double-entry system, transactions are recorded in terms of debits and credits.

Capital Expenditure Vs Revenue Expenditure: Capital expenditures are for fixed assets,
which are expected to be productive assets for a long period of time. Revenue expenditures are
for costs that are related to specific revenue transactions or operating periods, such as the cost of
goods sold or repairs and maintenance expense.

Basic Accounting Concepts (Accounting Principles):

Accounting is a system evolved to achieve a set of objectives. In order to achieve the goals, we
need a set of rules or guidelines. These guidelines are termed here as “BASIC ACCOUNTING
CONCEPTS”. The term concept means an idea or thought. Basic accounting concepts are the
fundamental ideas or basic assumptions underlying the theory and profit of FINANCIAL
ACCOUNTING.
These concepts help in bringing about uniformity in the practice of accounting. In accountancy
following concepts are quite popular.
1. Business Entity Concept: In this concept “Business is treated as separate from the proprietor”.
All the transactions recorded in the book of Business and not in the books of proprietor. The
proprietor is also treated as a creditor for the Business.

2. Going Concern Concept: This concept relates with the long life of Business. The assumption
is that business will continue to exist for unlimited period unless it is dissolved due to some
reasons or the other.

3. Money Measurement Concept: In this concept “Only those transactions are recorded in
accounting which can be expressed in terms of money, those transactions which can not be
expressed in terms of money are not recorded in the books of accounting”.

4. Cost Concept: Accounting to this concept, can asset is recorded at its cost in the books of
account. i.e., the price, which is paid at the time of acquiring it. In balance sheet, these assets
appear not at cost price every year, but depreciation is deducted and they appear at the amount,
which is cost, less classification.

5. Accounting Period Concept: every Businessman wants to know the result of his investment
and efforts after a certain period. Usually one-year period is regarded as an ideal for this purpose.
This period is called Accounting Period. It depends on the nature of the business and object of
the proprietor of business.

6. Dual Aspect Concept: According to this concept “Every business transactions has two
aspects”, one is the receiving benefit aspect another one is giving benefit aspect. The receiving
benefit aspect is termed as“DEBIT”, where as the giving benefit aspect is termed as “CREDIT”.
Therefore, for every debit, there will be corresponding credit.

7. Matching Cost Concept: According to this concept “The expenses incurred during an
accounting period, e.g., if revenue is recognized on all goods sold during a period, cost of those
good sole should also be charged to that period.

8. Realisation Concept: According to this concept revenue is recognized when a sale is made.
Sale is Considered to be made at the point when the property in goods posses to the buyer and he
becomes legally liable to pay.
ACCOUNTING CONVENTIONS
Accounting is based on some customs or usages. Naturally accountants here to adopt that usage
or custom. They are termed as convert conventions in accounting. The following are some of the
important accounting conventions.
1.Full Disclosure: According to this convention accounting reports should disclose fully and
fairly the information. They purport to represent. They should be prepared honestly and
sufficiently disclose information which is if material interest to proprietors, present and potential
creditors and investors. The companies ACT, 1956 makes it compulsory to provide all the
information in the prescribed form.

2.Materiality: Under this convention the trader records important factor about the commercial
activities. In the form of financial statements if any unimportant information is to be given for
the sake of clarity it will be given as footnotes.

3.Consistency: It means that accounting method adopted should not be changed from year to
year. It means that there should be consistent in the methods or principles followed. Or else the
results of a year cannot be conveniently compared with that of another.

4. Conservatism: It is also known as ‘doctrine of prudence’. This convention warns the trader not
to take unrealized income in to account. That is why the practice of valuing stock at cost or
market price, which ever is lower is in vague. This is the policy of “playing safe”; it takes in to
consideration all prospective losses but leaves all prospective profits.

Accounting Cycle: The accounting cycle is often described as a process that includes the
following steps: identifying, collecting and analyzing documents and transactions, recording the
transactions in journals, posting the journalized amounts to accounts in the general and
subsidiary ledgers, preparing an unadjusted trial balance, perhaps preparing a worksheet,
determining and recording adjusting entries, preparing an adjusted trial balance, preparing the
financial statements/ final accounts (Trading Account, Profit & Loss Account and Balance
Sheet), recording and posting closing entries, preparing a post-closing trial balance, and perhaps
recording reversing entries.

