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ABSTRACT
Fraudulent accounting entries have a significant negative impact among other effects.
Fraudulent reporting of financial entries leads to a loss in investor’s confidence. It is
important to note that a company’s financial statement should contain information
that is useful to investor, potential investors, creditors and everyone who has a stake in
the company. Although companies are supposed to report true entries of their financial
statements but some companies report false financial entries. The financial statements
of a company are important to investors and other shareholders. Before making
decision on whether to invest in a company, individuals want to know about the
financial health of the company. They intend to put their money into financial
statements which are one of the tools that interested parties, outside of the firm use
to try to access an entity’s financial health. Companies are expected to report reliable
and transparent financial statements to the public. Unfortunately some companies have
been involved in reporting fraudulent accounting entries to portray a positive outlook,
especially when they are doing badly. Sometimes even when they are doing fairly,
some companies end up reporting fraudulent results to appear better than they are.
Page 2 of 19
CONTENTS
1. Introduction 4
2. Objectives 5
3. Transactions of Rajesh 6
4. Journal 7-8
5. Ledger 9-14
6. Trial Balance 15
9. Balance Sheet 17
Page 3 of 19
INTRODUCTION
After recording the transactions in the original book of accounts, the ledger
accounts are prepared in the ledger. Then the ledger accounts are balanced according
to their nature. To ascertain the arithmetical accuracy, a trial balance is prepared.
After the preparation of trial balance, the trader wants to know the trading
results of the business. The trading results of the business mean whether the business
has earned profits or suffered losses during the accounting period. As we know that,
the main objective of business is to earn profit. Every businessman is also interested
in assessing the financial position of the business on a particular date. For this
purpose , the businessman prepares financial statements of his business i.e. the Trading
and Profit and Loss Account and Balance Sheet at the end of the accounting period.
These financial statements are popularly known as final account or financial
statements.
Financial statements or final accounts, generally refer to two statement, viz. (1)
Profit and Loss Account and (2) Balance Sheet, prepared at the end of every
accounting year. The profit and loss account is prepared to ascertain the results of the
business operations, called net profit or net loss of the business for an accounting
year. The balance sheet is prepared to know the assets, liabilities and owner’s capital
of a business at the end of every accounting period. These two statements are called
Final Accounts, because they are prepared finally at the end of the trading period,
and show the financial or final results of the business.
Page 4 of 19
OBJECTIVES
(i) Knowing Profitability of Business:
Financial statements are required to ascertain whether the enterprise is earning
adequate profit and to know whether the profits have increased or decreased as
compared to the previous year(s), so that corrective steps can be taken well in
advance.
Page 5 of 19
TRANSACTIONS OF RAJESH
2013
April 1. Assets: Premises Rs.2,00,000; Delivery Van Rs.50,000; Fixtures Rs.5000 ;
Debtors- Hariharan Rs.30,000; Rajan Rs.50,000;
Cash at bank Rs.45,000; Cash in hand Rs.15,000.
Page 6 of 19
JOURNAL
Journal is the book of prime entry where transactions are first recorded
chronologically both in debit aspect and credit aspect.
JOURNAL ENTRY
Debit Credit
Date Particulars Folio
(Rs.) (Rs.)
2013 Premises A/c Dr. 2,00,000
April 1 Delivery Van A/c Dr. 50,000
Fixtures A/c Dr. 5,000
Opening Stock A/c Dr. 75,000
Hariharan’s A/c Dr. 30,000
Rajan’s A/c Dr. 50,000
Bank A/c Dr. 45,000
Cash A/c Dr. 15,000
To Jawahar’s A/c 1,00,000
To Vikas’s A/c 45,000
To Telephone Expenses Payable 4,000
To Electric Expenses Payable 5,000
To Capital A/c 3,16,000
(Being balances of various assets and
liabilities brought forward from
previous year, the difference being
capital of the proprietor)
April 1 Rent A/c Dr. 5,000
To Bank A/c 5,000
(Being rent paid by cheque)
April 2 Purchases A/c Dr. 30,000
To Prabhat’s A/c 15,000
To Rajhan’s A/c 8,000
To Passi’s A/c 7,000
(Being goods purchased on credit)
April 3 Rakesh's A/c Dr. 17,000
Davinder’s A/c Dr. 5,000
Lalit’s A/c Dr. 8,000
Vijay’s A/c Dr. 6,000
To Sales A/c 36,000
(Being goods sold on credit)
April 4 Delivery Van expenses A/c Dr. 5,700
To Cash A/c 5,700
(Being petrol expenses to D. Van paid)
April 5 Drawings A/c Dr. 4,000
To Cash A/c 4,000
(Being cash withdrawn for personal
use)
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April 7 Salaries A/c Dr. 7,000
To Cash A/c 7,000
(Being salaries for the month of
March 2013 paid in cash)
April 9 Cash A/c Dr. 5,000
To Sales A/c 5,000
(Being goods sold on cash)
April 11 Sales return A/c Dr. 5,000
To Rakesh’s A/c 4,000
To Vijay’s A/c 1,000
(Being goods returned by customers)
April 12 Bank A/c Dr. 60,000
To Hariharan’s A/c 20,000
To Rajan’s A/c 40,000
(Being cheques received)
April 16 Prabhat's A/c Dr. 4,000
Rajhan’s A/c Dr. 1,000
To Purchase returns A/c 5,000
(Being goods returned to creditors)
April 20 Jawahar's A/c Dr. 50,000
Vikas’s A/c Dr. 10,000
To Bank A/c 60,000
(Being cheques issued to creditors)
April 22 Bank A/c Dr. 20,000
To Hariharan’s A/c 10,000
To Rajan’s A/c 10,000
(Being cheques received from debtors)
April 22 Cash A/c Dr. 15,000
To Rakesh’s A/c 10,000
To Davinder’s A/c 5,000
(Being cheques received from
customers not yet banked)
Page 8 of 19
LEDGER
Ledger is a book of secondary entry where different head of accounts are separately
maintained for detailed analysis and total estimation. Ledger is prepared after journal
but before trial balance.
