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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.

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 CONTENTS

Serial No. Particulars Page no.

1. Introduction 4

2. Objectives 5

3. Transactions of Rajesh 6

4. Journal 7-8

5. Ledger 9-14

6. Trial Balance 15

7. Preparation of Final Accounts 16

8. Trading and Profit & Loss Account 17

9. Balance Sheet 17

10. Conclusion & Reference 18

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 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.

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 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.

(ii) Knowing the Solvency of the Business:

Financial statements help to analyze the position of the business as regards to the
capacity of the entity to repay its short as well as long term liabilities.

(iii) Judging the Growth of the Business:

Through comparison of data of two or more years of business entity, we can draw a
meaningful conclusion as regard to growth of the business. For example, increase in
sales with simultaneous increase in the profits of the business, indicates a healthy
sign for the growth of the business.

(iv) Judging Financial Strength of Business:

Financial statements help the entity in determining solvency of the business and help
to answer various aspects viz., whether it is capable to purchase assets from its own
resources and/or whether the entity can repay its outside liabilities as and when they
become due.

(v) Making Comparison and Selection of Appropriate Policy:

To make a comparative study of the profitability of the entity with other entities
engaged in the same trade, financial statements help the management to adopt sound
business policy by making intra firm comparison.

(vi) Forecasting and Preparing Budgets:

Financial statement provides information regarding the weak-spots of the business so
that the management can take corrective measures to remove these short comings.
Financial statements help the management to make forecast and prepare budgets.

(vii) Communicating with Different Parties:

Financial statements are prepared by the entities to communicate with different parties
about their financial position. Hence, it can be concluded that understanding the basic
financial statements is a necessary step towards the successful management of a
commercial enterprise.

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 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.

Liabilities: Creditors- Jawahar Rs.1,00,000; Vikas Rs. 45,000; Telephone

expenses payable Rs. 4000; Electricity expenses payable Rs. 5000.
April 1. Paid Rent by Cheque Rs. 5000
April 2. Goods purchased on Credit from Prabhat Rs.15,000; Rajhans Rs. 8000; Passi
Rs. 7000
April 3. Goods sold on Credit to Rakesh Rs.17,000; Devender Rs.5,000; Lalit
Rs.8,000; Vijay Rs.6,000
April 4. Paid petrol expenses of delivery van Rs.5,700;
April 5. Cash drawings by Rajesh Rs.4,000;
April 7. Paid salaries for the month of March, 2013 Rs.7000
April 9. Cash Sales Rs.5000
April 11. Goods returned by Rakesh Rs.4000; Vijay Rs.1,000
April 12. Received Cheques from debtors- Hariharan Rs.20,000; Rajan Rs.40,000
April 16. Goods returned to Prabhat Rs.4,000; Rajhans Rs.1,000
April 20. Cheques issued to creditors Jhawahar Rs.50,000; Vikas Rs.10,000
April 22. Received cheques from Hariharan Rs.10,000; Rajan Rs.10,000; Rakesh
Rs.10,000; Davinder Rs.5,000
Cheques received from Rakesh and Davinder were dated May 15, 2013
April 24. Cheques from Rakesh and Davinder were got discounted from bank, paying
discount @ 10% p.a.
April 25. Received Cash from Lalit in full settlement Rs.7,800
Note : Closing Stock at shop on 30th April 2013 was Rs.78,000

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 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 4,000
Payable
To Electric Expenses 5,000
Payable
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

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 personal use)

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
April 22 debtors) 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)

April 24 Bank A/c Dr. 14,833

Discount A/c Dr. 167
To Cash A/c 15,000

(15,000×10/100×1/12×4/3=Rs.166-
66)
(Being cheques received on 22nd
April got discounted)
April 25 Cash A/c Dr. 7,800
Discount allowed A/c Dr. 200
To Lalit’s A/c 8,000
(Being cash received and discount

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allowed)

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 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.

Dr. CASH ACCOUNT Cr.

