Financial Statements and Analysis

• The trader has to ascertain the trading results (profit or loss) for the business for a
particular trading period and the financial position of the business as on a particular
date.
• In order to ascertain the profit or loss of the business, he has to prepare an account
called the “profit and loss account”.
• The profit and loss account is divided into two sections:
a) Trading account,
b) Profit and loss account.

Trading account:-
• This is an account which shows the results of trading (buying and selling of goods) in
order to ascertain the gross profit or gross loss.
• It is prepared from only those transactions which are directly connected with the goods.

Proforma of Trading Account:-

Dr. Trading account for the period ending____________ Cr.

Particulars Amount Particulars Amount

(Rs.) (Rs.)
• To opening stock • By sales
• To purchases • Less sales returns
• Less purchase returns • By closing stock
• To expenses incurred in • By profit and loss
acquiring and bringing account
material to business [Gross loss
premises:- transferred]
- Carriage
- Cartage
- Octroi
- Excise duty
- Import duty
- Clearing
charges
- Dock dues
• To expenses incurred in
making goods ready for
sales:-
- Wages
- Power and fuel

1
 - Manufacturing
Expenses
• To profit and loss
account
[Gross profit
transferred]

Loss : ________
Profit : ________

Total Total

Proforma of Profit and Loss account:-

Dr. Cr.

Particulars Amount Particulars Amount

(Rs.) (Rs.)
• To trading account • By trading account
[Gross loss transferred from [Gross profit transferred
trading account] from trading account]
• To management, office • By rent received
or administration • By commission received
expenses • By interest received
• To rents and taxes • By discount received
• To salaries • By bad debts recovered
• To office lighting and • By interest on drawing
heating • By capital account
• To insurance [Net loss transferred to
• To printing and capital account]
stationery
• To postage and
telegrams
• To general expenses
• To telephone charges
• To interest paid
• To discount allowed
• To bad debts
• To repairs
• To depreciation
• To commission paid
• To carriage outwards
• To traveling expenses
• To allow interest on
capital
• To capital account

2
 [Net profit transferred to
capital account]
Total Total

Proforma of Balance sheet:-

Balance sheet as on ______________

Liabilities Amount Assets Amount

(Rs.) (Rs.)
• Current liabilities: - • Current assets:-
1. Short term loans 1. Cash in hand
taken 2. Cash at bank
2. Bank overdraft 3. Bills receivable
3. Bills payable 4. Sundry debtors
4. Creditors 5. Closing stock
5. Outstanding 6. Prepaid expenses
expenses (or 7. Outstanding incomes
salaries) 8. Short term
6. Income received in investments
advance (but not 9. Loose tools
earned) • Long term investments
• Fixed liabilities: - • Fixed assets:-
1. Long term loans 1. Fixtures
2. Long term deposits 2. Addition to fixtures
• Capital 3. Copyrights
4. Plant and machinery
5. Land and building
6. Patents
7. Goodwill
8. Trademark
9. Bank balance

Total Total

[Note : Always add net profit from P&L account to the capital in the balance sheet]

PROBLEMS:-

1) The following balances are extracted from the books of Pradeep & Co. on 31st December
1985. You are required to prepare the trading account, profit and loss account and balance sheet
as on that date.

Debit Balances

1) Plant and machinery – Rs.10000/-

2) Land and Building – Rs.12000/-

3
 3) Furniture and other equipment – Rs.5000/-
4) Sundry debtors – Rs.10000/-
5) Trade expenses – Rs.1000/-
6) Depreciation – Rs.2000/-
7) Cash in Hand – Rs.10000/-
8) Cash at Bank – Rs.15000/-
9) Wages – Rs.6000/-
10) Repairs (Office property) – Rs.1000/-
11) Purchases – Rs.60000/-
12) Opening stock –Rs.20000/-
13) Discount – Rs.800/-
14) Drawings – Rs.1000/- [Note:
Drawings are deducted from capital]
15) Bills Receivable – Rs.4000/-
16) Bad debts – Rs.400/-