Journal Entry

Final Accounts Ledger

Trial Balance
 Accounting Equation
The accounting equation is a basic principle of accounting and a fundamental element of
the balance sheet.
Balance Sheet: The balance sheet is one of the three fundamental financial statements. The
financial statements are key to both financial modeling and accounting

The equation is as follows: Assets = Liabilities + Shareholder’s Equity

This equation sets the foundation of double-entry accounting and highlights the structure of the
balance sheet. Double-entry accounting is a system where every transaction affects both sides of
the accounting equation. For every change to an asset account, there must be an equal change to
a related liability or shareholder’s equity account.
It is important to keep the accounting equation in mind when performing journal entries.

Journal Entries: Journal Entries are the building blocks of accounting, from reporting to auditing
journal entries (which consist of Debits and Credits)
The balance sheet is broken down into three major sections and their various underlying items:
Assets, Liabilities, and Shareholder’s Equity.

Classification of Business Transactions: All business transactions are classified into three
categories:
1.Those relating to persons
2. Those relating to
property(Assets) 3.Those relating to
income & expenses
Thus, three classes of accounts are maintained for recording all business transactions. They are:
1.Personal accounts
2.Real accounts
3.Nominal accounts

Rules for maintaining Books of Accounts:

1.Personal Accounts :Accounts which are transactions with persons are called “Personal
Accounts” .
A separate account is kept on the name of each person for recording the benefits received from
,or given to the person in the course of dealings with him.
E.g.: Krishna’s A/C, Gopal’s A/C, SBI A/C, Nagarjuna Finanace Ltd.A/C, ObulReddy & Sons
A/C , HMT Ltd. A/C, Capital A/C, Drawings A/C etc.

2.Real Accounts: The accounts relating to properties or assets are known as “Real Accounts”
.Every business needs assets such as machinery , furniture etc, for running its activities .A separate
account is maintained for each asset owned by the business .
E.g.: cash A/C, furniture A/C, building A/C, machinery A/C etc.

3.NominalAccounts: Accounts relating to expenses, losses, incomes and gains are known as
“Nominal Accounts”. A separate account is maintained for each item of expenses, losses, income
or gain.
E.g.: Salaries A/C, stationery A/C, wages A/C, postage A/C, commission A/C, interest A/C,
purchases A/C, rent A/C, discount A/C, commission received A/C, interest received A/C, rent
received A/C, discount received A/C.
Before recording a transaction, it is necessary to find out which of the accounts is to be debited
and which is to be credited. The following three different rules have been laid down for the three
classes of accounts….

1.Personal Accounts: The account of the person receiving benefit (receiver) is to be debited and
the account of the person giving the benefit (given) is to be credited.

Rule: “Debit The Receiver

Credit The Giver”

2.Real Accounts: When an asset is coming into the business, account of that asset is to be debited
.When an asset is going out of the business, the account of that asset is to be credited.
Rule: “Debit What comes in
Credit What goes out”

3. Nominal Accounts: When an expense is incurred or loss encountered, the account representing
the expense or loss is to be debited . When any income is earned or gain made, the account
representing the income of gain is to be credited.
Rule: “Debit All expenses and losses
Credit All incomes and gains”

JOURNAL

The first step in accounting therefore is the record of all the transactions in the books of original
entry viz., Journal and then posting into ledges.
Journal: The word Journal is derived from the Latin word ‘journ’ which means a day. Therefore,
journal means a ‘day Book’ in day-to-day business transactions are recorded in chronological
order. Journal is treated as the book of original entry or first entry or prime entry. All the
business transactions are recorded in this book before they are posted in the ledges. The journal
is a complete and chronological(in order of dates) record of business transactions. It is recorded
in a systematic manner. The process of recording a transaction in the journal is called
“Journalising”. The entries made in the book are called “Journal Entries”.
The proforma of Journal is given below.

Date Particulars L.F. no Deb Cred

it it
RS. RS.
1998 Jan 1 Purchases account to cash 10,000/- 10,000/-
account(being goods
purchased for cash)

LEDGER

All the transactions in a journal are recorded in a chronological order. After a certain period, if
we want to know whether a particular account is showing a debit or credit balance it becomes
very difficult. So, the ledger is designed to accommodate the various accounts maintained the
trader. It contains the final or permanent record of all the transactions in duly classified form. “A
ledger is a book which contains various accounts.” The process of transferring entries from
journal to ledger is called “POSTING”.
Proforma for ledger: LEDGER BOOK
Particulars account

