Final Account 1

FINAL ACCOUNTSFINAL ACCOUNTSand and

Reports to be AnnexureReports to be Annexure`̀ By: Dhirender KumarBy: Dhirender Kumar

Rakesh Rakesh KumarKumar

Devender Kumar Devender Kumar

Manish KumarManish Kumar

Fanish KumarFanish Kumar

Ajay KumarAjay Kumar

Final AccountsFinal Accounts

A formal records of business A formal records of business transactions in order to have an transactions in order to have an overview of the Companies profitability overview of the Companies profitability and financial condition at the end of the and financial condition at the end of the year.year.

RequirementRequirement

Money is invested in a business with the primary Money is invested in a business with the primary aim of earning profit. For knowing this, it is aim of earning profit. For knowing this, it is necessary that the Accountant must measure and necessary that the Accountant must measure and accumulate accounting data in such a manner that accumulate accounting data in such a manner that a amount of profit earned or loss suffered by the a amount of profit earned or loss suffered by the business may be determined and reported.business may be determined and reported. For the purpose of determining the profit or loss For the purpose of determining the profit or loss figure and financial position at the end of year a figure and financial position at the end of year a statement knows as statement knows as Final AccountFinal Account is prepared at is prepared at the end of accounting year which include all the the end of accounting year which include all the figures in details income, expenditure, assets and figures in details income, expenditure, assets and liabilities of the Firm .liabilities of the Firm .

Need of Final AccountNeed of Final Account

To know profitabilityTo know profitability For decision makingFor decision making To measure growthTo measure growth To control over expensesTo control over expenses

Users of Financial statementsUsers of Financial statements

Management of Company.Management of Company. Shareholder & Potential InvestorsShareholder & Potential Investors Lenders and CreditorsLenders and Creditors Employees and Trade UnionsEmployees and Trade Unions GovernmentGovernment Stock ExchangeStock Exchange

Guide lines regarding Final Guide lines regarding Final Accounts under Indian Company Act Accounts under Indian Company Act

19561956

Section 210 of Indian Companies Act 1956 Section 210 of Indian Companies Act 1956 provide that at the Annual General Meeting, the provide that at the Annual General Meeting, the Board of Directors of the Co. have to present Board of Directors of the Co. have to present Financial Statement before the members.Financial Statement before the members.

Such Balance Sheet and Profit & Loss Account Such Balance Sheet and Profit & Loss Account shall be prepared as per schedule VI to the shall be prepared as per schedule VI to the Companies Act 1956.Companies Act 1956.

Cont..Cont..

The schedule VI has four parts:The schedule VI has four parts:

It gives the details format of a Balance It gives the details format of a Balance Sheet. As per Part I the Balance Sheet Sheet. As per Part I the Balance Sheet can be prepared either in Horizontal form can be prepared either in Horizontal form or Vertical form.or Vertical form.

Part I : Part I :

Part I I :Part I I : It gives the guide lines for Profit & Loss It gives the guide lines for Profit & Loss Account such as quantitative details of Account such as quantitative details of some items must have. It does not some items must have. It does not specified any format for Profit & Loss specified any format for Profit & Loss Account. Account.

Cont..Cont..

Part IV :Part IV :

It gives the interpretation of certain It gives the interpretation of certain terms used in part I & II.terms used in part I & II.

Part III : Part III :

It deals with Balance Sheet abstract It deals with Balance Sheet abstract and the Company's general business and the Company's general business profile.profile.

Components of Final Account for Components of Final Account for Trading FirmTrading Firm

Final Account

Trading Account Profit & LossAccount

Balance Sheet

Components of Final Account for Components of Final Account for manufacturing Firmmanufacturing Firm

Final Account

Trading AccountProfit & Loss

AccountBalance Sheet

Manufacturing Account

Manufacturing AccountManufacturing Account

It is prepared with the intention to disclose It is prepared with the intention to disclose cost of the goods manufactured during a cost of the goods manufactured during a particular period.particular period.

Features of Manufacturing Features of Manufacturing AccountAccount

It is part of Trading Account.It is part of Trading Account. It is prepared by only manufacturing companies It is prepared by only manufacturing companies

in addition to Trading Account.in addition to Trading Account. In case of manufacturing more than one product In case of manufacturing more than one product

then it prepares separate account for each.then it prepares separate account for each. It contains direct cost of production.It contains direct cost of production. It is prepared to ascertain the cost of It is prepared to ascertain the cost of

manufacturing the goods.manufacturing the goods. The cost of manufacturing goods is transferred The cost of manufacturing goods is transferred

to Trading Account.to Trading Account.