Credit Balances

1) Capital – Rs.50000/-
2) Sales – Rs.90000/-
3) Sundry creditors – Rs.12000/-
4) Rent received – Rs.1200/-
5) Purchase returns – Rs.1000/-
6) Bills payables – Rs.3000/-
7) Interest received – Rs.1000/-

Note: Closing stock was valued at Rs.14000/-

Ans.:

Dr. Trading account for the period ending 31st Dec. ’85 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To Purchases 60000/- By sales 90.000/-
Less purchases 1000/- By Closing stock 14,000/-
returns
59000/-
To opening 20,000/-
stock
To wages 6,000/-
To profit and 19,000/-
loss account
[Gross profit
transferred]
1,04,000/- 1,04,000/-

Dr. Profit and loss account for the period 31st Dec. ’85 Cr.

4
Particulars Amount Amount Particulars Amount Amount
(Rs.) (Rs.) (Rs.) (Rs.)
To trade 1,000/- By trading 19,000/-
expenses account [Gross
profit
transferred]
To depreciation 2,000/- By rent 1,200/-
To repairs 1,000/- By interest 1,000/-
To discount 800/-
To bad debts 400/-
To capital 16,000/-
account [Net
profit
transferred]
21,200/- 21,200/-

Balance sheet as on 31st Dec. ‘85

Liabilities Amount Amount Assets Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
Current 12,000/- Current assets:-
liabilities:- 1) Cash in hand
1) sundry 3,000/- 2) Cash at bank 10,000/-
creditors 3) Bills
2) Bills payable receivable 15,000/-
4) sundry
debtors 4000/-
5) closing stock
10,000/-

14,000/-

Fixed liabilities NIL Long term NIL

investments
Capital 50,000/- 65,000/- Fixed assets:-
Add net profit 16,000/- Furniture 5000/-
Less drawings 1,000/- Land & 12,000/-
building
Plant & 10,000/-
machinery
80,000/- 80,000/-

2) The following are the balances extracted from the books of XYZ & Co. as on 31st
December ’98. You are required to prepare the trading account, profit and loss account
and balance sheet as on that date.

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 1) Stock on 1st Jan. 1998 – Rs.500/-
2) Bills receivables – Rs.2250/-
3) Purchases – Rs.19500/-
4) Wages – Rs.1400/-
5) Insurance – Rs.550/-
6) Sundry debtors – Rs.15,000/-
7) Carriage inwards – Rs.400/-
8) Commission paid – Rs.400/-
9) Allow interest on capital – Rs.350/-
10) Stationery – Rs.225/-
11) Returns inwards – Rs.650/-
12) Commission taken – Rs.200/-
13) Returns outwards – Rs.250/-
14) Trade expenses – Rs.100/-
15) Office furniture – Rs.500/-
16) Cash in hand – Rs.250/-
17) Cash at bank – Rs.2375/-
18) Rent and taxes – Rs.550/-
19) Carriage outwards (Selling and distribution expenses) – Rs.725/-
20) Sales – Rs.25,000/-
21) Bills payable – Rs.1500/-
22) Creditors – Rs.9825/-
23) Capital – Rs.8950/-

Note: Closing stock was valued at Rs.12500/-

Dr. Trading account for the period ending 31st Dec. ’98 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To purchases 19,500/- By sales 25,000/-
Less purchase 250/- Less sales returns 650/- 24,350/-
returns [Returns [Returns inwards]
outwards]
To opening stock 500/- By closing stock 12500/-
To carriage 400/-
inwards
To wages 1400/-
To profit and loss 15,300/-
account [Gross
profit transferred]
36,850/- 36,850/-

Dr. Profit and loss account for the period ending 31st Dec. ’98 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)

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To insurance 550/- By trading 15,300/-
account [Gross
profit transferred]
To commission 400/- By commission 200/-
received
To allow interest 350/-
on capital
To stationery 225/-
To trade 100/-
expenses
To rent and taxes 550/-
To carriage 725/-
outwards
To capital 12,600/-
account [Net
profit transferred]
15,500/- 15,500/-

