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Preparation of Trading Account

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277 views2 pages

Preparation of Trading Account

Uploaded by

anaaya321
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Preparation of Trading Account, Profit and Loss Account, and Balance Sheet as per Schedule III of the Companies

Act, 2013
These statements must comply with the format prescribed under Schedule III of the Companies Act, 2013.
1. Trading Account
The Trading Account is prepared to ascertain the gross profit or loss of the company.
Format:
Debit Side (Dr.):
1. Opening Stock
2. Purchases (less: Purchase Returns)
3. Direct Expenses (e.g., Freight Inward,
Wages, Power and Fuel)
4. Manufacturing Expenses
Credit Side (Cr.):
1. Sales (less: Sales Returns)
2. Closing Stock
Steps:
1. Record the opening stock, purchases, and direct expenses on the debit side.
2. Record sales and closing stock on the credit side.
3. Calculate the difference between the total credits and debits to determine gross profit (if credits exceed debits) or gross
loss (if debits exceed credits).

2. Profit and Loss Account


The Profit and Loss Account is prepared to determine the net profit or loss for the accounting period.
Format:
Debit Side (Dr.):
1. Administrative Expenses (e.g., Salaries,
Office Rent)
2. Selling and Distribution Expenses (e.g.,
Advertising, Commission)
3. Financial Expenses (e.g., Interest on
Loans)
4. Depreciation and Amortization
Credit Side (Cr.):
1. Gross Profit (from Trading Account)
2. Other Incomes (e.g., Interest Received, Dividend Income)
Steps:
1. Transfer the gross profit from the Trading Account to the credit side.
2. Record other incomes, if any, on the credit side.
3. Record all operating and non-operating expenses on the debit side.
4. The difference between the credit and debit sides represents net profit (if credits exceed debits) or net loss (if debits
exceed credits).

3. Balance Sheet
The Balance Sheet presents the financial position of the company as of a specific date. It is prepared as per Schedule III, which
divides it into two parts:
1. Part I: Equity and Liabilities
2. Part II: Assets
Format:
A. Equity and Liabilities:
1. Shareholders' Funds:
1) Share Capital
2) Reserves and Surplus
2. Non-Current Liabilities:
1) Long-Term Borrowings
2) Deferred Tax Liabilities
3. Current Liabilities:
1) Short-Term Borrowings
2) Trade Payables
3) Other Current Liabilities
B. Assets:
1. Non-Current Assets:
1) Property, Plant, and Equipment (PPE)
2) Intangible Assets
3) Long-Term Investments
2. Current Assets:
1) Inventories
2) Trade Receivables
3) Cash and Cash Equivalents
4) Short-Term Loans and Advances
Steps:
1. Arrange the Equity and Liabilities section in the prescribed order.
2. Classify assets into current and non-current categories.
3. Ensure that the total of Equity and Liabilities equals the total Assets (i.e., the balance sheet balances).

Key Points to Remember:


1. Compliance with Schedule III: Use the specified headings and sub-headings.
2. Accrual Basis of Accounting: Ensure all incomes and expenses are accounted for on an accrual basis.
3. Notes to Accounts: Provide detailed disclosures as required under the Companies Act, 2013.
4. Double-Entry System: Ensure every debit has a corresponding credit to maintain accuracy.
5. Format Uniformity: Follow the prescribed formats strictly to avoid discrepancies.

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