Content of Manufacturing Content of Manufacturing AccountAccount

Direct MaterialDirect Material Direct LabourDirect Labour Direct ExpensesDirect Expenses Manufacturing OverheadManufacturing Overhead Closing Stock of Raw MaterialClosing Stock of Raw Material

Pro-forma of Manufacturing AccountPro-forma of Manufacturing Account

ParticularParticular AmountAmount ParticularParticular AmountAmount

To Direct Material :To Direct Material :

Opening Stock of RawOpening Stock of Raw

Material WIP Material WIP ....................

Purchases of Raw Purchases of Raw

Material WIP Material WIP ....................

Carriage inwards Carriage inwards ....................

To Direct Labour :To Direct Labour :

Factory wages Factory wages

To Direct Expenses :To Direct Expenses :

Factory rent Factory rent ....................

Fuel, power, gas Fuel, power, gas ....................

Factory insurance Factory insurance ....................

Depreciation on factory Depreciation on factory

Building and Building and

machinery machinery ....................

To manufacturing overheadTo manufacturing overhead

....................

....................

....................

....................

By Closing Stock of RawBy Closing Stock of Raw

Material WIPMaterial WIP

By Cost of goods transferredBy Cost of goods transferred

to trading accountto trading account

....................

....................

.................... ....................

………………………………. (Name of the Firm). (Name of the Firm)Manufacturing AccountManufacturing Account

Dr. for the year ending …… Cr.Dr. for the year ending …… Cr.

Trading AccountTrading Account

A trading a/c is a part of the financial A trading a/c is a part of the financial statement which determines the gross statement which determines the gross profit or gross loss during an accounting profit or gross loss during an accounting year.year.

Features Trading AccountFeatures Trading Account

Trading Account gives the overall result of Trading Account gives the overall result of trading, i.e. gross profit or gross loss.trading, i.e. gross profit or gross loss.

The equation of trading Account is as:The equation of trading Account is as: Gross profit / loss = Sales – Cost of goodsGross profit / loss = Sales – Cost of goods soldsold Debit side of account contains all direct Debit side of account contains all direct

expenses, purchases and opening stock etc.expenses, purchases and opening stock etc. Credit side of account is contains sales and Credit side of account is contains sales and

closing stock etc.closing stock etc. The Gross Profit / Gross Loss is transferred to The Gross Profit / Gross Loss is transferred to

Profit & Loss account.Profit & Loss account.

Content of Trading A/cContent of Trading A/c

Opening stockOpening stock Purchases & ReturnsPurchases & Returns Direct ExpenseDirect Expense Sales & ReturnsSales & Returns Closing stockClosing stock

Pro-forma of Trading Account in Pro-forma of Trading Account in absence of Manufacturing Accountabsence of Manufacturing Account

………………………………. (Name of the Firm). (Name of the Firm)Trading AccountTrading Account



To Opening StockTo Opening Stock

To Purchases To Purchases ……….……….

Less: Returns Less: Returns ……….………. To To Direct expensesDirect expenses

To Gross Profit c/dTo Gross Profit c/d

………………..

………………..

………………..

………………..

By Sales By Sales ……….……….

Less: Returns Less: Returns ……….……….

By Closing StockBy Closing Stock

By Gross Loss c/dBy Gross Loss c/d

………………..

………………..

………………..

……………….. ………………..

Pro-forma of Trading Account in Pro-forma of Trading Account in presence of Manufacturing Accountpresence of Manufacturing Account


To Opening Stock of finishedTo Opening Stock of finished

goodsgoods

To Cost of production ofTo Cost of production of

finished goods transferredfinished goods transferred

from Manufacturing Accountfrom Manufacturing Account

To Purchases of To Purchases of

finished goods ………finished goods ………

Less: Returns ……...Less: Returns ……...

To CarriageTo Carriage

To Gross Profit c/dTo Gross Profit c/d

………………..

………………..

………………..

………………..

By Sales ………By Sales ………

Less: Returns ……...Less: Returns ……...