Balance sheet as on 31st December ‘98

Liabilities Amount Amount Assets Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)

Current Current assets:- 2250/-

Liabilities:- 1500/- 1) Bills receivable
1) Bills payable 2) Cash in hand 250/-
2)Creditors 9825/- 3) Cash at bank
4) Sundry debtors 2375/-
5) Closing stock
15,000/-

12500/-
Fixed liabilities:- NIL Long term NIL
NIL investments
Capital 8950/- Fixed assets 500/-
Add Net profit 12600/- 21,550/- 1) Office furniture
32,875/- 32,875/-

3) The following is the trial balance of Hari Babu associates for the year ending 31st March
’86. Prepare the trading account, profit and loss account and balance sheet as on that day.

Debit balance Amount Credit balance Amount

(Rs.) (Rs.)
1) Purchases 1,35,500/- 1) Sales 2,15,000/-
2) Purchase returns 2000/- 2) Sales returns 3000/-
3) Sundry debtors 13,500/- 3) Sundry creditors 20,600/-
4) Opening stock 20,400/- 4) Interest on deposit 750/-
5) Salaries and wages 27,500/- 5) Outstanding salaries 2500/-
6) Furniture 6600/- 6) Capital 18350/-

7
7) Repairs to shop 3200/-
8) Postage and telegram 2800/-
9) Power and electricity 500/-
10) Trade expenses 1200/-
11) Rent and taxes 4800/-
12) Bad debts 750/-
13) Fixed deposit 13500/-
14) Insurance 600/-
15) Prepaid insurance 200/-
16) Cash in hand 550/-
17) Bank balance 2300/-
18) Depreciation 1000/-
19) Drawings 4000/-

Note : Closing stock was valued at Rs.19,500/-

Dr. Trading account for the period ending 31st Mar. ’86 Cr.
Particulars Amount Amount Particulars Amount Amount
(Rs.) (Rs.) (Rs.) (Rs.)
To purchases 1,35,500/- By sales 2,15,000/-
Less purchase 2000/- 1,33,500/- Less sales 3000/- 2,12,000/-
returns returns
To opening 20,400/- By closing 19500/-
stock stock
To power and 500/-
electricity
To profit and 77,100/-
loss account
[Gross profit
transferred]
2,31,500/- 2,31,500/-

Dr. P&L account for the period ending 31st Mar. ’86 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To salaries and 27,500/- By trading 77,100/-
wages account [Gross
profit transferred]
To repairs to 3200/- By interest on 750/-
shop deposit
To postage and 2800/-
telegram
To trade 1200/-
expenses
To rent and taxes 4800/-
To bad debts 750/-
To insurance 600/-
To depreciation 1000/-

8
To Capital 36,000/-
account [Net
profit transferred]
77,850/- 77,850/-

Balance sheet as on 31st March 1986

Liabilities Amount Amount Assets Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
Current Current assets:-
liabilities:- 1) Sundry debtors 13,500/-
1) Sundry 20,600/- 2) Cash in hand
creditors 3) Closing stock 550/-
2) Outstanding 2200/-
salary 19,500/-
Fixed liabilities NIL Long term
investments:-
1) Fixed deposit in 13,500/-
bank
2) Prepaid 200/-
insurance
Capital 18,350/- Fixed assets:-
Add net profit 36,000/- 1) Furniture 6600/-
Less drawings 4000/- 50,350/- 2) Bank balance 2300/-
73,150/- 73,150/-

4) From the following trial balance of Karthik Enterprises, prepare the trading account,
profit and loss account for the year ending 30th June 1985, and a balance sheet as on that
date.

Particulars Debit balances Credit balances

Opening stock 750/-
Purchases 1490/-
Returns inwards 40/-
Duty on import goods 260/-
Carriage on purchases 140/-
Carriage on sales 200/-
Office salaries 240/-
Drawings 400/-
Rent paid 180/-
General expenses 150/-
Bank balance 300/-
Cash in hand 100/-
Sundry debtors 1000/-
Machinery 1000/-
Buildings 2000/-
Bills receivable 250/-
Depreciation 200/-
Horses and carts (Bal. 150/-
assets!)

