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61dfcmodule II

1. The document discusses the key stages in preparing final accounts: trading account, profit and loss account, and balance sheet. It may also include a manufacturing account for manufacturing concerns. 2. Key points about each account are summarized, including calculating gross profit/loss, expenses, net profit/loss, assets/liabilities, and financial ratios. 3. Common adjustments that may be needed for final accounts are listed, such as closing stock, depreciation, prepaid/accrued items, and interest, and where they would appear in the trial balance and adjustments.

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yogesh607
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0% found this document useful (0 votes)
182 views

61dfcmodule II

1. The document discusses the key stages in preparing final accounts: trading account, profit and loss account, and balance sheet. It may also include a manufacturing account for manufacturing concerns. 2. Key points about each account are summarized, including calculating gross profit/loss, expenses, net profit/loss, assets/liabilities, and financial ratios. 3. Common adjustments that may be needed for final accounts are listed, such as closing stock, depreciation, prepaid/accrued items, and interest, and where they would appear in the trial balance and adjustments.

Uploaded by

yogesh607
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Final Accounts Name of Institution

There are three following stages of


preparing final accounts of a trading
concern:
2. Trading Account
3. Profit and Loss Account
4. Balance Sheet
Manufacturing concerns prepare
Manufacturing Account also before
preparing Trading Account
1
Trading Account Name of Institution

Gross profit or Gross loss is ascertained by preparing Trading A/c.

Cost of goods sold = opening stock+ Net purchases+ Direct expenses-


Closing stock

Importance and purpose of preparing Trading A/c:


• Ascertaining gross profit or gross loss
• Ascertaining ratio of direct expenses to gross profit
• Calculation of gross profit ratio
• Comparison of stock with the stock of previous year
• Comparing the actual performance with the desired performance
• Comparing the actual performance with the previous performance

2
Profit and Loss Account Name of Institution

This account gives the overall profit or loss made


or suffered during a particular period.

Importance:
• Knowledge of net profit or net loss
• Calculation of expenses ratio to sales
• Comparison of actual performance with the
desired performance
• Maintaining provision and reserves
• Determining future line of action

3
Manufacturing Account Name of Institution

This account gives the cost of the goods


manufactured by a manufacturer during a
particular period.
Dr Manufacturing A/c Cr
Particulars Amount Particulars Amount

To work in process By work in process


(opening) (closing)
To Raw Material consumed: By sale of scrap
Opening stock
Add: purchase of raw
material
Less: closing stock of raw
material
To factory overheads By cost of production 4
transferred to trading A/c
Balance sheet Name of Institution

‘A balance sheet is a mirror which reflects the true


position of assets and liabilities on a particular date.’

Assets = Liabilities + Capital

Characteristics:
• Balance sheet is a statement
• Prepared on a specified date
• It is a statement of assets and liabilities
• Knowledge about the nature of assets and liabilities
• Knowledge of financial position
• Assets and Liabilities tally each other

5
Objectives: Name of Institution

• To assess the financial position of the firm


• Knowledge of proprietary ratio
• Protection against possible losses
• Calculation of financial ratios
• Calculation of working capital
• Knowledge regarding sources and
application of funds

6
While preparing final accounts, at the end of every accounting period, we come across
certain problems. The accountant may come to know of certain adjustments to be
Name of Institution
made in the books of accounts to give a true picture of the state of affairs of the
business after closing the books of accounts. These adjustments generally relate to
the following:
Adjustment If appears in Trial Balance If appears in
Adjustment
I. Closing stock Cr. Side of trading a/c (i) Cr. Side of trading
A/c
(ii) Asset side of
Balance sheet
II. Depreciation Dr. side of P/L a/c (i) Dr. side of P/L a/c
(ii) Reduce the value of
concerned asset in
balance sheet
III. Appreciation Cr. Side of P/L a/c (i) Cr. Side of P/L a/c
(ii) Increase the value of
concerned asset in
balance sheet
IV. Outstanding Expenses Liability side only in Balance Sheet (i) Added to concerned
expense at the debit
side of Trading or
P/L a/c
(ii) Liability side of
Balance Sheet 7
Adjustment If appears in Trial Balance If appears in
Adjustment
V. Prepaid expenses Asset side of Balance Sheet (i) Name
Deduce from
of Institution
concerned expenses
at the debit side of
Trading or P/L a/c
(ii) Asset side of
Balance Sheet

VI. Outstanding or Accrued Asset side of Balance sheet (i) Added to the
income concerned income at
the credit side of P/L
a/c
(ii) Asset side of
Balance Sheet

VII. Unearned Income Shown at the liabilities side of (i) Deduct from the
Balance Sheet concerned income at
the credit side of P/L
a/c
(ii) Shown at liabilities
side of Balance
Sheet.