By Closing Stock of finished By Closing Stock of finished

goodsgoods

By Gross Loss c/d By Gross Loss c/d

………………..

………………..

………………..

……………….. ………………..

………………………………. (Name of the Firm). (Name of the Firm)Trading AccountTrading Account


Profit & Loss AccountProfit & Loss Account

Prof. Carter : “A Profit & Loss Account is Prof. Carter : “A Profit & Loss Account is an account into which all gains & losses an account into which all gains & losses are collected in order to ascertain the are collected in order to ascertain the excess of gains over losses or vice a excess of gains over losses or vice a versa.versa.

Features Profit & Loss AccountFeatures Profit & Loss Account

Profit & Loss Account is prepared to Profit & Loss Account is prepared to calculate Net Profit or Net Loss of the firm.calculate Net Profit or Net Loss of the firm.

It follows Accrual accounting concept.It follows Accrual accounting concept. Debit side of account contains the all Debit side of account contains the all

indirect expenses, losses and Gross Loss.indirect expenses, losses and Gross Loss. Credit side of account contains the all Credit side of account contains the all

incomes, gain and Gross Profit.incomes, gain and Gross Profit. Net Profit / Net Loss is transferred to Net Profit / Net Loss is transferred to

Capital Account.Capital Account.

Content of Profit & Loss Content of Profit & Loss AccountAccount

Office & Administration expensesOffice & Administration expenses Selling & Distribution expensesSelling & Distribution expenses Financial expensesFinancial expenses Abnormal lossesAbnormal losses Income from main businessIncome from main business Financial incomeFinancial income

Pro-forma of Profit & Loss Pro-forma of Profit & Loss AccountAccount

ParticularsParticulars AmountAmount ParticularsParticulars AmountAmount

To Gross Loss b/dTo Gross Loss b/d

To SalariesTo Salaries

To RentTo Rent

To CommissionTo Commission

To AdvertisementTo Advertisement

To Bad To Bad

To Net ProfitTo Net Profit

………………..

………………..

………………..

………………..

………………..

………………..

………………..

By Gross Profit b/dBy Gross Profit b/d

By Net LossBy Net Loss

………………..

………………..

……………….. ………………..

………………………….(Name of Firm).(Name of Firm)

Profit & Loss Account Profit & Loss Account

Dr. for the year ending …….. Cr.Dr. for the year ending …….. Cr.

Balance SheetBalance Sheet

A statement which sets out the asset and A statement which sets out the asset and liabilities of a firm or an institution as on a liabilities of a firm or an institution as on a certain date. certain date.

Francis R Stead – “A balance sheet is a Francis R Stead – “A balance sheet is a screen picture of the financial position of a screen picture of the financial position of a going business at a certain moment.”going business at a certain moment.”

Features Balance SheetFeatures Balance Sheet

It is a statement prepared with the aim to It is a statement prepared with the aim to know the exact financial position of know the exact financial position of business at last date of the financial year.business at last date of the financial year.

It is a T shape statement. On the left hand It is a T shape statement. On the left hand side ‘Liabilities’ and on right hand side side ‘Liabilities’ and on right hand side ‘Assets’ of the business shown.‘Assets’ of the business shown.

A balance sheet is prepared from the Real A balance sheet is prepared from the Real a/c and Personal a/c only.a/c and Personal a/c only.

The equation of Balance Sheet is as:The equation of Balance Sheet is as: Assets = Capital + LiabilitiesAssets = Capital + Liabilities

Marshalling of Balance SheetMarshalling of Balance Sheet

The arrangement of the items in Balance The arrangement of the items in Balance Sheet in proper way is know as Marshalling Sheet in proper way is know as Marshalling of Balance Sheet. There is two type of of Balance Sheet. There is two type of Marshalling of Balance Sheet:Marshalling of Balance Sheet:

Liquidity orderLiquidity order

Permanence orderPermanence order

Liquidity OrderLiquidity Order

In Case of Liquidity Order Marshalling more In Case of Liquidity Order Marshalling more liquid Assets are shown first and then less liquid Assets are shown first and then less liquid and so on. Similarly on the liability liquid and so on. Similarly on the liability side, current liabilities in order to payment side, current liabilities in order to payment are shown first, then long term and lastly the are shown first, then long term and lastly the capital of proprietor.capital of proprietor.