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Interest 90/-
Discount paid 10/-
Capital 2625/-
Returns outwards 45/-
Sales 3810/-
Commission earned 200/-
Bills payable 1500/-
Sundry creditors 770/-
Adjustments :-
Closing stock 985/-
Rent due but not paid 30/-
(Outstanding rent)

Ans.:
Dr. Trading account for the period ending 30th June 1985 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To purchases 1490/- By sales 3810/-
Less purchase returns 45/- 1445/- Less sales returns 40/- 3770/-
To opening stock 750/- By closing stock 985/-
To carriage and 140/-
purchases
To duty on import 260/-
goods
To profit and loss 2160/-
account [Gross profit
transferred]
4755/- 4755/-

Dr. P&L account for the period ending 30th June 1985 Cr.

Particulars Amount (Rs.) Particulars Amount Amount

(Rs.) (Rs.)
To Carriage on sales 200/- By trading 2160/-
account [Gross
profit transferred]
To office salaries 240/- By commission 200/-
earned
To rent paid 180/-
Add rent unpaid 50/-
To general expenses 150/-
To depreciation 200/-
To interest 90/-
To discount 10/-
To capital account [Net 1260/-
profit transferred]
2360/- 2360/-

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 Balance sheet as on 30th June 1985

Liabilities Amount (Rs.) Amount Assets Amount

(Rs.) (Rs.)
Current liabilities:- Current assets:-
1) Bills payable 1) Cash in hand 100/-
2) Sundry creditors 1500/- 2) Bank balance 300/-
3) Rent outstanding 770/- 3) Sundry debtors
4) Bills receivable 1000/-
30/- 5) Closing stock 250/-

985/-
Fixed liabilities NIL Long term NIL
investments
Capital 2625/- Fixed assets:
Add net profit 1260/- 1) Buildings 2000/-
Less drawings 400/- 3485/- 2) Horses and carts 150/-
3) Machinery
1000/-
5785/- 5785/-

Points to be remembered while preparing final accounts:-

I. Closing stock in trial balance:-

• Usually the closing stock is not given in the trial balance.
• If it is given in the trial balance, it has already been adjusted with the purchases
and the adjusted purchases are given in the trial balance.
• In such cases, the closing stock should not appear on the trading side of the
trading account. It should appear on the assets side of the balance sheet.

II. Outstanding expenses in the adjustments:-

• All the outstanding expenses should be added to the respective expenses either in
the trading account or in the profit/loss account and again they should be entered
on the liabilities side of the balance sheet.

III. Outstanding income in the adjustments:-

• All the outstanding incomes in the adjustments should be added to the respective
incomes in the profit and loss account and then it should be entered in the assets
side of the balance sheet.

IV. Prepaid expenses in the adjustments:-

• All the prepaid expenses should be deducted from the respective expenses either
in the trading account or in the profit and loss account and then it should be
entered in the assets side of the balance sheet.

V. Income received in advance in the adjustments:-

11
 • All the incomes received in advance in the adjustments should be deducted from
the respective incomes from the profit and loss account and then entered in the
liabilities side of the balance sheet.

VI. Outstanding expenses in the trial balance:-

• If the outstanding expenses are given in the trial balance, it implies that it has
already been adjusted with the concerned expense and so it should appear on the
liabilities side of the balance sheet.

VII. Outstanding incomes in the trial balance:-

• If the outstanding expenses are given in the trial balance, it means that it has
already been adjusted with the concerned income. So it should appear only on the
assets side of the balance sheet.

VIII. Prepaid expenses in the trial balance:-

• If the prepaid expenses are given in the trial balance, it means that it has already
been adjusted with the concerned expense. So it should appear in the assets side
of the balance sheet.

IX. Income received in advance in the trial balance:-

• If the income received in advance is already given in the trial balance, it means
that it has already been adjusted with the concerned income. So it should appear
on the liabilities side of the balance sheet.

