Unit 7 UNIT – 7 UNIT – 7 FINAL ACCOUNTS. Unit 7 Final accounts Structure Introduction and Objectives Introduction and Objectives Adjustments before preparing

Unit 7

UNIT – 7 UNIT – 7

FINAL ACCOUNTSFINAL ACCOUNTS

Unit 7

Final accountsFinal accounts

StructureStructure

• Introduction and ObjectivesIntroduction and Objectives

• Adjustments before preparing Adjustments before preparing final accounts final accounts

• Trading account Trading account

• Preparation of Trading accountPreparation of Trading account

Financial Accounting

Unit 7

Final accountsFinal accounts

• Profit and Loss AccountProfit and Loss Account

• Preparation of Profit and Loss Preparation of Profit and Loss AccountAccount

• Balance Sheet – MeaningBalance Sheet – Meaning

• Preparation of Balance SheetPreparation of Balance Sheet

• IntroductionIntroduction


Unit 7

Introduction and Introduction and ObjectivesObjectives

• Final Accounts are those prepared Final Accounts are those prepared at the end of Accounting period and at the end of Accounting period and the last leg of the entire the last leg of the entire Accounting trail.Accounting trail.

• Final Accounts For Manufacturing Final Accounts For Manufacturing ConcernsConcerns– Manufacturing AccountManufacturing Account– Trading AccountTrading Account– P & L AccountP & L Account– Balance SheetBalance Sheet


Unit 7


• Final Accounts For Trading Final Accounts For Trading ConcernsConcerns– Trading AccountTrading Account– P & L AccountP & L Account– Balance SheetBalance Sheet


Unit 7


• Final Accounts For Non-Trading Final Accounts For Non-Trading ConcernsConcerns– Receipts & Payments AccountReceipts & Payments Account– Income & Expenditure AccountIncome & Expenditure Account– Balance SheetBalance Sheet

• Objectives:Objectives:


Unit 7


– To know the meaning and purpose To know the meaning and purpose of final accountsof final accounts

– To identify the items of Trading To identify the items of Trading AccountsAccounts

– To identify the items of Profit and To identify the items of Profit and Loss Account.Loss Account.

– To identify the items of assets and To identify the items of assets and liabilities of Balance Sheetliabilities of Balance Sheet


Unit 7


– To know the adjustments such To know the adjustments such as RBD, Reserve for discount, as RBD, Reserve for discount, depreciation, closing stock, depreciation, closing stock, stock destroyed by fire, used stock destroyed by fire, used for personal purposes, prepaid for personal purposes, prepaid and outstanding items etc.,and outstanding items etc.,


Unit 7


– To prepare Balance Sheet To prepare Balance Sheet without any adjustments from without any adjustments from the trial balance.the trial balance.

– To prepare Balance Sheet with To prepare Balance Sheet with adjustmentsadjustments


Unit 7

Adjustments before Adjustments before preparing final preparing final

accountsaccounts

• GAAP (Generally Accepted GAAP (Generally Accepted Accounting Principles) Accounting Principles) recognizes the accrual basis of recognizes the accrual basis of accountingaccounting

• So revenue is recognized when it So revenue is recognized when it is earned, whether received or is earned, whether received or not and expenses are recognized not and expenses are recognized when they are incurred whether when they are incurred whether paid or payable.paid or payable.


Unit 7


accountsaccounts

• Adjustments are more internal Adjustments are more internal transactions and they include:transactions and they include:– Outstanding ExpensesOutstanding Expenses– Prepaid expensesPrepaid expenses– Outstanding Incomes/ Accrued Outstanding Incomes/ Accrued

incomeincome– Pre-received IncomesPre-received Incomes


Unit 7


accountsaccounts– Depreciation on assetsDepreciation on assets– Reserve for bad and doubtful Reserve for bad and doubtful

debtsdebts– Reserve for discount on debtorsReserve for discount on debtors– Reserve for discount on creditorsReserve for discount on creditors– Stock used for personal purposesStock used for personal purposes– Closing stock valuationClosing stock valuation


Unit 7

Adjustments before preparing Adjustments before preparing Final Accounts – Outstanding Final Accounts – Outstanding

