Preparation of

Profit & Loss Account

and Balance Sheet

उ र दे श सहकार ाम वकास बक ल०
श ण क , लखनऊ
 Stages of Accounting

1. Cash Book
Double entry
Book Keeping
2. Journal

3. Ledger

4. Trial Balance

5. Trading Account

6. Profit & Loss Account Final Accounts

7. Balance Sheet
 3 types of A/c & Rules of double entry

1. Personal A/c : Debit the receiver & Credit the giver

2. Real A/c : Debit what comes in & Credit what goes out

3. Nominal A/c : Debit the expenses and losses & Credit the
incomes and gains
 Ex: Different accounting treatments

Transaction A/c involved Nature of A/c Debit / Credit

1. Wage paid Wages A/c Nominal Debit
Cash A/c Real Credit
2. Dividend received Cash A/c Real Debit
Dividend A/c Nominal Credit
3.Building purchased Building A/c Real Debit
Cash A/c Real Credit
4. Furniture sold Cash A/c Real Debit
Furniture A/c Real Credit
5. Outstanding rent Rent A/c Nominal Debit
Outst. rent A/c Personal Credit
6. cash received from X Cash A/c Real Debit
X A/c Personal Credit
7. Capital added Cash A/c Real Debit
Capital Personal Credit
 Stages of Double Entry System

Stage 1: All transactions are recorded in the Journal (or) Subsidiary

books as and when they take place.These books are called the
books of original entry (entering).

Stage 2: All entries in the journal (or) subsidiary books are posted to
appropriate ledger accounts (posting).

Accounts are closed at the end of the period to find out its
balances and a list of such balances is prepared (trial balance).

Stage 3: Final accounts are prepared (Trading, P&L and B/s)

 Trading Account

How to prepare the

Trading Account ?
 Trading Account
 It is a statement prepared to highlight the trading result
(gross profit) made during a particular period.

 Gross profit arises from sale & purchase activity.

 Gross profit is not the final profit as it does not consider all
expenses of the business during a period (other than trade
expenses are not covered yet..for example: Insurance
premium paid)
 Trading Account
 Trading account considers only the direct expenses
and expenses occur before the point of sale.

 Now what are direct expenses? Expenses which

can be identified with each unit of output are called
direct expenses.

 Purchase,transportation, conversion, packing

charges all are examples of direct costs.
 Trading Account for the year ended 31-03-2019

Amount Amount Amount Amount

Particulars Particulars
Rs. P Rs. P Rs. P Rs. P

To opening stock XXX By sales XXX

To purchases XXX Less: returns XXX XXX

Less: returns XXX XXX By Closing stock XXX

To Direct expenses XXX By Gross loss c/d

To Gross profit c/d

Total XXXX Total XXXX

 How to prepare Profit & Loss A/c?

 It is a statement prepared to know the net profit

(or) net loss occurred in a business during a
particular period.

 Net Profit / Loss = Gross Profit / Loss

(plus) All non trading income
(minus) All non trading expenses
 Preparing the Profit & Loss Account
(Points to remember)
Title: Profit and Loss Account of M/s. X & Co. for the year ended
31-3-2014
Sides :Two sides (Debtor & Creditor)
Expenses : Shown in the left side (Dr)
Revenues: Shown in the right side (Cr)
To & By : Dr. side starts with To & Cr. Side starts with By
Net profit: If Dr. side total is less than the Cr. Side total, the
difference is
called as net profit (credit balance).
Net loss : If Cr. side total is less than the Dr. Side total, the
difference is
called as net loss (debit balance).
 Profit & Loss Account of M/s X & Co. for the year ended 31-03-2019
Dr Cr
Amount Amount Amount Amount
Particulars Particulars
Rs. P Rs. P Rs. P Rs. P
To gross loss b/d (transferred By gross profit b/d (transferred
from trading A/c) XXX from trading A/c ) XXX
Other office expenses Other revenues
To salary XXX By rent received XXX
To rent XXX By interest received XXX
To electricity XXX By discount received XXX
To postage & telegrams XXX By commission received XXX
To legal charges XXX By dividend received XXX
To insurance premium XXX By miscellaneous income XXX
To audit fees XXX By Net Loss transferred
Selling & distribution expenses to capital account XXX
To advertisement XXX
To salesmen salary / TA XXX
To godown rent XXX
To carriage outwards XXX
Financial expenses
To interest paid XXX
To discount given XXX
To Net Profit transferred to capital
account XXX
Total XXXX Total XXXX
 How to prepare a Balance Sheet?
 It is a statement prepared to know the financial position of a
business (i.e., financial strengths & weakness of a business on
a given date)