BANK ACCOUNT
CAPITAL ACCOUNT
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HARIHARAN’S ACCOUNT
RAJAN’S ACCOUNT
FIXTURE ACCOUNT
Page 10 of 19
Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)
2013 2013
Apr.1 To Balance b/d 5,000 Apr.3 By Balance c/d 5,000
0
5,000 5,000
May 1 To Balance b/d 5,000
PREMISES ACCOUNT
JAWAHAR’S ACCOUNT
VIKAS’S ACCOUNT
RENT ACCOUNT
PURCHASES ACCOUNT
PASSI’S ACCOUNT
PRABHAT’S ACCOUNT
Page 12 of 19
(Rs)
2013 2013
Apr.16 To purchase return 4,000 Apr.2 By Purchases A/c 15,000
Apr.30 A/c 11,000
To Balance c/d
15,000 15,000
May 1 By Balance b/d 11,000
RAJHAN’S ACCOUNT
RAKESH’S ACCOUNT
DAVINDER’S ACCOUNT
LALIT’S ACCOUNT
Page 13 of 19
2013 2013
Apr.3 To Sales A/c 8,000 Apr.2 By Cash A/c 7,800
5 By Discount A/c 200
8,000 8,000
VIJAY’S ACCOUNT
SALES ACCOUNT
DRAWING ACCOUNT
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SALARIES ACCOUNT
DISCOUNT ACCOUNT
Page 15 of 19
Cash in hand 11,000
Cash at bank 74,833
Capital Account 3,16,000
Debtors :
Rakesh 3,000
Vijay 5,000
Opening Stock 75,000
Delivery Van 50,000
Fixtures 5,000
Premises 2,00,000
Outstanding Electricity Expenses 5,000
Outstanding Telephone Expenses 4,000
Creditors :
Jawahar 50,000
Prabhat 11,000
Rajhan 7,000
Passi 7,000
Vikas 35,000
Rent 5,000
Purchases 30,000
Sales 41,000
Delivery Van Expenses 5,700
Drawings 4,000
Salaries 7,000
Sales Returns 5,000
Purchase Returns 5,000
Discount A/c 367
4,81,000 4,81,000
Page 16 of 19
PREPARATION OF FINAL ACCOUNTS
1. TRADING ACCOUNT
Trading account is prepared for calculating the gross profit or gross loss arising or
incurred as a result of the trading activities of a business. In other worlds, it is
prepared to show the result of manufacturing, buying and selling of goods. If the
amount of sales exceeds the amount of purchases and the expenses directly connected
with such purchases, the difference is termed as gross profit. On the contrary, if the
purchases, and direct expenses exceed the sales, the difference is called gross loss. A Trading
Account records the amount of purchases of goods and also the expenses which are
incurred in bringing that commodity to a saleable state. In other words, all expenses
which relate to either purchase of raw material for manufacturing of goods are
recorded in the Trading Account. All such expenses are called ‘Direct Expenses’.
Trading account only discloses the gross profit earned as a result of buying and selling
of goods. However, a businessman has to incur a number of expenses which are not
taken to trading account. Hence, a businessman is more interested in knowing the net
profit earned or net loss incurred during the year. As such, a Profit & Loss Account
is prepared which contains all the items of losses and gains pertaining to the
accounting period.
3. BALANCE SHEET
After ascertaining the net profit or loss of the business enterprise, the businessman
would also like to know the exact financial position of his business. For this purpose
a statement is prepared which contains all the Assets and Liabilities of the business
enterprise. The statement so prepared is called a Balance Sheet because it is a sheet
of balances of ledger accounts which are still open after the transfer of all nominal
accounts to the Trading and Profit & Loss Account. Balances of all the personal and
real accounts are grouped as assets and liabilities. Liabilities are shown on the left
hand side of the Balance Sheet and assets on the right hand side.
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TRADING AND PROFIT AND LOSS ACCOUNT
for the month ending 30th april, 2013
Dr. Cr.
Particulars Amt.(Rs.) Particulars Amt(Rs.)
To Opening Stock 75,000 By Sales
To Purchases 41,000 36,000
30,000 25,000 Less:Sales Return 78,000
Less:Purchase returns 14,000 5,000
5,000 By Closing Stock
To Gross Profit c/d
1,14,000 1,14,000
To Rent 5,000 By Gross Profit b/d 14,000
To Delivery Van Expenses 5,700 By Net Loss transferred to 4,067
To Salaries 7,000 capital
To Discount 367
18,067 18,067
Page 18 of 19
CONCLUSION
Final accounts give an idea about the profitability and financial position of a business
to its management owners and other interested parties. All business transactions are
first recorded in a journal. They are then transferred to a ledger and balanced. These
final tallies are prepared for a specific period. The preparation of a final account is
the last stage of accounting cycle. It determines the financial position of the business.
Under this it is compulsory to make trading account, profit and loss account and
balance sheet. Final account is an essential practice for every enterprise to know the
actual performance of the organization. All mature organization should necessarily
prepare final accounts of the organization for the effectiveness of business
organization.
REFERENCE
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