Components of final Accounts:

1) Trail balance (All ledger closing balances)

2) Trading Account (Gross Profit)
3) Profit & Loss Account (Net Profit)
4) Balance Sheet (Total Assets and liabilities)
 All the ledgers closing balances summary is
called trail balance
 TB consists of Debit and credit
 Debit side items of Trail balance:

Opening stock
Purchases
Sales return
All indirect Expenses
All Assets
 Credit side items of Trial Balance:
Sales
Incomes
Purchase return
All Liabilities
 Trading account is prepared at the end of
each accounting period to assess the GROSS
PROFIT/LOSS.
 Direct expense: The following are direct
expenses
• carriage inward
• wages
• cartage or freight
• import duty
• excise duty
• coal, fuel, power
• factory expense,
• manufacturing expenses.
Particulars amount Particulars amount

To opening stock Xxxx By sales xxxx

To purchases xxxx Less: returns xxx xxxx
Less: returns xx Xxxx By closing stock Xxxx
To carriage inwards xxxx By gross loss xxxx
To wages Xxxx (Transferred to P&L
To freight/cartage Xxxx account)
To customs duty Xxxx
To gas, fuel, coal Xxxx
To factory expenses
To other man. Expenses
To productive expenses

To gross profit c/d

(Transferred to P&L
account)
 It is prepared to ascertain the Net profit/loss
of the firm for the accounting period.
 Net profit can be arrived by deducting the

administrative expenses from the Gross

profit.
 By nature Profit & Loss account is a Nominal

account and should not have opening &

closing balances
 If the total of credit column exceeds the total
of debit column the difference is called Net
profit, which is transferred to the owner’s
capital account or added to the existing share
capital while preparing the balance sheet.
 If the total of Debit column exceeds the total

of credit column the difference is called Net

Loss, which is deducted from owner’s capital
under the liability side.
 Net profit will increase the capital and net

loss will decrease the capital.

PROFIT AND LOSS A/C OF …………………….FOR THE YEAR ENDED…………
Particulars amt Particulars amt
TO office salaries XxxxxxXx By gross profit b/d Xxxxxxx
TO rent, rates, taxes xxxXxxxx By Interest received x
XxxxXxxx Xxxx
TO Printing and stationery By Discount received
XxxxXxxx
TO Legal charges By Commission received Xxx
xXxxxXxx
To Audit fee xXxxxXxx By Income from investments Xxxx
TO Insurance xxXxxxxX By Dividend on shares Xxxx
TO General expenses xxxxXxxx By Rent received xxxxxx
XxxxxXxx
TO Advertisements
xxXxxxxx
TO Bad debts xxxxxxxx
TO Carriage outwards x
TO Repairs Xxxx
TO Depreciation Xxxx
TO interest paid Xxxxx
TO Interest on capital Xxxxx
TO Interest on loans Xxxx
TO Discount allowed Xxxxx
TO Commission
TO Net profit-------
(transferred to capital a/c)
 The preparation of Balance sheet is the last
and third stage of Final accounts.
 The balance sheet has to be prepared only

after the preparation of Trading , Profit &

Loss account.
 It is the combination of Assets & Liabilities.
 Trading, Profit & Loss account are prepared

for a period of time where as the Balance

sheet is prepared on a particular point of time
 “Balance sheet is a Statement prepared on
particular date to reflect the financial position
of the firm with all the assets and liabilities of
the firm”
 Balance sheet is not an account but it is a

final statement of the financial position of a

business on a closing date.
 Assets are shown on the right side, liabilities

including Capital is shown on the left side of

the Balance sheet.
 At the end of the year balance of assets and

liabilities are balanced.

BALANCE SHEET OF ………………………… AS ON …………………………………….
Liabilities amt Assets amt

Creditors Xxx Cash in hand xXxx

Bills payable Xxxx Cash at bank Xxx
Bank overdraft Xxxxx Bills receivable Xxx
Loans Xxxx Debtors Xxx
Mortgage Xxxxx Closing stock Xxx
Reserve fund Xxxxx Investments Xxx
Capital xxxx Furniture and fittings Xxx
+ Additional capital xx Plats&machinery Xxx
+ Interest on capital x Land & buildings Xxx
+ Net profit xxx Goodwill Xxx
Less Prepaid expenses Xxx
Drawings xxx Outstanding incomes xxx
Interest on drawings xx
Net loss xxx
 The expenditure of the firm has been divided
into Capital expenditure & Revenue
expenditure.
 Items of Revenue expenditure are taken in

trading account & Profit & Loss account.