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 15,000 Apr.4 By D.van 5,700
Apr.9 To Sales A/c 5,000 Apr.5 expenses A/c 4,000
Apr.22 To Rakesh’s A/c 10,000 Apr.7 By Drawings A/c 7,000
To Davinder’s 5,000 Apr.24 By Salaries A/c 14,833
Apr.26 A/c 7,800 By Bank A/c 167
To Lalit’s A/c Apr.30 By Dicount A/c 11,100
By Balance c/d
42,800 42,800
May 1 To Balance b/d 11,100

BANK ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 45,000 Apr.1 By Rent A/c 5,000
Apr.12 To Hariharan’s 20,000 Apr.20 By Jawahar’s A/c 50,000
A/c 40,000 By Vikas’s A/c 10,000
Apr.22 To Rajan’s A/c 10,000 Apr.30 By Balance c/d 74,833
To Hariharan’s 10,000
A/c 14,833
To Rajhan’s A/c
To Cash A/c
1,39,833 1,39,833
May 1 To Balance b/d 74,833

CAPITAL ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.30 To Balance c/d 3,16,000 Apr.1 By Balance b/d 3,16,000
3,16,000 3,16,000
May 1 3,16,000

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 HARIHARAN’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 30,000 Apr.12 By Bank A/c 20,000
Apr.22 By Bank A/c 10,000
30,000 30,000

RAJAN’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 50,000 Apr.12 By Bank A/c 40,000
Apr.22 By Bank A/c 10,000
50,000 50,000

OPENING STOCK ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 75,000 Apr.30 By Balance c/d 75,000
75,000 75,000
May 1 To Balance b/d 75,000

DELIVERY VAN ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 50,000 Apr.30 By Balance c/d 50,000
50,000 50,000
May 1 To Balance b/d 50,000

FIXTURE ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 5,000 Apr.30 By Balance c/d 5,000
5,000 5,000
May 1 To Balance b/d 5,000

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 PREMISES ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Balance b/d 2,00,000 Apr.30 By Balance c/d 2,00,000
2,00,000 2,00,000
May 1 To Balance b/d 2,00,000

OUTSTANDING ELECTRICITY EXPENSES ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.30 To Balance c/d 5,000 Apr.30 By Balance b/d 5,000
5,000 5,000
May 1 By Balance b/d 5,000

OUTSTANDING TELEPHONE EXPENSES ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.30 To Balance c/d 4,000 Apr.1 By Balance b/d 4,000
4,000 4,000
May 1 By Balance b/d 4,000

JAWAHAR’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.20 To Bank A/c 50,000 Apr.1 By Balance b/d 1,00,000
Apr.30 To Balance c/d 50,000
1,00,000 1,00,000
May 1 By Balance b/d 50,000

VIKAS’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.20 To Bank A/c 10,000 Apr.1 By Balance b/d 45,000
Apr.30 To Balance c/d 35,000
45,000 45,000
May 1 By Balance b/d 35,000

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 RENT ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.1 To Bank A/c 5,000 Apr.30 By P&L A/c 5,000
5,000 5,000

PURCHASES ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.2 To Prabhat’s A/c 15,000 Apr.30 By Trading A/c 30,000
To Rajhan’s A/c 8,000
To Passi’s A/c 7,000
30,000 30,000

PASSI’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.30 To Balance c/d 7,000 Apr.2 By Purchases a/c 7,000
7,000 7,000
May 1 By Balance b/d 7,000

PRABHAT’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.16 To purchase 4,000 Apr.2 By Purchases A/c 15,000
Apr.30 return A/c 11,000
To Balance c/d
15,000 15,000
May 1 By Balance b/d 11,000

RAJHAN’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.16 To purchase 1,000 Apr.2 By Purchases A/c 8,000
Apr.30 return A/c 7,000
To Balance c/d
8,000 8,000

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 May 1 By Balance b/d 7,000

RAKESH’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.3 To Sales A/c 17,000 Apr.11 By Sales Return 4,000
Apr.22 A/c 10,000
Apr.30 By Cash A/c 3,000
By Balance b/d
17,000 17,000
May 1 To Balance b/d 3,000

