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    Provided by Sherazi (Accounts) : Final Account

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    Shahid Abbas
    The document discusses the preparation of final accounts, including the trading account, profit and loss account, and balance sheet. It provides details on: 1. How direct and indirect expenses and incomes are categorized and recorded in the trading account and profit and loss account. 2. Key adjustments such as closing stock, depreciation, prepaid expenses, and their recording in the final accounts. 3. Treatment of items like bad debts, discounts, interest calculations, and their effects on the profit and loss account and balance sheet.

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    Provided by Sherazi (Accounts) : Final Account

    Uploaded by

    Shahid Abbas
    129 views3 pages
    The document discusses the preparation of final accounts, including the trading account, profit and loss account, and balance sheet. It provides details on: 1. How direct and indirect expenses and incomes are categorized and recorded in the trading account and profit and loss account. 2. Key adjustments such as closing stock, depreciation, prepaid expenses, and their recording in the final accounts. 3. Treatment of items like bad debts, discounts, interest calculations, and their effects on the profit and loss account and balance sheet.

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    Intermediate students

    Original Title

    Final Account B.com

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    The document discusses the preparation of final accounts, including the trading account, profit and loss account, and balance sheet. It provides details on: 1. How direct and indirect expenses and incomes are categorized and recorded in the trading account and profit and loss account. 2. Key adjustments such as closing stock, depreciation, prepaid expenses, and their recording in the final accounts. 3. Treatment of items like bad debts, discounts, interest calculations, and their effects on the profit and loss account and balance sheet.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    129 views3 pages

    Provided by Sherazi (Accounts) : Final Account

    Uploaded by

    Shahid Abbas
    The document discusses the preparation of final accounts, including the trading account, profit and loss account, and balance sheet. It provides details on: 1. How direct and indirect expenses and incomes are categorized and recorded in the trading account and profit and loss account. 2. Key adjustments such as closing stock, depreciation, prepaid expenses, and their recording in the final accounts. 3. Treatment of items like bad debts, discounts, interest calculations, and their effects on the profit and loss account and balance sheet.

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    © All Rights Reserved
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    of 3

    Notes on Final Account

    Provided by Sherazi (Accounts)


    Final Account:
    Final account is prepared to examine the financial position of the firm. It is necessary for COMPANIES
    but optional for partnership and sole ownership. It is the Final stage of the accounting cycle that’s why it is called
    final account.

    Final Account

    Trading Account Profit and loss account Balance sheet


    Direct Expenses:
    1: Link with purchases
    Wages
    Transportation inward/Carriage inward/Freight inward
    2: All Factory expenses
    Direct Income:
    1. Sales and Closing Stock
    Indirect Expenses:
    1: Link with sales
    2: All Office / Selling / Admin / Distributing expenses
    Office rent Advertisement Salary Carriage outward
    Printing Freight outward
    Stationary Transportation outward
    Rent
    Indirect Income:
    Any thing which is received. E.g. Dividend, Interest on investment, interest on loan, discount on
    creditors, Interest on drawings etc.
    Custom Duty:
    All duties are direct expense except Export duty because it linked with sales. Other duties are import
    duty, Excise duty, Octroi duty are direct expense.
    Trading Account
    Direct Expenses Direct Income
    Opening Stock Sales
    Less: Return
    Purchases Closing Stock
    Less: Return
    Discount and Allowances
    Wages
    Custom duty, Import duty, Octroi duty. Excise duty
    Carriage inward, Transportation inward, Freight inward
    Clearing Charges
    Dock Charges
    Gas, Oil, Fuel, Manufacturing expenses, Motive power
    Insurance in transit
    Royalty

