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FINAL ACCOUNTSAs per accounting cycle the transactions arefirst recorded in journal, from where theyare posted to the relevant ledger account
then account is balanced and a trial balanceis prepared. After the trial balance finalaccounts are prepared to achieve the
objectives of accountancy
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FINAL ACCOUNTS
ORGANIZATION
MANUFACTURING
ORGANIZATION
Final Account in the form of:
Manufacturing Trading A/c
Profit & Loss A/c
Balance Sheet
PROFIT MAKING
ORGANIZATIONAlso calledBusiness
organization
NON-PROFIT MAKING
ORGANIZATIONFinal Account in the form of: Receipt & Payment A/c
Income & Expenditure A/c Balance Sheet
TRADING ORGANIZATION
Final Account in the form of:
Trading A/c
Profit & Loss A/c
Balance Sheet
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FINAL ACCOUNTS
Final accounts are the means of conveying to themanagement, owners and interested outsiders aconcise picture of profitability and financial
position of business. It is the end product ofaccounting process which gives consolidatedaccounting information of the accounting period,after the accounting period is over.
(i) Net result i.e. profit or loss made by theorganization during the accounting period. (ii) To know the financial position of the business
i.e. assets and liabilities of the business as ongiven date
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FINAL ACCOUNTS
Components:
- Trading a/c
- Profit and loss a/c
- Balance sheet
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Trading account Trading account is the first part of final account
which is prepared to calculate the gross profitor gross loss of the business concern. Thedetermination of the gross profit/loss is veryimportant because it is essential for the trader
to know whether his core activity is efficient inearning or not.
Need or Importance's: - To determine the cost of production - To assemble all the direct expenses - To ascertain the performance by Gross profit
margin.
- To help to calculate the ratio of cost of goodsold.l h d d
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Usual items on the debit side1. Opening stock: It is the goods which remain unsold at
the end of previous year.2. Purchase and purchase returns: Purchase means
purchase of raw materials or resale goods made duringthe year. Both cash and credit purchase are taken intoconsideration but purchase return is deducted frompurchase, which gives net purchase.
3. Purchase expenses: All the expenses that are incurredto brin
g the raw material or goods upto the godown arepurchase expenses.
4. Manufacturing expenses: All expenses incurred in
factory for manufacturing the goods. Usual items on the CREDIT side
1. Sales and sales return: Sales include both cash andcredit sales of trading goods but sales return must bededucted to give net sales.
2. Closing stock: It denotes the value of goods whichremain unsold
at the end of trading period. It should bevalued at cost or market price, whichever is less.
3. Good lost by fire, theft
D T di C
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Dr. Trading A c Cr.
To Opening stock To Purchases
Less: Purchase return
Less: Goods drawing Less: Goods used in business
To Carriage or carriage inwards To Freight inwards To Import duty To Octroi (Municipal charge) To Clearing charge (port charge) To wages (Wages and salaries) To Factory rent, rates, tax, insurance To Depreciation of Factory
To Motive power To Excise duty To Royalty, fees etc To Gross Profit c/d
By Sales
Less: Sales return
By Good Loss by Fire, theft etc
By closing stock
By Gross Loss c/d
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Trading A/C
Net SalesCost of goods sold Gross profit /Gross loss
Function:Calculate the gross profit or gross loss.
Net Sales =
Sales
Returnsinwards
Cost of goods sold =Opening stock(Net Purchases
+Carriage inwards) +Direct Expenses
- Closing stockNet Purchases =Purchases Returns
outwards
Gross profit:Net Sales>Cost of sales
Gross loss:Cost of sales>Net sales
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prepare a trading account on 31st December, 2009 of X & Co from thefollowing balances.
Rs Rs
Stock on 1st January 11,000 Returns outwards 500
Bills receivables 4,500 Salary expenses 200
Purchases 39,000 Office fixtures 1,000
Wages 2,800 Cash in hand 500
Insurance 700 Cash at bank 4,750
Sundry debtors 30,000 Factory Rent and taxes 1,100
Carriage inwards 800 Carriage outwards 1,450
Commission (Dr.) 800 Sales 60,000
Dep of factory building 1000 Dep of Office building 500
Motive power 200 Royalty 300
Interest on Bank Loan 700 Bills payable 3,000
Stationary 450 Creditors 19,650
Returns inwards 1,300 Capital 17,900
Closing Stock 10,000
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Profit and loss account
Profit and loss account is the second partof final account. After the preparation of
Trading a/c the next step is to prepareprofit and loss a/c with a view toascertain net profit or net loss during theaccounting period.