X. Treatment of bad debts and reserve for bad and doubtful debts:-
• The rule for the treatment of bad debts and reserve for bad and doubtful debts is
(B + N – O),
Where ‘B’ is the bad debts appearing on the trial balancec debit side,
‘N’ is the new reserve, i.e., the reserve for bad and doubtful debts appearing in the
adjustments, and
‘O’ is the old reserve for the doubtful debts appearing in the trial balance credit side.

• If (B + N > O) [Expense], the difference should appear on the debit side of the
profit and loss account.
• If (O > B + N) [Profit], the difference should appear on the credit side of the
profit and loss account.
• Again, the new reserve (N) must be deducted from sundry debtors on the assets
side of the balance sheet.

XI. Treatment of reserve for discount on creditors:-

• Reserve for discount on creditors appearing in the adjustments should be entered
in the profit and loss account credit side. Again, it should be deducted from
sundry creditors on the liabilities side of the balance sheet.

XII. Stock destroyed by fire, floods, etc. given in the adjustments:-

• First, the value of the stock destroyed or damaged should be entered on the credit
side of the trading account, so that the trading account shows the gross profit or
gross loss.

12
 • Secondly, if the value of the stock destroyed or damaged is not recovered by
insurance, then it should be entered on the debit side of the profit and loss
account.
• On the other hand, if the value of the stock destroyed is recovered by the
insurance, then it should be entered on the assets side of the balance sheet.
• In case the stock destroyed is recovered by insurance only partly, then that
portion of the stock destroyed not recovered by insurance in the debit side of the
profit and loss account, and the value of the stock destroyed that is recovered by
insurance must be entered in the assets side of the balance sheet.

5) From the following particulars, prepare balance sheet as on 31st Dec 2009.

Capital – Rs.8000/-
Long term loan – Rs.2000/-
Creditors – Rs.1200/-
Bills payable – Rs.500/-
Cash in hand – Rs.300/-
Plant and machinery – Rs.8760/-
Sundry debtors – Rs.3850/-
Drawings – 1000/-
Cash at bank – 1000/-
Closing stock – 4550/-
Net profit – 2790/-

Ans.:

Balance sheet as on 31st Dec. ‘09

Liabililities Amount (Rs.) Amount (Rs.) Assets Amount Amount

(Rs.) (Rs.)
Current Current assets:-
liabilities:- 1) Cash in hand
1) Sundry 1200/- 2) Sundry 300/-
creditors debtors
2) Bills payable 500/- 3) Cash at bank 3850/-
4) Closing stock
1000/-

4580/-
Fixed Long term NIL
liabilities:- 2000/- investments
1) Long term
loan
Capital 8000/- Fixed assets:-
Add net profit 2790/- 1) Plant and
Less Drawings machinery 3760/-
1000/-
9790/-
13490/- 13490/-

13
 6) Prepare trading and profit and loss account and balance sheet from the following
balances relating to the year ending 31st March 2009.

Capital – Rs.10000/-
Creditors – Rs.1200/-
Returns outwards – Rs.500/-
Sales – Rs.16,400/-
Bills payable – Rs.500/-
Plant and machinery – Rs.4000/-
Sundry debtors – Rs.2400/-
Drawings – Rs.1000/-
Purchases – Rs.10,500/-
Returns inwards – Rs.300/-
Wages – Rs.5000/-
Bank – Rs.1000/-
Repairs – Rs.50/-
Stock (1.1.2009) – Rs.2000/-
Rent – Rs.400/-
Manufacturing expenses – Rs.800/-
Trade expenses – Rs.700/-
Bad debts – Rs.200/-
Carriage – Rs.150/-
Fuel & Power – Rs.100/-

The closing stock was valued at Rs.1450/-

Depreciate plant and machinery Rs.400/-
Allow 5% interest on capital
A sum of Rs.40/- is due for repairs.