    Profit and Loss Account


    Indirect Expenses Indirect Income
    Gross Loss b/d Gross Profit b/d
    Printing , Stationary Discount, Commission, Interest which is received
    Export duty Dividend, Rent received
    Office rent Bad debts recovered
    Discount, Commission, Interest which is paid Miscellaneous revenue
    General expenses , Trade expenses
    Rent , Salary
    Postage and telegrams , Telephone charges
    Rent and rates and taxes
    Advertisement
    Bad debts treatment
    ONNO
    Old bad debts
    Add: New bad debts
    New provision
    Less: Old Provision
    Carriage outward, Transportation outward, Freight
    outward
    Depreciation
    Any Charges which is paid like Bank & legal Charges
    Office electricity Charges, Packing expenses
    Insurance, Audit fee, Repairs

    Net Profit c/d Net Loss c/d

    Adjustments and Their Effects:


    1. Closing Stock:
    (a) If it is given in the trial balance ;

    If on the debit side Then Current If on the Credit side then direct income
    (a) If it is given in adjustment then treated as both direct income and current asset.
    2. Depreciation:
    (a) If it is given in the trial balance then ;
    (i) If on the debit side then treated as indirect expense
    (j) If on the credit side then less from Fixed assets in Balance sheet
    (b) If depreciation is given in adjustments then treated as both indirect expense and less from relating
    asset in the balance sheet.
    3. Prepaid Expenses
    (a) If in the trial balance then treated as current asset only
    (b) If in the adjustments then less from relating expense and treated as current asset
    4. Outstanding Expense:
    (a) If in the trial balance then treated as current liability
    (b) If in the adjustment then add in the relating asset and treated as current liability
    5. Received in advance Income:
    (a) If in the trial balance then treated as liability
    (b) If in the adjustments then less from income and treated as liability
    6. Receivable Income:
    (a) If in the trial balance then treated as current asset
    (b) If in the adjustments then add from relating income and treated as current asset
    7. Interest on Capital
    (a) Interest on capital is given in the adjustments then
    (i) Recorded in the debit side of the profit and loss account
    (j) Add in the capital in Balance sheet
    8. Interest on drawings
    (a) Interest on drawings is given in the adjustments then
    (i) Recorded in the credit side of the profit and loss account
    (j) Add in the drawings
    9. Formula used for recording interest in Balance Sheet:
    Capital amount which is given
    Add: Interest on Capital
    Add: Net profit
    Less: Net Loss
    Less: Interest on drawings
    Less: Drawings

    10. Bad debts and Provision on Debtors:


    Profit and Loss Account Balance Sheet
    O Old bad debts (in trail balance) Sundry Debtors
    N Add: New bad debts (in adjustments) Less: New bad debts
    N Add: New provision (In adjustments on debtors Less: New provision
    O Less: Old provision (in trial balance cr side) Less: Discount on debtors

    11. Discount on Debtors and Creditors:


    (a) If discount on debtors are given then recorded in the debit side of profit & loss account and less from
    debtors in balance sheet
    (b) If discount on creditors are given then recorded in the credit side of the profit and loss account and less
    from creditors in balance sheet
    12. Goods withdraw by the owner:
    (a) If goods are withdraw by the owner is given the adjustments then less from purchases and then
    deducted from capital in balance sheet
    13. If loan is received ( Loan from):
    (a) If loan is received then interest on loan will be an indirect expense and amount of loan will be written
    in liability side of the balance sheet
    14. If loan is given ( Loan to):
    (a) If loan is given then the interest on loan will be treated as indirect income and shown on the asset side
    of the balance sheet
    15. Income Tax:
    (a) Income tax will be given in the trial balance and will be deducted from Capital as drwings of the
    business owner in case of sole or partnership
    (b) Income tax deducted from capital in case of company
    16. Abnormal Loss:
    (a) If abnormal loss is made then
    (i) If amount is recovered by the insurance company then
    Abnormal Loss 10000
    Less: Insurance Claim 8000 (Insurance Claim will be treated as Current Asset)
    Profit and loss account 2000
    (ii) If amount is not recovered by the insurance company then whole amount will be treated as
    Indirect expense.
    17. Increased Provision:
    (a) Increased Provision will not be calculated as usual way but it will be;

    Old Provision
    Less: Old Bad debts
    Excess Old provision
    Add: New Provision by calculating on debtors
    Increased Provision

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