DAVINDER’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.3 To Sales A/c 5,000 Apr.22 By Cash A/c 5,000
5,000 5,000

LALIT’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.3 To Sales A/c 8,000 Apr.25 By Cash A/c 7,800
By Discount A/c 200
8,000 8,000

VIJAY’S ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.3 To Sales A/c 6,000 Apr.11 By Sales Return 1,000
Apr.30 A/c 5,000
By Balance c/d
6,000 6,000
May 1 To Balance b/d 5,000

SALES ACCOUNT

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 Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)
2013 2013
Apr.30 To Trading A/c 41,000 Apr.3 By Rakesh’s A/c 17,000
By Davinder’s 5,000
A/c 8,000
By Lalit’s A/c 6,000
Apr.9 By Vijay’s A/c 5,000
By Cash A/c
41,000 41,000

DELIVERY VAN EXPENSES ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.4 To Cash A/c 5,700 Apr.30 By P&L A/c 5,700
5,700 5,700

DRAWING ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.5 To Cash A/c 4,000 Apr.31 By Balance c/d 4,000
4,000 4,000
May 1 To Balance b/d 4,000

SALARIES ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.7 To Cash A/c 7,000 Apr.30 By P&L A/c 7,000
7,000 7,000

SALES RETURNS ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.11 To Rakesh’s A/c 4,000 Apr.30 By Trading A/c 5,000
To Vijay’s A/c 1,000
5,000 5,000

PURCHASE RETURNS ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.30 To Trading A/c 5,000 Apr.16 By Prabhat’s A/c 4,000

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 By Rajan’s A/c 1,000
5,000 5,000

DISCOUNT ACCOUNT

Date Particulars Amt.(Rs) Date Particulars Amt.(Rs.)

2013 2013
Apr.24 To Cash A/c 167 Apr.30 By P&L A/c 367
Apr.25 To Lalit’s A/c 200
367 367
TRIAL BALANCE
It is a statement prepared for a particular period to check the arithmetical accuracy of
the books of accounts. Generally, a trial balance is prepared after ledger accounts but
before final accounts. It means final account is not prepared without a trial balance. It
may be prepared monthly, quarterly, half-yearly or annually, Trial balance gives the
summary of all accounts before taking them to final account.

TRIAL BALANCE OF MR. RAJESH

as on 30th april, 2013
Balances
Accounts
Debit(Rs.) Credit(Rs.)
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 5,000
Expenses 4,000
Outstanding Telephone
Expenses 50,000
Creditors : 11,000
Jawahar 7,000
Prabhat 7,000
Rajhan 35,000
Passi 5,000
Vikas 30,000
Rent 41,000
Purchases 5,700
Sales 4,000
Delivery Van Expenses 7,000
Drawings 5,000

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Salaries 5,000
Sales Returns 367
Purchase Returns
Discount A/c
4,81,000 4,81,000

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 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’.

2. PROFIT AND LOSS ACCOUNT

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 5,700 By Net Loss transferred 4,067
Expenses 7,000 to capital
To Salaries 367
To Discount
18,067 18,067

BALANCE SHEET OF MR. RAJESH

as on 30th april, 2013
Liabilities Amt.(Rs.) Assets Amt.(Rs.)
Sundry Creditors: Cash in hand 11,100
Jawahar Cash at bank 74,833
50,000 Sundry Debtors:
Prabhat Rakesh
11,000 3,000 8,000
Rajhan 1,10,000 Vijay 78,000
7,000 5,000 5,000
Passi 5,000 Closing Stock 50,000
7,000 4,000 Fixtures 2,00,000
Vikas Delivery van
35,000 Premises
Outstanding Expenses:
Electricity 3,07,933
Telephone
Capital
3,16,000
Less:
Net Loss 4,067
Drawings 4,000
8,067
4,26,933 4,26,933

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 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

1. Juneja, Arora & Chawla : 2017 : Double entry book keeping

2. Sahoo, Swain : 2017 : Accounting
3. www.accountingexplanation.com
4. Journal : Indian Journal of Accounting

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