Final accounts

IntroductionThis is a key topic in the OCR specification. In the Accounting Principles paper, a question will be asked requiring you to prepare:A trading accountA profit and loss accountA balance sheet

This brings together much of the work in the Accounting Principles unit.

Use the vertical form of presentation.

For this topic, you need to know how the following are dealt with in the final accounts:

DepreciationPrepayment and accrualsBad debts and provisionsDiscountsLoan interestDrawings.

DepreciationThe amount of depreciation for the financial year must be shown in the profit and loss account as an expense.

The fixed assets must be shown in the balance sheet at the Net Book Value.

The cost of the asset less the accumulated depreciation to date equals the Net Book Value.

£Cost of motor vans 60,000Provision for depreciation: vans 15,000

Depreciation policy: reducing balance

Profit and loss account extractDepreciation: motor vans (45,000 × 0.20) 9,000

Balance sheet extractCost Depreciation Net Book Value

Motor vans 60,000 24,000 36,000

Prepayments and accrualsYou will be required to adjust the trial balance figures for prepaid amounts and accruals/amounts owing.

Prepaid amounts are assets and must be debit balances in the ledger. Prepaid amounts must be shown in the balance sheet at the year end as current assets.

The amount shown in the trial balance plus prepaid amounts at the start minus prepaid amounts at the end = the expense for the profit and loss account for the year.

It is very important to revise the work covered earlier on adjustments.

Making adjustmentsWhen the note in the additional information affects an account in the trial balance, it is a good idea to mark the value in the trial balance with a cross, or show the adjusted amount.

Items that are crossed or marked should be ticked as they are dealt with. If any items are not ticked, this should act as a warning that the items must be dealt with in the final accounts.

It is vital to work through questions on this topic from OCR past papers, and use the mark schemes to see how marks are awarded.