Need or Importances: - To determine the net profit or net loss - To determine the ratios of indirectexpenses and net profit
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Usual items on the debit side
1. Gross loss: Transferred from Trading a/c.
2. Office and Administrative expenses: All
expenses related to office and administrative. 3. Selling and Distribution expenses: It includes
the expenses arise due to the sales promotion
and distribution of final product. 4. Other items: Other expenses not treated in
above heads but they are necessarily post in p/la/c
Usual items on the Credit side 1. Gross profit: Transferred from trading a/c.
2. Revenue received: This includes the income
received in any course of business transactions.
D P fi & L A/ C
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Dr. Profit & Loss A/c Cr.To salaries or salaries & wagesTo Office rent/lighting/insuranceTo Printing and stationary
To legal charges/audit feesTo Postage and telegramTo depreciation of office buildingTo Interest on loan/ Bank chargesTo discount allowed
To Salesman salaries/ CommissionTo Advertisement/Free samplesTo Bad debtsTo Traveling expensesTo Carriage outward
To Repairs and renewalsTo manager commissionTo provision for taxationTo provision for debtsTo Loss on sale of fixed assetsTo Net profit c/d
By Gross Profit b/d
By Commission received
By Discount received
By Rent received By Bad debts recovered
By Transfer fees
By Interest received
By Dividend received By Profit on sale of fixed
asset
By Sale of scrap
By Miscellaneous income By Net loss c/d
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Profit and loss A/C
Gross profitOther incomeExpensesNet profit / Net loss
Functions: calculate the net profit / net loss.
Other income=rental income + commission income+
Expenses=rent and rates+commission+electricity+
Net profit:Gross profit+Income>Expenses
Net loss:Expenses>Gross profit+Income
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prepare a Profit & Loss account on 31st December, 2009 of X & Cofrom the following balances.
Rs Rs
Stock on 1st January 11,000 Dep. of delivery van 500
Bills receivables 4,500 Salary expenses 200
Purchases 39,000 Office fixtures 1,000
Travelling expenses 2,800 Gross Profit 20,000
Insurance of Factory 700 Cash at bank 4,750
Discount (Cr) 200 Factory Rent and taxes 1,100
Carriage inwards 800 Carriage outwards 1,450
Commission (Dr.) 800 Sales 60,000
Dep of factory building 1000 Dep of Office building 500
Motive power 200 Postage 300
Interest on Bank Loan 700 Bills payable 3,000
Printing & Stationary 450 Creditors 19,650
Commission received 300 Capital 17,900Closin Stock 10 000 Office Rent 2 000
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Balance sheet
Balance sheet, the last part or third part offinal account, is the accounting statementprepared from accounting balance at a givendate in order to show the financial position ofthe organisation. A balance sheet shows theassets and liabilities grouped properly classifiedand arrange in a specific manner.
Need or Importances: - To shows the financial position of organisation - To test the liquidity position - To know the solvency position - To insists the assets and liabilities
management
Li biliti B l Sh t A t
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Share holder's Fund Share capital Reserve & surplus
P/L a/c Retained earning Sinking fundLong Term Liabilities Debentures
Bonds Bank loan Mortgage loan Secured loanCurrent Liabilities Bank overdraft Creditors Bills payable Outstanding expenses Provision for taxation Proposed dividend Advance income
Fixed Assets
Land and Building/Plant and Machinery
Furniture and fixture/ Motor vehicles
Long term investment Goodwill/Patent/Trade mark/Copyright
Current Assets
Debtors /Account receivable
Stock/Inventory Marketable securities
Loans and Advance
Cash & Bank
Prepaid and Accrued income
Short term investment
Fictitious Assets
P/L a/c (Dr.)
Preliminary expenses
Advertisement expenses
Liabilities Balance Sheet Assets
B l h 1 b f & f h
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prepare a Balance Sheet on 31st December, 2009 of X & Co from thefollowing balances.
Rs Rs
Prepaid rent 1,000 Machinery 50,000
Bills receivables 4,500 Salary expenses 200
Purchases 39,000 Office fixtures 1,000
Travelling expenses 2,800 Cash in Hand 2,000
Advance Commission 700 Cash at bank 5,000
Net Profit (P/L a/c) 10,000 Factory Rent and taxes 1,100
Carriage inwards 800 Carriage outwards 1,450
Commission (Dr.) 800 Sales 60,000
Dep of factory building 1000 Good will 500Reserve & surplus 3,000 Postage 300
Bank Loan 20,000 Bank Overdraft 3,000
Printing & Stationary 450 Creditors 5,000
Commission received 300 Share Capital ?
di d fi d l d b l h
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prepare a trading and profit and loss account and balance sheet on31st December, 2009 of XYZ Co from the following balances.