Date Particulars Lfno Amount Date Particulars Lfno amount

TRAIL BALANCE

A trail balance is a statement of debit and credit balances. It is prepared on a particular date with
the object of checking the accuracy of the books of accounts. It indicates that all the transactions
for a particular period have been duly entered in the book, properly posted and balanced. The trail
balance doesn’t include stock in hand at the end of the period. All adjustments required to be
done at the end of the period including closing stock are generally given under the trail balance.
Proforma for Trail Balance:
Trail balance for MR…………………………………… as on …………
N NAME OF DEBIT CREDIT
ACCOUNT AMOUNT(RS AMOUNT(RS
O (PARTICULARS) .) .)
Trail Balance: Specimen of trial balance
Debit balances Credit balances
1 Debtors accounts Creditors account
2 Asset accouts such as plant,furniture Liabilities account
3 Expenses accounts such as rent paid Incomes account
4 Losses accounts such as goods Gains accounts
destroyed in fire
5 Purchases accounts Profits account
6 Sales return account Loan account
7 Drawings accounts Bank overdraft account
8 Carriage inward Sales accont
9 Discount allowed Purchase returns
account
1 Office expenses Trade expenses
0
1 Manufacturing expenses Carriage outward
1
1 Discount received
2
FINAL ACCOUNTS :
TRADING ACCOUNT

Trading account of MR……………………. for the year ended ……………………

Particulars Amount Particulars Amount

To opening stock Xxxx By sales xxxx

To purchases xxxx Less: returns Xxx
Less: returns xx Xxxx xxx By closing x
stock Xxx
x
To carriage Xxx
inwards To wages x
To freight Xxx
To customs duty, x
octroi To gas, fuel, Xxx
coal, Water x
Xxx
x
Xxx
x
 To factory expenses Xxx
To other man. x
Expenses To Xxx
productive expenses x
To gross profit c/d
Xxxx

Xxxx

Xxxx

PROFIT AND LOSS ACCOUNT

PROFIT AND LOSS A/C OF MR…………………….FOR THE YEAR ENDED…………

PARTICULARS AMOUNT PARTICULARS AMOUNT

TO office salaries Xxxxx By gross profit b/d Xxxx
TO rent,rates,taxes x Interest received x
TO Printing and Xxxxx Discount received Xxxx
stationery TO Legal Xxxxx Commission received x
charges Income Xxxx
Audit fee Xxxx Xxxx
TO Insurance Xxxx from investments x
TO General Xxxx Dividend on
expenses TO Xxxx shares
x Miscellaneous Xxx
Advertisements TO
Xxxx investments x
Bad debts
Xxxx Rent received Xxx
TO Carriage
Xxxx x
outwards TO Repairs
TO Xxxx
x xxxx
Depreciation
TO interest Xxxx
paid x
TO Interest on Xxxx
capital TO Interest x
on loans TO Xxxx
Discount allowed Xxxx
TO Commission x
TO Net profit à Xxxx
(transferred to capital a/c) x
Xxxx
x
xxxxxx Xxxxxx
BALANCE SHEET

BALANCE SHEET OF AS ON
…………………………………….
Liabilities and capital Amount Assets Amount

Capital xxxxxx Cash in hand Xxx

Add: Cash at bank x
Net Profit xxxx Bills Xxx
------- receivable x
xxxxxxx Debtors Xxx
-------- Closing stock x
Investments Xxx
Less: Furniture and fittings x
Drawings xxxx Plats&machinery Xxx
Xxx
--------- Land &buildings x
x
Equity shares Patents, Xxx
Xxx
Preference shares tm ,copyrights x
x
Debentures Goodwill Xxx
Xxx
Long term loans Prepaid expenses x
x
Creditors Outstanding
Xxx
Bills incomes Xxx
x
payable x
Xxx
Bank Xxx
x
overdraft x
Xxx
Loans Xxx
x
Mortgage x
Xxxx
Reserve fund Xxxx
Xxx
x
Xxxx
Xxx
Xxxx x
Xxx
x

XXXX XXXX

PROBLEMS ON JOURNAL, TRIAL BALANCE AND FINAL ACCOUNTS

Pass the following Journal Entries in Journal Book of Mr. Yadav & Co
10th April : Commenced business with a capital of Rs1,00,000
11th April : Purchased goods from Veeru for Rs 20,000
13th April : Purchased Goods for Cash 15,000
14th April : Purchased Goods from Abhiram for cash
9,000 16th April : Bought Goods from Shyam on credit
12,000 17th April : Sold goods worth 15,000 to Tarun
19th April : Sold goods for cash 20,000