ExpensesExpenses

• Expenses incurred but not paid Expenses incurred but not paid are regarded as Outstanding are regarded as Outstanding ExpensesExpenses

• Outstanding expenses should be Outstanding expenses should be considered for calculating profit considered for calculating profit because they are incurred before because they are incurred before the end of accounting periodthe end of accounting period

• The entry in the journal proper is The entry in the journal proper is Financial Accounting

Unit 7


ExpensesExpenses– Concerned Expense account Dr Concerned Expense account Dr – To Outstanding Expenses account To Outstanding Expenses account – (Being outstanding expense amount (Being outstanding expense amount

brought into account)brought into account)• The outstanding portion of the The outstanding portion of the

expense is added to the concerned expense is added to the concerned expense account in P & L A/c.expense account in P & L A/c.

• Outstanding expense account is Outstanding expense account is shown as a liability in the balance shown as a liability in the balance sheetsheet


Unit 7


ExpensesExpensesExample: Salaries payable for the year Example: Salaries payable for the year

2005 Rs.60,000. Actual payment 2005 Rs.60,000. Actual payment made is Rs.48,000. made is Rs.48,000.

•The salary account shows only The salary account shows only Rs.48,000 because it is paid and Rs.48,000 because it is paid and recorded in cash account.recorded in cash account.

•So, the outstanding amount is So, the outstanding amount is Rs.12,000 (60,000 – 48,000). Rs.12,000 (60,000 – 48,000).

•The entry is The entry is


Unit 7


ExpensesExpenses•Salary account Dr 12,000Salary account Dr 12,000•To outstanding expenses account To outstanding expenses account 12,000 12,000

•(Being salary due to be paid (Being salary due to be paid brought into account)brought into account)

• In the Profit and Loss Account, the In the Profit and Loss Account, the outstanding salary is added and in the outstanding salary is added and in the balance sheet, the outstanding salary balance sheet, the outstanding salary Rs.12,000 appears as liability, since it Rs.12,000 appears as liability, since it shows credit balance.shows credit balance.


Unit 7

Adjustments before preparing Adjustments before preparing Final Accounts – Prepaid Final Accounts – Prepaid

ExpensesExpenses• Meaning: Prepaid expenses are those Meaning: Prepaid expenses are those

which are paid in advance in the current which are paid in advance in the current accounting period even though they accounting period even though they relate to the next accounting period.relate to the next accounting period.– Eg: Taxes paid in advance, Rent paid Eg: Taxes paid in advance, Rent paid

in advance, Insurance premium paid in in advance, Insurance premium paid in advanceadvance

• Adjusting Entry in the Journal Proper:Adjusting Entry in the Journal Proper:

• Prepaid expenses account DrPrepaid expenses account Dr


Unit 7


ExpensesExpenses• To Concerned expense accountTo Concerned expense account

• Treatment in Accounts:Treatment in Accounts:– Deduct prepaid portion of the Deduct prepaid portion of the

expense from the concerned expense from the concerned expense account in the final expense account in the final accounts.accounts.

– Prepaid portion of the expense is Prepaid portion of the expense is shown as an asset in the balance shown as an asset in the balance sheet, since it shows debit sheet, since it shows debit balance.balance.


Unit 7


ExpensesExpenses

• Example: Insurance premium paid Example: Insurance premium paid from 1-4-2005 to 31-3-2006, from 1-4-2005 to 31-3-2006, Rs.18,000. Rs.18,000. – The accounting year is from 1-1-2005 The accounting year is from 1-1-2005

to 31-12-2005. to 31-12-2005. – Therefore the prepaid portion is for Therefore the prepaid portion is for

3 months – Jan, Feb and Mar 2006 – 3 months – Jan, Feb and Mar 2006 – Rs.4,500 (18000 X 3 / 12)Rs.4,500 (18000 X 3 / 12)

– The Adjusting Entry:The Adjusting Entry:


Unit 7

Adjustments before Adjustments before preparing Final Accounts – preparing Final Accounts –