Rs Rs
Stock on 1st January 11,000 Returns outwards 500
Bills receivables 4,500 Office expenses 200
Purchases 39,000 Office fixtures 1,000
Wages 2,800 Cash in hand 500
Insurance 700 Cash at bank 4,750
Sundry debtors 30,000 Tent and taxes 1,100
Carriage inwards 800 Carriage outwards 1,450
Commission (Dr.) 800 Sales 60,000
Interest (Dr) 700 Bills payable 3,000
Stationary 450 Creditors 19,650
Returns inwards 1,300 Capital 17,900
Additional Information:Closing Stock is Rs. 8000.
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The rules to prepare the Final Account:Debit Credit
AssetsDrawings
Expenses/Loss
LiabilitiesCapital
Income/ Gains
Balance Sheet
Trading A/c
Profit & Loss A/c
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The rules to prepare the Final Account
A/C
Head
Trial
Balance
Final A/c
Assets Dr side Balance Sheet-Assets Side
Liabilities Cr Side Balance Sheet-Liabilities Side
Capital Cr Side Balance Sheet-Liabilities SideExpenses/Loss
Dr Side Direct Expenses- Trading A/c Dr side
Indirect Expenses- Profit & Loss A/c
Dr sideIncome/Gains
Cr side Direct Income like sales Trading A/cCr side
Other Income Profit & Loss A/c Crside
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Some ExceptionsA/CHead
TrialBalance
Final A/c
Drawing Dr side Balance Sheet-Assets Side or Drawing canbe deducted from Capital in Liabilities side
ReturnOutward
Cr Side Return outward (purchase return) shouldbe deducted from Purchase in Trading A/c
ReturnInward
Dr Side Return inward (Sales return) should bededucted from Sales in Trading A/c
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Adjustments for Final
Accounts
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Prepayments and Accruals Expenses and revenues are not always paidor received on time.
Cash paid and received in a year shouldnot be entered directly into the profit andloss account of that year.
Adjustment should be made.
P id
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Prepaid expensesthose to be used in the following period buthave been paid for in advance.
Accrued expensesthose which have been used up in the currentyear, but have not yet been paid for.
Prepaid incomethose to be earned in the following period buthave been received in advance.
Accrued incomethose which have been earned in the currentperiod but have not yet been received.
Pr p id Exp ns s
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Prepaid Expenses Those Expenses to be used in the following period but
have been paid for in advance.
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Prepaid Rent expenses a/c 3000
To Rent expenses a/c 3000
Treatment Adjustment entries:Balance sheet Current Assets Prepaid rent expenses 3000Profit & Loss a/c: Rent expense: 15000
Less: Prepaid rent 3000 12000
Particulars Debit Credit Transferred
Rent 15000 Profit & Loss a/cAdjustment : Rent includes Rs 3000 of 1st Quarter, 2010.
Accrued Expenses:Outstanding/Due
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Accrued Expenses:Outstanding/Due those which have been used up in the current year, but
have not yet been paid for.
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Rent expenses a/c 1000
To Accrued Rent a/c 1000
Treatment Adjustment entries:Balance sheet Current Liabilities Accrued rent 1000Profit & Loss a/c : Rent expense: 11000
Add: Accrued rent 1000 12000
Particulars Debit Credit Transferred
Rent 11000 Profit & Loss a/cAdjustment : Rent Accrued Rs 1000 on 31st Dec, 2009.
Prepaid Income:Advance Income
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Prepaid Income:Advance Income Those income to be earned in the following period but
have been received in advance.
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Service fees a/c 200
To Advance income a/c 200
Treatment Adjustment entries:Balance sheet Current Liabilities Advance income 200Profit & Loss a/c : Service fees: 1200
Less: Advance 200 1000
Particulars Debit Credit Transferred
Service fees 1200 Profit & Loss a/cAdjustment : Service fees earned to the extent of 1000.
Accrued income
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Accrued income Those income which have been earned in the current
period but have not yet been received.
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Accrued interest income a/c 500
To Interest income a/c 500
Treatment Adjustment entries:Balance sheet Current Assets Accrued interest income 500Profit & Loss a/c : Interest income: 2500
Add: Accrued income 500 3000
Particulars Debit Credit Transferred
InterestIncome 2500 Profit & Loss a/cAdjustment : Interest income accrued Rs 500 on31st Dec,2009
Other Adjustments:Depreciation
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Other Adjustments:Depreciation Depreciation is the Gradual reduction of Fixed Assets
because of wear & tear i.e. Continious use
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Depreciation a/c 5000
To Machinery a/c 5000
Treatment Adjustment entries:Profit & Loss a/c Expenses Depreciation on Machinery 500
Balance sheet: Fixed Assets: Machinery 50000Less: Depreciation 5000 45000
Particulars Debit Credit Transferred
Machinery 50000 Balance SheetAdjustment : Depreciation for the year @10%p.a
Adj tm t : Fi titi A t it ff
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Adjustments: Fictitious Assets write off Like Depreciation, Fictitious (Intangible) Assets decrease
year to year called written off
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Goodwill write off a/c 200
To Goodwill a/c 200
Treatment Adjustment entries:Profit & Loss a/c Expenses Goodwill write off 200
Balance sheet: Fixed Assets: Goodwill 1000Less: goodwill write off 200 800
Particulars Debit Credit Transferred
Goodwill 1000 Balance SheetAdjustment : 1/5 th Goodwill is write off.