20th April : Sold goods to Utsav for cash 6,000

21st April : Sold goods to Pranav on credit 17,000
22nd April : Returned goods to Veeru 3,000
23rd April : Goods returned from Tarun 1,000
25th April : Goods taken by the proprietor for personal use
1,000 26th April : Bought Land for 50,000
27th April : Purchased machinery for cash 45,000

28th April : Bought computer from Intel Computers for 25,000

28th April : Cash sales 15,000
29th April : Cash purchases 22,000

30th April : Bought furniture for proprietor's residence and paid cash 10,000
Answer:

In the Journal Book of Mr. Yadav & Co

Amou Amou
Dat Particulars nt nt
e (Debit) (Credit
)
(Rs)
(Rs)
Cash a/c 1,00,00
10t 0 100000
To Capital a/c
h
Apr [Being the business started with the capital]

il

Goods a/c or Purchases a/c 20,000

11th 20,000
To Veeru a/c
Apr
il [Being the value of stock purchased from Mr. Veeru
on credit]

Goods a/c or Purchases a/c 15,000

13th 15,000
To Cash a/c
Apr
il [Being the value of stock purchased for cash ]

Goods a/c or Purchases a/c 9,000

14th 9,000
To Cash a/c
Apr
il [Being the value of stock purchased for cash]

Goods a/c or Purchases a/c 12,000

16th 12,000
To Shyam a/c
Apr
il [Being the value of stock purchased from Mr. Shyam ]

Tarun a/c 15,000

17th 15,000
To Goods a/c or Sales a/c
Apr
il

Amou Amou
Dat Particulars
e nt nt
(Debit) (Credit
)
(Rs)
(Rs)
[Being the value of stock sold on credit to Mr. Tarun]

Cash a/c 20,000

19th 20,000
To Goods a/c or Sales a/c
Apr
il [Being the value of goods sold for cash ]

Cash a/c 6,000

20th 6,000
To Goods a/c or Sales a/c
Apr
il [Being the value of stock sold to Mr. Utsav for cash ]

Pranav a/c 17,000

21st 17,000
To Goods a/c or Sales a/c
Apr
il [Being the value of stock sold to Mr. Pranav on credit]

Veeru a/c 3,000

22n 3,000
To Goods a/c or Purchase Returns a/c
d
Apr [Being the value of goods returned to Mr. Veeru
vide returns]
il

Goods a/c or Sales Return a/c 1,000

23rd 1,000
To Tarun a/c
Apr
il [Being the value of stock returned by Mr. Tarun
vide returns ]

Drawings a/c 1,000

25rd 1,000
To Goods a/c
Apr
il [Being the value of stock taken by the proprietor]

Land a/c 50,000

26th
 Amou Amou
Dat Particulars nt nt
e (Debit) (Credit
)
(Rs)
(Rs)
Apri To Cash a/c 50,000
l
[Being the amount paid for land purchased ]

Machinery a/c 45,000

27th 45,000
To Cash a/c
Apr
il [Being the amount paid for the purchase of machinery
]

Computers a/c 25,000

28th 25,000
To Intel Computers a/c
Apr
il [Being the value of a computer purchased from
M/S Intel Computers on credit ]

Cash a/c 15,000

29th 15,000
To Goods a/c or Sales a/c
Apr
il [Being the value of stock sold for cash ]

Goods a/c or Purchase a/c 22,000

29th 22,000
To Cash a/c
Apr
il [Being the value of stock purchased for cash]

Drawings a/c 10,000

30th 10,000
To Cash a/c
Apr
il [Being the amount of cash paid for furniture
purchased for proprietor's residence]
Pass the following journal entries in the Journal Book of Surya & Co:
1 June: Paid wages to Ram in cash Rs 10000
2 June : Paid insurance by cheque Rs 50000
3 June: Paid Shyam by cheque Rs 6000
4 June: Bought stationary Rs 3000
5 June: Paid rent to Krishna by cheque Rs
20000 6 June: Paid into bank Rs 15000
7 June: Withdrew goods for personal use Rs 5000
8 June: Ranjeeth is insolvent by Rs 25000
9 June: Paid interest to bank Rs 4000
10 June: Interest received from Jayesh Rs
8000

Answer:

Journal entries in the Journal Book of Surya & Co:

Date Particulars Debit (Rs) Credit (Rs)