Pro-forma of Balance Sheet in Pro-forma of Balance Sheet in Liquidity OrderLiquidity Order

LiabilitiesLiabilities AmountAmount AssetsAssets AmountAmount

Current LiabilitiesCurrent Liabilities

CreditorsCreditors

Bills PayableBills Payable

Bank OverdraftBank Overdraft

Outstanding ExpensesOutstanding Expenses

Income received in advanceIncome received in advance

Fixed LiabilitiesFixed Liabilities

LoanLoan

MortgageMortgage

CapitalCapital

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

Current AssetsCurrent Assets

Cash in handCash in hand

Cash at BankCash at Bank

Stock in tradeStock in trade

Bills ReceivableBills Receivable

Prepaid ExpensesPrepaid Expenses

InvestmentsInvestments

Fixed AssetsFixed Assets

Furniture & FixturesFurniture & Fixtures

Plant & MachineryPlant & Machinery

BuildingBuilding

Land Land

GoodwillGoodwill

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

TotalTotal ……………….. TotalTotal ………………..

……………….(Name of the Firm)

Balance Sheet

As on …………

Permanence OrderPermanence Order

In Case of Permanence Order Marshalling In Case of Permanence Order Marshalling more permanent Assets are shown first and more permanent Assets are shown first and then less permanent and so on. Similarly then less permanent and so on. Similarly on the liability side, permanent liabilities in on the liability side, permanent liabilities in order to payment are shown first, then long order to payment are shown first, then long term liabilities as on.term liabilities as on.

Pro-forma of Balance Sheet in Pro-forma of Balance Sheet in Permanence OrderPermanence Order

LiabilitiesLiabilities AmountAmount AssetsAssets AmountAmount

CapitalCapital

Fixed LiabilitiesFixed Liabilities

LoanLoan

MortgageMortgage

Current LiabilitiesCurrent Liabilities

CreditorsCreditors

Bills PayableBills Payable

Bank OverdraftBank Overdraft

Outstanding ExpensesOutstanding Expenses

Income received in advanceIncome received in advance

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

Fixed AssetsFixed Assets

Furniture & FixturesFurniture & Fixtures

Plant & MachineryPlant & Machinery

BuildingBuilding

Land Land

GoodwillGoodwill

InvestmentsInvestments

Current AssetsCurrent Assets

Cash in handCash in hand

Cash at BankCash at Bank

Stock in tradeStock in trade

Bills ReceivableBills Receivable

Prepaid ExpensesPrepaid Expenses

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

………………..

TotalTotal ……………….. TotalTotal ………………..

……………………………….(Name of the Firm).(Name of the Firm)

Balance SheetBalance Sheet

As on …………As on …………

Example of Final Account Prepare the final account from given trail balance and other information.

Balance as on 31-03-2009 are as follows:

Particular Debit Amount Credit Amount

Opening Stock

Capital

Debtors and Creditors

Purchase and sales

Returns

Wages and Salaries

Commission

Machinery & Furniture

Bad Debts

Provision for debt & doubtful debts

Bills Receivable & Bills Payable

Land & Building

Insurance

Cash and Bank

Drawing

25000

-

30000

200000

7500

16500

-

50000

4000

-

15000

200000

14500

25000

25000

-

225000

17500

350000

5000

-

6500

-

-

5000

3500

-

-

-

-

Additional information: Value of closing stock as on 31-03-2009 is Rs. 20000. Wages and salaries outstanding Rs. 500. Insurance prepaid Rs. 2000. Provision for doubtful debts on Debtors @ 5%. Depreciation on machinery and Furniture @ 10%. Goods costing Rs. 1200 were sold on approval basis for Rs. 15000. These goods

were not approved by customer as yet.

Solution:

Trading Account

Dr. For year ending 31-03-2009 Cr.

359500359500

327500

32000

By Sales 350000

Less: Returns 7500

Less: Goods sold to

Approval basis 15000

By Closing Stock 20000

Add: Goods sold to

Approval basis 12000

25000

195000

17000

122500

To Opening Stock

To Purchases 200000

Less: Returns 5000 To Wages & Salaries 16500

Add:O/S wags & salaries 500

To Gross Profit c/d

AmountParticularAmountParticular

Particulars Amount Particulars Amount

To Bad debts 4000

Add: New provision 1500

Less : Old provision 5000

To Insurance 14500

Less: Prepaid 2000

To Depreciation on Machinery & furniture

To Net Profit

500

12500

5000

111000

By Gross Profit b/d

By Commission

122500

6500

129000 129000

Profit & Loss Account

Dr. for the year ending 31-03-2009 Cr.