Other Adjustments:Bad Debts
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Other Adjustments:Bad DebtsA Part of Debtors who failed to pay the due
amount
Following transaction is given below:Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Bad debts a/c 500
To Debtors a/c 500Treatment Adjustment entries:Profit & Loss a/c : Expenses : Bad debts: 1000
Add: new bad debts: 500 1500
Balance sheet: Current Assets: Debtors 8000
Less: new bad debts 500 7500
Particulars Debit Credit Transferred
Bad debts 1000 Profit & Loss a/c
Debtors 8000 Balance SheetAdjustment : Bad debts amounting 500.
Adj: Bad Debts & Provision for bad debts
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Adj: Bad Debts & Provision for bad debtsFollowing transaction is given below:
Trial Balance as on 31st Dec, 2009
Treatment Adjustment entries:Profit & Loss a/c : Expenses : Bad debts: 1000
Add: new bad debts: 500Add: new provision: (8000-500) @2% 150 1650
Balance sheet: Current Assets: Debtors 8000Less: new bad debts 500Less: new provision 150 7350
Particulars Debit Credit Transferred
Bad debts 1000 Profit & Loss a/c
Debtors 8000 Balance Sheet
Adjustment : Bad debts amounting 500.& Provision for bad debts @2%
Adjustments: Provision for Tax
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Adjustments: Provision for TaxFollowing transaction is given below:
Trial Balance as on 31st Dec, 2009
Adjustment journal entries: Dr. Cr.Provision for tax exps a/c 3000
To Provision for tax a/c 3000Treatment Adjustment entries:Profit & Loss a/c : Expenses : provision fro tax : 3000
Balance sheet: Current Liabilities : Provision fro tax 5000Add: new Provision 3000 8000
Particulars Debit Credit Transferred
Provision for tax 5000 Balance sheet (CL)
Adjustment : Provision for tax amounting Rs 3000.
Adjustments: Good Lost by fire theft etc
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Adjustments: Good Lost by fire, theft etcFollowing transaction is given below:
Adjustment journal entries: Dr. Cr.Good Lost by theft a/c 1000Insurance Claim A/c 2000
To purchased a/c 3000
Treatment Adjustment entries:Trading A/c : Cr side (either deduction from purchase in Dr side)
By Good Lost 3000
Profit & Loss a/c : (Actual Loss) To Loss on fire, theft : 1000
Balance sheet: Current Assets : Insurance Claim 2000
Adjustment : Good Lost by fire Rs 3000, And InsuranceCompany admitted the claim of Rs 2000 only.
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Prepare a trading and profit andloss account and balance sheet on
31st December, 2009 of XYZ Cofrom the following balances.
Trial Balance As on 31st December, 2009 of
XYZ Co from the following balances.
Particulars Rs (Dr) Particulars Rs (Cr)
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u Rs (Dr) u Rs (Cr)
Stock at beginning 8,000 Returns outwards 600
Bad Debts 500 Sales Revenue 51,500
Purchases 30,000 Bank Loan 10,000
Wages 1,000 10% Debenture 15,000
Furniture & Fixture 18,000 Creditors 5,000
Sundry debtors 12,500 Capital 20,000
Carriage inwards 200 Provision for Tax 2,000
Commission 800 Rent Received 1,000
Interest 1,000 Profit & Loss a/c 6,000
Cash & bank 4,000 Proposed Divided 3,000
Stationary expenses 1,500 Transfer fees 400Returns inwards 500 Discount 500
Preliminary expense 1,000 Reserve & Surplus 5,000
Plant & Machinery 40,000 Total 120,000
Rent, and taxes 600
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Additional Information:1. Closing Stock is Rs. 8000.2. Depreciation for furniture @ 20%. On Plant &
Machinery @ 10%3. Outstanding wages Rs 5004. Unearned rent is Rs 2005. 2/5 of the preliminary expenses is written off.6. Further bad debts Rs 1500 And provision for bad debts
@ 2%.
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