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KAKATIYA INSTITUTE OF TECHNOLOGY AND SCIENCE,
WARANGAL
B.Tech VII SEMESTER
MANAGEMENT , ECONOMICS AND ACCOUNTANCY Course Code: U18MH701
K.Shashank
Assistant Professor Dept. of Management, KITSW UNIT-IV FINAL ACCOUNTS TRADING ACCOUNT PROFIT & LOSS ACCOUNT BALANCE SHEET SIMPLE ADJUSTMENTS TRADING ACCOUNT After preparing Trail Balance ,the next stage follows the preparation of Trading Accounts as well as P&L A/c to determine the result of business operations. Even though Trail balance reveals arithmetic accuracy it won’t reveal the financial position of the business organizations. By preparing final accounts we can know net result of the business operations. The preparation of Final accounts will have two stages. 1. Preparation of Trading Account and P&L A/c 2. Preparation of Balance Sheet Trading Account reveals the overall result of trading done in the business through purchase and sale of goods. Trading account is a nominal account. It is a part of Profit and loss account. It is generally prepared to find the gross profit or gross loss of the business during the financial year. Format of Trading Account: Items appearing on Debit side : Opening stock Purchases: includes both cash and credit purchase of goods. Purchase returns must be deducted from the total purchases to obtain net result. Direct expenses: expenses which are incurred from the stage of purchase to the stage of making the goods in saleable condition are termed as direct expenses. For example wages , carriage inwards / carriage, Octroi duty, customs duty, dock duties, clearing charges, import duty etc. , Other expenses. Items appearing on Credit side : Sales includes both cash and credit sales made during the year. Net sales will be derived by deducting sales returns from total sales. Closing stock Trading A/c of ABC Co. Ltd. For the year ending 31st March, 2019. Dr Cr
To Opening Stock 23,800 By Sales 2,13,000 1,88,000 (-) S.returns 25,000 To purchases 55,000 51,500 By closing stock 13,700 (-) P. returns 3,500 To M.expenses 14,500 To customs duty 1,700 To mgr’s salary 4,000 To Wages 7,600 To Factory rent 5,000 To frieght 2,600 To Gross Profit c/d 91,000 (transferred to P&L A/c) 2,01,700 2,01,700 P&L A/c A/c of ABC Co Ltd. For the year ending 31st March, 2019. Dr Cr Particulars Amt.(Rs) Amt. (Rs) Particulars Amt.(Rs) Amt. (Rs) To salaries 7,000 By Gross profit 33,100 To Carriage on sales 800 By Rent received 5,000 To discount allowed 2,000 By commission received 4,900 To repairs 3,500 To insurance premium 1,100 To audit fees 6,000 To general expenses 4,600 To travelling expenses 2,300 To bad debts 4,000 To commission paid 1,400 To telephone charges 3,050 To Net Profit 7,250 (Transferred to Capital A/c) 43,000 43,000 PROFIT & LOSS ACCOUNT:
The Trading account does not reveal the net position of the business as it does not take all the expenses into account. The of aim of Profit and Loss account is to ascertain the Net Profit earned or Net Loss suffered during the particular period. The operating expenses and sales & distribution expenses of the business will be considered. The Profit and Loss account is open with either gross profit or gross loss b/d from trading account. It is prepared to find out net profit or net loss of the business. Importance of P & L A/c: Provides information about Net profit / Net loss out of business operations. Helps to ascertain whether the business is being run effectively or not. Helps in taking steps for effective control of various expenses. Profit and Loss A/c of AB Co Ltd. For the year ending 31 st March,2019. Dr Cr Particulars Amt.(Rs) Amt.(Rs) Particulars Amt.(Rs) Amt.(Rs) To Salaries 7,000 By Gross Profit 33,100 To Carriage on sales 800 By rent received 5,000 To discount allowed 2,000 By commission received 4,900 To Repairs 3,500 To insurance premium 1,100 To audit fee 6,000 To General expenses 4,600 To Travelling expenses 2,300 To Bad debts 4,000 To Commission paid 1400 To Telephone charges 3,050 To Net Profit 7,250 (transferred to Capital A/c) 43,000 43,000 BALANCE SHEET
The Balance Sheet is prepared with an intension to know the financial position of the business at the end of the year. It is a statement at a given date showing on one side the traders’ property and possessions and on the other side his liabilities. A Balance Sheet is said to be a list of assets and liabilities of the business at a specific point of time. According to AICPA , Balance Sheet is a list of balances of the assets and liabilities accounts of a specific business at a specific point of time. The total value of the assets is always equals to the of the liabilities as it is based on the equation ASSETS = CAPITAL + LIABILITIES Balance Sheet of Aravind & Co. As on 31stMarch,2019.
S. No. Adjustment Trading A/c Profit & Loss A/c Balance Sheet
1. Outstanding Wages Dr. Add to wages Show O/s in Libailities
2. Outstanding Salaries Dr. Add to Salaries Show O/s in Liabilities 3. Prepaid Insurance Dr. Less from Insurance Show Prepaid in Assets 4. Income Receivable / Accrued Cr. Add to Income Show as an Asset Income 5. Income received in advance Cr. Less from Income Show as Liability
6. Closing Stock Show it in Credit Show in Asset side
side 7. Depreciation on machinery Dr. Show the depreciation Liabilities – Deduct depreciation from amount the Machinery 8. Depreciation on Furniture Dr. Show the depreciation Liabilities – Deduct depreciation from amount the Furniture
9. Depreciation on Buildings Dr. Show the depreciation Liablitiies – Deduct depreciation from amount the Buildings 10. Interest on Capital Cr. Interest on Capital Liabilities – Add to Capital
11. Interest on Drawings Dr. Interest on Drawings Liabilities – Less from Capital along with drawings 12. Bad Debts Dr. Bad Debts Assets – deduct from Debtors
13. Reserve for Bad Debts Dr. Show the reserve for Assets – deduct from Debtors Bad Debts 14. Further Bad Debts Dr. Add to existing Bad Assets – deduct further Bad Debts only Debts from debtors 15. Goods withdrawn for personal Dr. Less from Liabilities – Deduct from Capital use Purchases Liabilities Amt.(Rs.) Amt.(Rs.) Assets Amt.(Rs.) Amt.(Rs.)
Bills payable 14,000 Cash in hand 2,000
Sundry creditors 80,000 Bills receivable 10,000 Bank overdraft 10,000 Sundry debtors 1,26,000 Capital 48,000 Stock 1,04,000 (-) drawings 8,000 Fixtures and 13,000 fittings (+) Net profit 1,35,800 1,75,000