VIII. Interest on capital Debit side of the P/L a/c (i) Dr. side of P/L a/c
(ii) Increase amount of
capital at the
8
liabilities side of
Adjustment If appears in Trial Balance If appears in
Adjustment
IX. Interest on drawings Credit side of P/L a/c (i) Name of Institution
Cr. Side of P/L a/c
(ii) Deduct from capital
at liabilities side of
Balance Sheet.
X. Interest on loan (BORROWED) (i) Debit side of P/L a/c
Debit side of P/L a/c (BORROWED)
(ADVANCED) (iii) Added to loan A/c at
Credit side of P/L a/c liability side of
Balance sheet.
(ADVANCED)
(v) Credit side of P/L a/c
(vi) Added to lon A/c at
asset side of Balance
Sheet.
XI. Interest or dividend on Credit side of P/L a/c (i) Credit side of P/L a/c
investment (ii) Added to the value of
investment, shown at
the asset side of
Balance Sheet
XII. Bad Debts Debit side of P/L a/c (i) Debit side of P/L a/c
(ii) Deducted from
debtors at the Asset
side of Balance 9
Sheet
Adjustment If appears in Trial Balance If appears in
Adjustment
XIII. Provision for bad debt (i) Shown at Cr. Side of P/L a/c (i) Name
Shownof Institution
at liability
or side of Balance
(iii) Deducted from total of bad sheet
debts, further bad debts at debit Or
side of P/l a/c Deducted from sundry
Or debtors at the asst
(iii) Liability side in Balance Sheet side of Balance
XIV. Provision for discount on Debit side of P/L a/c (i) sheet
Debit side of P/L a/c
debtors (ii) Debit sidefrom
(ii) Deducted of P/L a/c
debtors at the asset
side of balance sheet

XV. Provision for discount on Credit side of profit and loss A/c (i) Credit side of P/L a/c
creditors (ii) Deducted from
creditors at the
liability side of
Balance Sheet

10
The following is the trial balance of Mr. Kapur on 31st March
Name of Institution
1993:
Debit Credit

Cash in hand Rs. 1080


Cash at bank 5260
Purchases 81350
Sales 197560
Returns 1360 1000
Wages 20960
Fuel and power 9460
Carriage on sales 6400
Carriage on purchases 4080
Stock (1-4-92) 11520
Buildings 60000
Freehold land 20000
Machinery 40000
Salaries 30000
Patents 15000
General expenses 6000
Insurance 1200
Capital 1,42,000
Drawings 10,490
Sundry debtors 29000
Sundry creditors 12600
____________________________________________________________________________

353160 353160

11
Name of Institution

Taking into account the following adjustments, prepare


Trading and P&L A/c and the Balance Sheet:
• Stock on hand on 31st March1993 is Rs. 13600
• Machinery is to be depreciated at the rate of 10% and
the patents at the rate of 20%
• Salaries for the month of March 1993 amount to
Rs.3000 were unpaid
• Insurance includes a premium of 170 for next year
• Wages include a sum of Rs.4000,spent on the erection
of cycle shed for employees and customers
• A provision for bad and doubtful debts is to be created
to the extent of 5% on sundry debtors
12
The following is the trial balance of Sri Om as on 31st March, 1999. You are requested to
prepare the trading and Profit and Loss A/c for the year ended 31st March1999 and Balance
Name of Institution
sheet as on that date after making the necessary adjustments:
Particulars Debit ( Rs.) Credit (Rs.)
Sundry debtors 500000
Sundry creditors 200000
Outstanding expenses 55000
Wages 100000
Carriage outwards 110000
Carriage Inwards 50000
General Expenses 70000
Cash Discounts 20000
Bad debts 10000
Motor car 240000
Printing and stationery 15000
Furniture and fittings 110000
Advertisement 85000
Insurance 45000
Salesmen’s commission 87500
Postage and telephone 57500
Salaries 160000
Rates and taxes 25000
Drawings 20000
Capital Account 14,43,000
Purchases 1550000
Sales 19,87,500
Stock on 1.4.99 2,50000
Cash at Bank 60000 13
Cash in hand 10500
Name of Institution

The following adjustments are to be made:


1. Stock on 31st March 1999 was valued at Rs.7,25,000
2. A provision for bad and doubtful debts is to be created to the
extent of 5% on sundry debtors
3. Depreciate:
Furniture and fittings by 10%
Motor car by 20%
7. Shri Om had withdrawn goods worth Rs.25000 during the year
8. Sales include goods worth Rs.75000 sent out to Shanti& co. on
approval and remaining unsold. The cost of the goods was
Rs.50000
9. The salesmen are entitled to a commission of 5% on total sales
10. Debtors include Rs.25000 bad debts
8. Purchases include purchase of furniture worth Rs.50000

14

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