 It is revealed by the assets & liabilities

 Assets: All tangible and intangible items which have a

realisable value

 Liabilities: All dues and loans payable

 Assets (-) Liabilities = Capital

(This would show the strength or net worth of the business)
 Preparing the Balance Sheet
(Points to remember)
Title : Balance Sheet of M/s. X & Co. as on 31-03-2014

Sides :Two sides (Liabilities & Assets)

Liabilities: Shown in the left side

Assets : Shown in the right side

Total : Both sides should be equal (if they are not equal, we can
understand that the Balance Sheet is not correct)
 Balance Sheet of M/s X & Co. as on 31-03-2014

Liabilities Assets
Rs. P Rs. P Rs. P Rs. P
Fixed Liabilities Fixed Assets
Capital XXX Land XXX

Add: Net Profit transferred from Building XXX

Profit and loss account XXX Less: Depreciation XXX XXX
Add: Additional capital Machinery XXX

Less: Net Loss transferred from Less: Depreciation XXX XXX

Profit and loss account XXX Vehicles XXX
Less: Drawings XXX XXXX Less: Depreciation XXX XXX
Term loan from banks & FIs XXX Furniture XXX
Other LT borrowings / dues XXX Less: Depreciation XXX XXX
Current Liabilities Intangible Assets
Sundry creditors XXX Goodwill XXX
Bills payable XXX Patents XXX
Bank over draft XXX Copyright, etc XXX
Outstanding expenses XXX Current Assets
Advances received, etc XXX Cash on hand XXX
Cash on bank XXX
Sundry debtors XXX
Bills receivables XXX
Closing stock XXX
Prepaid expenses XXX
Total XXXX Total XXXX
Example 1: From the following transactions of Woodcraft Company of Mr. Ganesh
Prepare the journal entries, ledger postings and trial balance.

Sep 1: Began business by investing cash Rs. 10,000

4: Paid 2 month rent in advance for a shop Rs. 2000
5: Bought equipment for Rs.1200
7: Bought supplies on credit Rs.700
10 : Received payment for remodeling a kitchen Rs. 8600
14 : Paid for newspaper advertisement Rs. 1400
17 : Received payment for furnishing an office room Rs. 11200
23 : Billed customers for work done Rs. 13100
25 : Paid wages to assistant Rs. 1500
28 : Paid electricity bill Rs. 240
29 : Received part payment from customers against 23rd bill Rs. 4800
30 : Paid dividend Rs. 2500
Example 1: From the following transactions of Woodcraft Company of Mr. Ganesh
Prepare the journal entries, ledger postings and trial balance.

Sep 1: Began business by investing cash Rs. 10,000

4: Paid 2 month rent in advance for a shop Rs. 2000
5: Bought equipment for Rs.1200
7: Bought supplies on credit Rs.700
10 : Received payment for remodeling a kitchen Rs. 8600

JOURNAL ENTRY
14 : Paid for newspaper advertisement Rs. 1400
17 : Received payment for furnishing an office room Rs. 11200
23 : Billed customers for work done Rs. 13100
25 : Paid wages to assistant Rs. 1500
28 : Paid electricity bill Rs. 240
29 : Received part payment from customers against 23rd bill Rs. 4800
30 : Paid dividend Rs. 2500
 Journal Entry

Date Amount Amount

Particulars
Rs. P Rs. P
Cash A/c Dr
2014 10000
To Share capital A/c 10000
Sep 1
(Cash Invested)
Prepaid rent A/c Dr
4 To Cash A/c 2000 2000
(Rent paid in advance)
Equipments A/c Dr
5 To Cash A/c 1200 1200
(Equipment bought for Cash)
Supplies A/c Dr
7 To Creditor A/c 700 700
(Bought supply on credit)
Cash A/c Dr
10 To Revenue from services A/c 8600 8600
(Cash received for kitechen remodeling)
Advt. Expenses A/c Dr
14 To Cash A/c 1400 1400
(Paid advt charges)
 Journal Entry

Date Amount Amount

Particulars
Rs. P Rs. P
Cash A/c Dr
11200
17 To Revenue from services A/c 11200
(Cash received for office designing)
Debtors A/c Dr
23 To Revenue from services A/c 13100 13100
(cash received for work done)
Wage A/c Dr
25 To Cash A/c 1500 1500
(Paid asst wage)
Electricity charges A/c Dr
28 To Cash A/c 240 240
(Paid elec. bill)
Cash A/c Dr
29 To Debtor A/c 4800 4800
(Cash received from debtors)
Dividend A/c Dr
30 To Cash A/c 2500 2500
(Paid dividend)
Example 1: From the following transactions of Woodcraft Company of Mr. Ganesh
Prepare the journal entries, ledger postings and trial balance.