Prepaid ExpensesPrepaid Expenses•Prepaid Insurance A/c Dr 4,500Prepaid Insurance A/c Dr 4,500

•To Insurance Premium A/c 4,500To Insurance Premium A/c 4,500

• Treatment: Treatment: – A. Deduct the prepaid portion of A. Deduct the prepaid portion of

insurance Rs.4,500 from Insurance insurance Rs.4,500 from Insurance paid in P & L Accountpaid in P & L Account

– Show the prepaid portion of Show the prepaid portion of insurance as an asset in the Balance insurance as an asset in the Balance SheetSheet


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Outstanding Income / Accounts – Outstanding Income /

Accrued IncomeAccrued Income

• Meaning: Accrued Income is an Meaning: Accrued Income is an income which is earned but not income which is earned but not received.received.

• Adjusting Entry Adjusting Entry – Accrued Income A/ c DrAccrued Income A/ c Dr

To Concerned Income A/cTo Concerned Income A/c


Unit 7



• Accounting Treatment:Accounting Treatment:– Add the outstanding portion to Add the outstanding portion to

the concerned item of income the concerned item of income in Final accountsin Final accounts

– Show the accrued portion of Show the accrued portion of income as an asset in the income as an asset in the Balance SheetBalance Sheet


Unit 7



Example: Example: – Rent receivable for 12 months Rent receivable for 12 months

1-1-2006 to 31-12-2006 is 1-1-2006 to 31-12-2006 is Rs.72,000Rs.72,000

– Rent received for only 9 months Rent received for only 9 months up to 30th September, 2006 is up to 30th September, 2006 is Rs.54,000Rs.54,000

– Rent accrued but not received Rent accrued but not received before 31-12-2006 is Rs.18,000before 31-12-2006 is Rs.18,000


Unit 7



– The adjusting entry is The adjusting entry is

•Outstanding Rent account Dr Outstanding Rent account Dr 18,000 18,000

•To Rent account To Rent account 18,00018,000

• Treatment is Treatment is


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Income Received In Accounts – Income Received In

AdvanceAdvance

– Add Rs.18,000 to rent received Add Rs.18,000 to rent received account Rs.54,000 to make it account Rs.54,000 to make it Rs.72,000 in P & L Account.Rs.72,000 in P & L Account.

– Show the outstanding rent Show the outstanding rent account as an asset in the account as an asset in the Balance Sheet on 31-12-2006.Balance Sheet on 31-12-2006.


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Income Received In AdvanceAccounts – Income Received In Advance

• Meaning : Income actually received Meaning : Income actually received in the current accounting period in the current accounting period but relating to the next accounting but relating to the next accounting periodperiod

• Example: Rent received in Example: Rent received in advance.advance.

• Adjusting entry in Journal Proper: Adjusting entry in Journal Proper: – Concerned Income account DrConcerned Income account Dr– To Pre-received Income accountTo Pre-received Income account


Unit 7


• Accounting Treatment: Accounting Treatment: – Deduct pre-received portion of Deduct pre-received portion of

the income from the concerned the income from the concerned item of income in final item of income in final accounts.accounts.

– Show the pre- received amount Show the pre- received amount of the income as a liability in of the income as a liability in the Balance Sheetthe Balance Sheet


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Income Received In Accounts – Income Received In

AdvanceAdvance

• Example: Example: – Royalty actually received Royalty actually received

during the year is Rs.1,25,000during the year is Rs.1,25,000– Royalty relating to next year Royalty relating to next year

included in the above is included in the above is Rs.25,000Rs.25,000

– Adjusting EntryAdjusting Entry

•Royalty account Dr 25,000Royalty account Dr 25,000


Unit 7


•To Pre-received Income account To Pre-received Income account 25,000 25,000

• Treatment in Accounts:Treatment in Accounts:– Deduct Rs.25,000 from Rs.1,25,000 Deduct Rs.25,000 from Rs.1,25,000

in the Profit and Loss Account in the Profit and Loss Account – Show Rs.25,000 as a liability Show Rs.25,000 as a liability

in the Balance Sheetin the Balance Sheet


Unit 7

Adjustments before preparing Adjustments before preparing Final Accounts – Depreciation Final Accounts – Depreciation

on assetson assets• Meaning : Depreciation is reduction in Meaning : Depreciation is reduction in

the value of an asset as a result of wear the value of an asset as a result of wear and tear or constant use. It is a loss and and tear or constant use. It is a loss and charged against profit of the business. charged against profit of the business.