Liabilities Amount Assets Amount

Capital 225000

Less: Drawing 25000

Add: Net Profit 111000

Current Liabilities

Bills Payable

Creditors

Outstanding wages & salaries

311000

3500

17500

500

Fixed Assets

Land & Building

Machinery & Furniture 50000

Less: Depreciation 5000

Current Assets

Bills Receivable

Debtors 30000

Less: Sales on

approval basis 15000

Less: Provision for

bad debts 1500

Cash and Bank

Prepaid Insurance

Stock in trade 20000

Add: Sales on

approval Basis 12000

200000

45000

15000

13500

25000

2000

32000

Total 332500 Total 332500

Balance Sheet

As on 31-03-2009

At the end of every accounting period each At the end of every accounting period each company comes out with Financial Statement. The company comes out with Financial Statement. The following reports are annexure with Financial following reports are annexure with Financial Statement.Statement.

Report from directorReport from director Auditor’s ReportAuditor’s Report Corporate Governance ReportCorporate Governance Report Financial StatisticsFinancial Statistics Major Accounting PoliciesMajor Accounting Policies

Report to be AnnexureReport to be Annexure

Director’s ReportDirector’s Report

It is a report prepared by Directors of Company It is a report prepared by Directors of Company regarding overall performance of company. The regarding overall performance of company. The contents of a Director’s reports are as below :contents of a Director’s reports are as below :

Highlights of Financial Result.Highlights of Financial Result. An overview of performance of the Co. An overview of performance of the Co.

during the year.during the year. Future Projects in hand or expected.Future Projects in hand or expected.

Cont..Cont..

Future expansion programme.Future expansion programme. About appointment / reappointment of Auditors.About appointment / reappointment of Auditors. About retirement / appointment / reappointment About retirement / appointment / reappointment

of Directors.of Directors.

Auditor’s ReportAuditor’s Report

An Auditor’s Report is formal opinion whether the An Auditor’s Report is formal opinion whether the auditee's financial statements have been auditee's financial statements have been prepared in accordance with Generally Accepted prepared in accordance with Generally Accepted Accounting Principles (GAAP), whether they are Accounting Principles (GAAP), whether they are free of material misstatement (e.g. free of free of material misstatement (e.g. free of important and significant errors), and whether important and significant errors), and whether they show a true and fair view of the operating they show a true and fair view of the operating results, financial position and cash flows of the results, financial position and cash flows of the auditee. auditee.

Type of Auditor’s ReportType of Auditor’s Report

Unmodified Opinion reportUnmodified Opinion report Qualified Opinion reportQualified Opinion report Adverse Opinion reportAdverse Opinion report Disclaimer of Opinion reportDisclaimer of Opinion report

Corporate Governance ReportCorporate Governance Report

It is report prepared by Board of Directors It is report prepared by Board of Directors of Co. It is represent that governance of of Co. It is represent that governance of company is how fair & good. Usually CG company is how fair & good. Usually CG report have following contents:report have following contents:

Board of DirectorsBoard of Directors

Audit CommitteeAudit Committee

Shareholder CommitteeShareholder Committee

Managerial remunerationManagerial remuneration

Financial StatisticsFinancial Statistics

It contents the past record such as annual It contents the past record such as annual turnover, profit , debts of company and turnover, profit , debts of company and total wealth of the company and total wealth of the company and comparative time series analysis of these comparative time series analysis of these records to show the growth trend of records to show the growth trend of companycompany

Major Accounting PoliciesMajor Accounting Policies

Accounting policies refers to the specific Accounting policies refers to the specific accounting principal and methods for accounting principal and methods for applying those principles adopted by the applying those principles adopted by the Co.Co.

According to AS - 1 of ICAI, a Co. is free According to AS - 1 of ICAI, a Co. is free to formulate its own accounting policies.to formulate its own accounting policies.

These policies have to disclosed with These policies have to disclosed with Financial Statement.Financial Statement.

Any QuestionAny Question

Final Account 1

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