Sep 1: Began business by investing cash Rs. 10,000

4: Paid 2 month rent in advance for a shop Rs. 2000
5: Bought equipment for Rs.1200
7: Bought supplies on credit Rs.700
10 : Received payment for remodeling a kitchen Rs. 8600

LEDGER POSTING
14 : Paid for newspaper advertisement Rs. 1400
17 : Received payment for furnishing an office room Rs. 11200
23 : Billed customers for work done Rs. 13100
25 : Paid wages to assistant Rs. 1500
28 : Paid electricity bill Rs. 240
29 : Received part payment from customers against 23rd bill Rs. 4800
30 : Paid dividend Rs. 2500
 Capital A/c

Debit Credit Balance

Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 1 Cash 10000
Total 10000
Cash A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 1 Share capital 10000
4 Prepaid rent 2000
5 Equipment 1200
10 Revenue from services 8600
14 Advt.expenses 1400
17 Revenue form services 11200
25 Wage paid 1500
28 Elec. Bill paid 240
29 Sundry debtors 4800
30 Dividend paid 2500
Total
 Rent A/c

Debit Credit Balance

Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 4 Cash 2000 2000
Total 2000
Equipment A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 5 Cash 1200 1200
Total 1200
Supplies A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 7 Cash 700 700
Total 700
 Sundry Creditor A/c

Debit Credit Balance

Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 7 Cash 700 700
Total 700
Revenue from Services A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep10 Cash 8600 8600
17 Cash 11200 11200
23 Cash 13100 13100
Total 32900
Advertisement A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 14 Cash 1400 1400
Total 1400
 Sundry Debtor A/c

Debit Credit Balance

Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 23 Revenue from service 13100 13100
29 Cash for work done 4800 4800
Total 17900

Salary A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 25 Cash 1500 1500
Total 1500
Electricity Bill A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 28 Cash 240 240
Total 240
Dividend A/c
Debit Credit Balance
Date Particulars JF No
Rs. P Rs. P Rs. P
Sep 30 Cash 2500 2500
Total 2500
 Trial Balance, Sep 30, 2014

Debit Credit
Particulars
Rs. P Rs. P
Capital 10000
Cash 25760
Rent 2000
Equipment 1200
Supplies 700
Creditor 700
Revenue 32900
Advertisement 1400
Sundry Debtors 8300
Salary 1500
Electricity 240
Dividend 2500
43,600 43,600
Example 2: From the details taken from Trial Balance of Mr. Ravi, prepare final
accounts for the year ending 31st December 2014

Particulars Dr Rs. Cr Rs.

Stock on 1.1.2014 2000

Purchase & Sales 20000 30000

Returns 2000 1000

Carriage 2000

Rent 1000

Interest 2000

Salary 2000

General expenses 1000

Discount 500

Insurance 500

The closing stock on 31st Dec 2014 is Rs.5000

 Trading Account for the year ended 31-12-2014

Amount Amount Amount Amount

Particulars Particulars
Rs. P Rs. P Rs. P Rs. P
To opening stock 2000 By sales 30000
To purchases 20000
Less: returns 2000 28000
Less: Returns 1000 19000
To Carriage 2000 By Closing stock 5000
To Gross Profit c/d 10000
Total 33000 Total 33000
From the details taken from Trial Balance of Mr. Ravi, prepare final accounts for
the year ending 31st December 2014

Particulars Dr Rs. Cr Rs.

Stock on 1.1.2014 2000

Purchase & Sales 20000 30000

Returns 2000 1000

Carriage 2000

Rent 1000

Interest 2000

Salary 2000

General expenses 1000

Discount 500

Insurance 500

The closing stock on 31st Dec 2014 is Rs.5000

 Profit and Loss Account for the year ended 31-12-2014

Amount Amount Amount Amount

Particulars Particulars
Rs. P Rs. P Rs. P Rs. P
To Rent 1000 By Gross Profit b/d 10000
To Salaries 2000
By Interest 2000

To General expenses 1000 By Discount 500

To Discount 1000
To Insurance 500
To Net Profit taken to
8000
Capital Account
Total 12500 Total 12500