1 June Wages a/c 10000

To Cash a/c 10000

( Being wages paid to Ram in cash)
2 June Insurance a/c 50000

To bank a/c 50000

(Being Insurance paid to bank )
3 June Shyama/c 6000

To bank a/c 6000

(Being Shyam paid through cheque)
4 June Stationary 3000
a/c To 3000
Cash a/c
(Being Stationary paid in cash)
5 June Rent a/c 20000
To bank a/c 20000
(Being Rent paid through cheque)
6 June Bank a/c 15000
To cash a/c 15000
(Being cash deposited in bank)
7 June Drawings a/c 5000
To Goods a/c 5000
(Being goods withdrawn for personal use)
8 June Bad debts a/c 25000
To 25000
Ranjeetha/c
(Being Ranjeeth insolvent)
9 June Bank Interest 4000
a/c To Cash 4000
a/c
(Being Interest paid to bank in cash)
10 June Cash a/c 8000
To interest received a/c 8000
(Being interest received in
cash)
 Trial Balance
The accounts which appear on the Debit side of The Trial Balance are as follows:
1. Debtors
2. Purchases
3. Sales returns or Return Inwards
4. Drawings
5. Assets like Plant and Machinery, Furniture, Plant and Building
6. Expenses like Rent paid, salary paid, interest paid
7. Bills receivables
8. Discount allowed on sales
9. Carriage inwards i.e. expenses incurred during purchases of goods
10. Carriage Outwards i.e. expenses incurred during the sales of goods
11. Losses incurred such as goods destroyed by fire or goods damaged during transit

The accounts which appear on the Credit side of The Trial Balance are as follows:
1. Creditors
2. Sales
3. Purchase Returns or Return outwards
4. Capital
5. Income received like rent received, Interest received
6. Profits
7. Bank overdraft
8. Discount received on Purchases
9. Provisions made such as Provision for Bad and doubtful debts, Provision for discount to
be given to debtors
10. Reserves and funds such as general reserve funds, Worksman’s compensation funds
11. Bills Payable
Problem:
Make a trial balance as on 31 March 2020 from the following information:

Particulars Amount (Rs)

Sundry Debtors 32000
Opening stock of goods as on 1 March 2020 22000
Cash in hand 1835
Cash in bank 1545
Plant and machinery 15700
Sundry Creditors 10650
Trade expenses 1075
Sales 234500
Salaries 2225
Carriage Outwards 400
Rent Paid 900
Bills Payable 7500
Purchases 218870
Discount allowed 1100
Capital 79500
Business Premises 34500

Answer:
Trial Balance as on 31 March 2020

Particulars Debit (Rs) Credit (Rs)

Sundry Debtors 32000
Opening stock of goods as on 1 March 2020 22000
Cash in hand 1835
Cash in bank 1545
Plant and machinery 15700
Sundry Creditors 10650
Trade expenses 1075
Sales 234500
Salaries 2225
Carriage Outwards 400
Rent Paid 900
Bills Payable 7500
Purchases 218870
Discount allowed 1100
Capital 79500
Business Premises 34500
Total 332150 332150
Prepare a Trial Balance from the following as on 31 June 2020

Particulars Amount (Rs)

Capital 100000
Machinery 30000
Opening Stock of goods 16000
Wages 50000
Carriage Inwards 500
Carriage Outwards 1000
Salaries 5000
Factory Rent 2400
Repairs 400
Fuel and Power 2400
Building 111000
Sundry debtors 20000
Sales 203600
Purchases 122000
Rent Received 5000
Interest Received 2000
Profits 60000
Bank overdraft 1000
Creditors 12500
Returns Outward 2000
Returns inward 3600
Drawings 2000
Discount Allowed 750
Discount received 250
Office Expenses 1000
Manufacturing Expenses 600
Bills Payable 8500
Bills Receivable 5000
Cash in hand 2400
Cash in bank 15400
Office rent 1800
Interest Paid 6600
Provision for Bad and doubtful debts 2000
Reserves 3000
Answer:

Particulars Debit (Rs) Credit (Rs)

Capital 100000
Machinery 30000
Opening Stock of goods 16000
Wages 50000
Carriage Inwards 500
Carriage Outwards 1000
Salaries 5000
Factory Rent 2400
Repairs 400
Fuel and Power 2400
Building 111000
Sundry debtors 20000
Sales 203600
Purchases 122000
Rent Received 5000
Interest Received 2000
Profits 60000
Bank overdraft 1000
Creditors 12500
Returns Outward or Purchase Returns 2000
Returns inward or Sales Returns 3600
Drawings 2000
Discount Allowed 750
Discount received 250
Office Expenses 1000
Manufacturing Expenses 600
Bills Payable 8500
Bills Receivable 5000
Cash in hand 2400
Cash in bank 15400
Office rent 1800
Interest Paid 6600
Provision for Bad and doubtful debts 2000
Reserves 3000
Total 399850 399850
Particulars Debit Credit