 Items of Capital expenditure are considered

in Balance Sheet
 Capital Expenditure is an “Expenditure
intended to benefit future periods in contrast
to the Revenue expenditure, which benefits
the current period”
 The transactions of Capital expenditure give

benefits for more than one accounting period

such as acquisition and improvements of
assets.
 Capital expenditure is non recurring in

nature.
 “In Accounting revenue expenditure is
synonymous with expenses”.
 It is incurred for generating revenue in the

current accounting period & its benefits

expires within such period.
 Revenue expenditure is recurring in nature.
 Examples of Revenue expenditure:

Production expenses, selling expenses,

financial expenses etc..
 It is a peculiar type of Revenue Expenditure
that spreads more than one accounting
periods.
 Example of deferred Revenue expenditure:

advertisement
Introduction
 In a small business concern, the numbers of
transactions are limited.
 These transactions are first recorded in the journal
as and when they take place.
 Subsequently, these transactions are posted in the
appropriate accounts of the ledger.
 Therefore, the journal is known as “Book Of
Original Entry” or “Book of Prime Entry” while the
ledger is known as main book of accounts.
 On the other hand, the transactions in big concern
are numerous and sometimes even run into
thousands and lakhs. It is inconvenient and time
wasting process if all the transactions are going to
be managed with a journal.
Therefore, a convenient device is made.
Smaller account books known as subsidiary
books or subsidiary journals are disturbed
to various sections of the business house.
 As and when transactions take place, they

are recorded in these subsidiary books

simultaneously without delay.
 The original journal (which is known as

Journal Proper) is used only occasionally to

record those transactions which cannot be
recorded in any of the subsidiary books.
1.Purchases Book
2.Sales Book
3.Purchase Returns Book
4.Sales Returns Book
5.Cash Book
6.Bills Receivable Book
7.Bills Payable Book
8.Journal Proper: This is used to record all
the transactions that cannot be recorded in
any of the above mentioned subsidiary
books.
 Particulars Debit Credit
Amount Amount
Capital 87,940
Opening Stock 85,600
Discount 350
Wages 30,000
Advertising 4,700
Plant and machinery 20,000
Sales 3,60,000
Electricity charges 700
Return outwards 1,900
Office rent 1,500
Purchases 2,62,700
Bills Receivables 2,000
Cash at bank 6,660
Furniture and fittings 11,780
Sundry creditors 8,450
Cash in hand 150
Rates and taxes 300
Printing and stationery 500
Sundry debtors 18,000
Drawings 12,500
General expenses 1,230
Insurance 320

4,58,640 4,58,640
 Adjustments
(a) Closing Stock Rs. 30,000
(b) Rates and taxes paid in advance Rs. 30.
(c) Rent paid in advance Rs.200
(d) Provide for bad debts Rs.200.

The above are the balance taken on 31st

December, 2002 from the books of
Mr.R.Sivaji, prepare Trading & Profit & Loss
account & Balance sheet.
2.The following trial balance of Abhiram was
prepared on 31st March 2006.

Prepare, Trading and Profit and Loss A/c and

Balance Sheet.
Adjustments
Closing stock was valued at Rs.60,000
 Particulars Dr.Rs Cr.Rs
Capital 22,000
Opening stock 10,000
Debtors and creditors 8,000 12,000
Machinery 20,000
Cash at bank 2,000
Bank overdraft 14,000
Sales returns and purchase returns 4,000 8,000
Trade expenses 12,000
Purchases and Sales 26,000 44,000
Wages 10,000
Salaries 12,000
Bills payable 10,600
Bank deposits 6,600
1,10,600 1,10,600
3.The following are the balances extracted from the books of Z
Ltd.
On 31st December2006:
Rs.

Z’s Capital 30,000 Discount (Dr.) 1,600

Z’s drawings 5,000 Discount (Cr.) 2,000
Furniture & Fittings 2,600 Taxes and Insurance
2,000
Bank Overdraft 4,200 General expenses
4,000
Creditors 13,800 Salaries 9,000
Business Premises 20,000 Commission (Dr.)
2,200
Opening stock 22,000 Carriage inward
1,800
Debtors 18,000 Bad debts 800
Rent from tenants 1,000 Sales 1, 50,000
Purchases 1, 10,000 Sales Returns 2,000
Adjustments:
(a) Closing stock was Rs. 20,060.
(b) Write off depreciation on Business Premises
Rs. 300 Furniture & Fittings Rs.
250
(c) Make a reserve of 5% on Debtors for
doubtful debts.
(d) Allow interest on capital at 5%
From the above information prepare profit and
loss account and balance sheet.