Ans.:

Dr. Trading account for the period ending 31st March 2010 Cr.
Particulars Amount Amount Particulars Amount Amount
(Rs.) (Rs.) (Rs.) (Rs.)
To purchases 10,000/- By sales 16,400/-
10,500/- Less sales 300/- 16,100/-
Less purchase returns returns
500/-
To opening 2000/- By closing 1450/-
stock stock
To wages 5000/- By profit and 500/-
loss account
[Gross loss
transferred]
To 800/-
manufacturing
expenses
To fuel and 100/-
power
To carriage 150/-

14
 18050/- 18050/-

Dr. P&L account as on 31st March 2009 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To trading 500/- By capital 2790/-
account [Gross account [Net
loss transferred] loss
transferred]
To repairs 50/-
Add unpaid 40/- 90/-
repairs
To rent 400/-
To trade expenses 700/-
To bad debts 200/-
To depreciation 400/-
To interest on 500/-
capital
2790/- 2790/-

Balance sheet as on 31st March 2009

Liabilities Amount Amount Assets Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
Current Current assets:-
liabilities:- 1) Sundry 2400/-
1) Creditors 1200/- debtors
2) Bills payable 500/- 2) Closing stock 1450/-
3) Cash at bank 1000/-
Fixed Liabilities NIL Long term NIL
Investments
Capital 10,000/- Fixed assets:-
Add interest on 500/- Plant and 4000/-
capital machinery
Less net loss 2790/- Less 400/- 3600/-
Less drawings 1000/- 6710/- depreciation
Outstanding 40/-
Repairs
8450/- 8450/-

7) Prepare the trading account and profit and loss account for the following balances for
the year ending 31st March 2009 and the balance sheet as on that date.

Particulars Debit balances Credit balances

Capital 10,000/-
Machinery 3500/-
Debtors 2700/-
Drawings 900/-
Purchases 9500/-

15
 Creditors 1400/-
Wages 5000/-
Cash at bank 1500/-
Stock in trade (Opening 2000/-
Stock)
Rent 450/-
Sales 14,500/-
Sundry expenses 200/-
Carriage inwards 150/-

Information:
Stock at the end (Closing stock) – Rs.600/-
Rent outstanding – Rs.50/-
Wages Prepaid – Rs.200/-
Depreciation on machinery at the rate of 10%

(Since there is no opening stock, the stock in trade can be treated as opening stock)

Dr. Trading account for the period ending 31st March 2009 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To purchases 9500/- By sales 14,500/-
To wages 5000/- By closing 600/-
stock
Less wages 200/- 4800/- By profit and 1350/-
prepaid loss account
To opening 2000/-
stock
To carriage 150/-
inwards
16450/- 16450/-

Dr. P&L account for the period ending 31st March 2009 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To trading 1350/- By capital account 2400/-
account[Gross [Net profit
profit transferred] transferred]
To sundry 200/-
expenses
To rent 450/-
Add rent 50/- 500/-
outstanding
To depreciation 350/-
2400/- 2400/-

Balance sheet as on 31st March 2009

16
 Liabilities Amount Amount Assets Amount Amount
(Rs.) (Rs.) (Rs.) (Rs.)
Current liabilities:- Current assets:-
1)Creditors 1400/- 1)Cash at bank 1500/-
2) Outstanding rent 50/- 2)Debtors 2700/-
3) Prepaid wages 200/-
4) Closing stock 600/-
Fixed liabilities NIL Long term NIL
investments
Capital: 10000/- Fixed assets:-
Less net loss 2400/- Machinery 3500/-
Less drawings 900/- 6700/- Less depreciation 350/-
3150/-
8150 8150/-

8) From the following trial balance prepare the trading & profit & loss account for
the year ended 31st December, 2013 & the balance sheet as at that date after
taking into account the adjustments given below:

Dr. (Rs.) Cr. (Rs.)