• Accounting Entries : Accounting Entries : – Depreciation account Dr Depreciation account Dr – To Concerned Asset accountTo Concerned Asset account– Profit and Loss Account DrProfit and Loss Account Dr– To Depreciation accountTo Depreciation account


Unit 7

Adjustments before preparing Adjustments before preparing Final Accounts – Depreciation Final Accounts – Depreciation

on assetson assets• Accounting Treatment: Accounting Treatment:

– Charge depreciation against gross Charge depreciation against gross profit in P & L Account profit in P & L Account

– Deduct depreciation amount from the Deduct depreciation amount from the concerned asset account if concerned asset account if depreciation appears outside T.B.depreciation appears outside T.B.

• Methods of DepreciationMethods of Depreciation– Fixed Installment MethodFixed Installment Method– Reducing Balancing MethodReducing Balancing Method


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Bad debts and Provision for Accounts – Bad debts and Provision for

Bad DebtsBad Debts

• Meaning: Bad Debts are the debts Meaning: Bad Debts are the debts which can not be recovered and which can not be recovered and represent total loss to the business.represent total loss to the business.

• Accounting Entries:Accounting Entries:– Bad Debts account DrBad Debts account Dr– To Sundry debtor’s accountTo Sundry debtor’s account– (Being bad debts taken to (Being bad debts taken to

account)account)– Profit and Loss Account DrProfit and Loss Account Dr


Unit 7


Bad DebtsBad Debts

– To Bad debts accountTo Bad debts account– (Being bad debts charged to P&L (Being bad debts charged to P&L

account)account)• Occurrence of Bad debts: Occurrence of Bad debts:

– Case I : Bad debts deducted from Case I : Bad debts deducted from debtors and brought to the account debtors and brought to the account and trial balance.and trial balance.

– Case II: Bad debts are accounted Case II: Bad debts are accounted after the preparation of trial balanceafter the preparation of trial balance


Unit 7


Bad DebtsBad Debts

• Accounting Adjustment:Accounting Adjustment:– First case: Transfer the bad First case: Transfer the bad

debts to P&L Account and debts to P&L Account and Sundry Debtors need not be Sundry Debtors need not be reduced.reduced.

– Second Case: Second Case: •Transfer the bad debts to P&L Transfer the bad debts to P&L Account and Account and

•Reduce the sundry debtors by Reduce the sundry debtors by the amount of bad debts.the amount of bad debts.


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Bad debts and Provision Accounts – Bad debts and Provision

for Bad Debtsfor Bad Debts

– Third Case: If there is any Third Case: If there is any reserve for bad debts reserve for bad debts maintained, then bad debts maintained, then bad debts should be set off against such should be set off against such reserve and later if there is reserve and later if there is uncovered bad debts, then uncovered bad debts, then charge them against P&L charge them against P&L Account Account


Unit 7


Bad DebtsBad Debts

• Purpose of Provision for Bad Purpose of Provision for Bad Debts: To cover the risk of bad Debts: To cover the risk of bad debts that may arise in future. It debts that may arise in future. It is a charge against profits of the is a charge against profits of the business. This is also known as business. This is also known as Reserve for bad and doubtful Reserve for bad and doubtful debts.debts.

• Adjusting Entries:Adjusting Entries:


Unit 7


Bad DebtsBad Debts

• Profit and Loss Account DrProfit and Loss Account Dr

• To Reserve for Bad Debts To Reserve for Bad Debts accountaccount

• (Being provision made for bad and (Being provision made for bad and doubtful debts)doubtful debts)

• Reserve for Bad Debts account Dr Reserve for Bad Debts account Dr

• To Bad debts accountTo Bad debts account

• (Being bad debts incurred set off (Being bad debts incurred set off against RBD)against RBD)


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Bad Debts and Provision for Accounts – Bad Debts and Provision for

Bad DebtsBad Debts

• Accounting treatment:Accounting treatment:– Charge P & L Account by the Charge P & L Account by the

amount of RBD to the extent it is amount of RBD to the extent it is needed.needed.