Capital 75000
Drawings 10000
Sundry Debtors 25000
Sundry creditors 12000
Purchases 52000
Sales 94000
Return Inwards(Sales
Return) 4000
Return Outwards(Purchase Return) 2000
Wages 12000
Salaries 8000
Receivables 5000
Commission Received 7000
Furniture 9000
Buildings 75000
Cash In Hand 2000
Cash at Bank 14000
Bills Payable 8000
Insurance 1200
Bad Debts 1000
Provision for Bad Debts 500
Loan from Bank 20000
Discount Received 3700
Stock as on
1.9.2016 4000

Total 222200 222200

From the above Trial balance, prepare Trading account, Profit and Loss account and Balance
Sheet. The adjustments to the Trial Balance are as follows:

Adjustments:

1. Value of Closing Stock Rs 6800

2. Depreciation furniture @ 9% p.a.

3. Accrue or unpaid or outstanding salary is Rs3000

4. Prepaid Insurance or Insurance paid in advance Rs300

5. There is further bad Debt of Rs 1500

6. There is 5% Provision on Doubtful debts, 7. Interest on Capital @5% p.a.

Answer: Trading Account

Debit (Dr) Credit (Cr)

Particulars Amount Particulars Amount

(Rs) (Rs)
To opening stock of goods 4000 By Sales 94000
To Purchases52000 Less Returns Inwards 4000 90000
Less Returns Outwards 2000 50000 By Closing Stock 6800
To wages 12000
To Gross Profit 30800
96800 96800

Profit and Loss Account a/c

Debit (Dr) Credit (Cr)

Particulars Amount (Rs) Particulars Amount

(Rs)
To Salaries 8000 By Gross Profit 30800
Add outstanding 3000 11000 By Commission 7000
To Insurance 1200 By Discount Received 3700
Less Prepaid 300 900 By Provision for bad Debt 500
To Bad Debts 1000
Add Further Bad Debts 2500
1500
To Provision for Bad Debts 1175
To Depreciation on furniture 810
To Interest on Capital 3750
To Net Profit 21865
42000 42000
 Balance Sheet

Liabilities Amount (Rs) Assets Amount

(Rs)
Long term Liabilities Fixed Assets
Capital 75000 Building 75000
Add Interest on Capital Furniture 9000
3750
78750 Less Depreciation 810 8190
Add Net Profit 21865 Sundry Debtors 25000
100615 Less further bad debts 1500
Less Drawings 10000 90615 23500
Less Provision for Bad debts 22325
1175
Current Liabilities Current Assets
Short Term Loan from Bank 20000 Bills Receivables 5000
Sundry Creditors 12000 Closing Stock 6800
Bills Payable 8000 Cash in hand 2000
Outstanding salary 3000 Cash at bank 14000
Prepaid Insurance 300
133615 133615
Rough Work

Adjustments:

Trading a/c
Dr Cr
By Closing Stock 6800

Balance Sheet
Dr Cr
Current Assets
By Closing Stock 6800

Profit and Loss a/c

Dr
To Dep
on 810
furnitur
e
Balance Sheet
Dr Cr
Furniture 9000
 Less Dep 810 8190

Profit and Loss a/c

Dr Cr
To Salary 8000
Add
Outstanding 11000
2000
Balance Sheet
Dr Cr
Current
Liabilities
Outstand
ing 2000
salary
Profit and Loss a/c
Dr Cr
To Insurance
1200
Less
prepaid 900
300
Balance Sheet
Dr Cr
Current Assets
Prepaid insurance 300

Profit and Loss a/c

Dr Cr
To bad Debts
1000 1000
Add further Bad
Debt 1500 2500

Balance Sheet
Dr Cr
Current Assets
By Sundry Debtors
25000
 Less Further Bad Debts 1500

Profit and Loss a/c

Dr Cr
To Provision for Bad Debts 1175

Balance Sheet
Dr
Current Assets
By Sundry Debtors
25000
Less Further Bad Debts 1500

Less Provision for Bad

2232
Debt 1175
5
Profit and Loss a/c
Dr Cr
To interest
on capital 1000

Balance Sheet
Dr Cr
Capital 75000
Add Interest on
capital 3750