Rajan’s Capital 29000
Rajan’s Drawings 760
Purchases & Sales 8900 15000
Sales & purchase returns 280 450
Stock( 1-1-2013) 1200
Wages 800
Building 22000
Freight & Carriage 2000
Trade Expenses 200
Advertisement 240
Interest 350
Taxes & Insurance 130
Debtors & Creditors 6500 1200
Bills Receivable & Bills Payable 1500 700
Cash at Bank 1200
Cash in hand 190
Salaries 800
46700 46700

Adjustments :
(i) Stock on 31st December, 2013 was valued at Rs. 1500
(ii) Insurance was prepaid to the extent of Rs. 40
(iii) Outstanding Liabilities were: Salaries Rs. 200, Taxes Rs.130
(iv) Depreciate building at 2% p.a

Dr. Trading account for the period ending 31st March 2009 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To purchases 8900 By sales 15000

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Less Returns 450 8450 Less Returns 280 14,720
To Freight & 2000 By closing 1500
Carriage stock
To Wages 800
To opening 1200
stock (1-1-2013)
To Gross Profit 3770
c/d
16220/- 16220/-

Dr. P&L account for the period ending 31st March 2009 Cr.

Particulars Amount Amount Particulars Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
To trading By capital account
account[Gross [Net profit
profit transferred] transferred]
To sundry
expenses
To rent
Add rent
outstanding
To depreciation

Balance sheet as on 31st March 2009

Liabilities Amount Amount Assets Amount Amount

(Rs.) (Rs.) (Rs.) (Rs.)
Current liabilities:- Current assets:-
1)Creditors 1)Cash at bank
2) Outstanding rent 2)Debtors
3) Prepaid wages
4) Closing stock
Fixed liabilities Long term
investments
Capital: Fixed assets:-
Less net loss Machinery
Less drawings Less depreciation

18
19
 There are many adjustment because earlier we have not passed any journal entry , so at
the time of making final account we have to adjust them .
Name of items Adjustment entry Effect on trading and profit Effect on balance sheet
and loss account
1. Closing stock Closing stock account Closing stock will write in the It will show as asset in the final
dr. xxx credit side of trading account account
To trading account xxx
2. outstanding Expenses account dr. Outstanding expenses will add It will be the current liability so
expenses or xxx in expenses . if it is direct it it will go to the liability side of
expenses To outstanding exp. xxx will go to trading account’s balance sheet.
payable or debit side , if it is indirect
expenses due nature then it will go to the
but not paid debit side of profit and loss
account
3. advance Advance expenses a/c It will deduct from respective It will be the current asset so it
expenses dr. xxx expenses paid . will go to assets side of
To expenses account balance sheet
xxx
4. income Outstanding income It will add in the income and It will show as asset in the
receivable account dr. xxx go to credit side of profit and assets side of balance sheet
To income account xxx loss account
5. income Income account dr. xxx It will deduct from the income It will shown as liability in the
received in To advance income received liabilities side of balance sheet
advance account xxx
6 Goods use for Drawing account dr. xxx It will deduct from purchase in It will deduct from capital in the
personal use To purchase account the debit side of trading liabilities side of balance sheet
account =capital- drawing in goods
= purchase –drawing in goods
7. Destroyed of loss by fire or accident It will shown in credit side of It will not go to balance sheet
goods account Dr. xxx trading account
To trading And also in profit and loss
If there is no insurance account’s debit side
It will also go to profit
and loss account
Profit and loss account
dr. xxx
To loss by fire / accident
8. Depreciation Depreciation account dr. It will go to the debit side of It will deduct from fixed asset .
xxx profit and loss account Because it decrease the value
of asset

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 To respective asset =fixed asset - depreciation
account xxxx
9. provisional for If you have make any Net value of provision for Deduct from debtor
doubtful debts provision for doubt ful doubtful debt account transfer = debtor – new bad debts – this
debts the its journal to profit and loss account’s year provision or closing
entry will passed debit side balance of provision for bad
Provision for doubtful =total bad debt + closing debts
debt account dr. xxx balance or provision of
To Bad debts account doubtful debt or this year
xxx provision - opening balance of
( New bad debts which provision for doubtful debts
is not shown in trial
balance will transfer to
provision for doubtful
debt account )
10. Commission Commission account dr. It will shown in the debit side It will shown as liabili
to manager xxx of profit and loss account as
To outstanding o/s commission to manager
commission If it charge on the amount
after charging such
commission then we will
calculate
= profit before commission X
Rate/ 100+rate

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