– Show the balance of RBD as Show the balance of RBD as liability in the Balance Sheet OR liability in the Balance Sheet OR deduct RBD from Good Debtors.deduct RBD from Good Debtors.


Unit 7


Bad DebtsBad Debts

– Deduct bad debts from RBD in Deduct bad debts from RBD in case there is adequate balance case there is adequate balance is availableis available

– The amount to be transferred The amount to be transferred to P&L Account towards RBD is to P&L Account towards RBD is calculated by applying the calculated by applying the formulaformula


Unit 7


Bad DebtsBad Debts

• New RBD required – (Old RBD + New RBD required – (Old RBD + Bad Debts )Bad Debts )

• Calculation of RBD: RBD is Calculation of RBD: RBD is calculated at a fixed percentage calculated at a fixed percentage of good debtors and basing on of good debtors and basing on the past experience of business the past experience of business man. man.

• Good debtors = Total debtors – Good debtors = Total debtors – Bad debts unadjusted. (As given Bad debts unadjusted. (As given outside the trial balance)outside the trial balance)


Unit 7

Adjustments before preparing Final Adjustments before preparing Final Accounts – Bad Debts and Provision Accounts – Bad Debts and Provision

for Bad Debtsfor Bad Debts

• Illustration:Illustration:– Debtors on 1-1-2005 Rs.2,00,000; Debtors on 1-1-2005 Rs.2,00,000;

RBD balance on 1-1-2005 : RBD balance on 1-1-2005 : Rs.10,000; Bad debts incurred Rs.10,000; Bad debts incurred during the year 2005 Rs.9,000; during the year 2005 Rs.9,000; RBD should be at 5% on debtors. RBD should be at 5% on debtors. Debtors on 31-12-2005 Debtors on 31-12-2005 Rs.3,00,000. Draw ledger accounts Rs.3,00,000. Draw ledger accounts and show in the balance sheet.and show in the balance sheet.

– Answer:Answer:


Unit 7


Bad DebtsBad Debts

Reserve for Bad and Doubtful Debts AccountReserve for Bad and Doubtful Debts Account

Rs Rs

RsRsTo Bad debts(31-12-To Bad debts(31-12-05)05)

To balance c/d(31-To balance c/d(31-12-05)12-05)

9,0009,000

15,00015,000

24,00024,000

By balance b/d (1-1-By balance b/d (1-1-2005)2005)

By P & L A/c (31-12-By P & L A/c (31-12-2005)2005)

By balance b/d( 1-1-By balance b/d( 1-1-2006)2006)

10,00010,000

14,00014,000

24,00024,000

15,00015,000


Unit 7

Reserve for Bad and Doubtful Reserve for Bad and Doubtful Debts (ContinuedDebts (Continued))

• I MethodI Method

Balance Sheet for the year ending 31-12-2004 Balance Sheet for the year Balance Sheet for the year ending 31-12-2004 Balance Sheet for the year ending 31-12-2005ending 31-12-2005

Liabilities Assets Liabilities Liabilities Assets Liabilities AssetsAssets

R B D 10,000 Sundry Debtors 2,00,000 R B D 15,000 Sundry R B D 10,000 Sundry Debtors 2,00,000 R B D 15,000 Sundry Debtors 3,00,000Debtors 3,00,000

• II MethodII Method

Balance Sheet for the year ending 31-12-2004 Balance Sheet for the year ending 31-12-2005 Liabilities Assets Liabilities Assets

S.Debtors 2,00,000 Debtors 3,00,000 Less RBD 10,000 Less RBD 15,000 1,90,000 2,85,000


Unit 7

7.2.7. Adjustments before preparing 7.2.7. Adjustments before preparing Final Accounts - Reserve for Discount Final Accounts - Reserve for Discount

on Debtorson Debtors

• Nature and purpose of DiscountNature and purpose of Discount

• Discounts are of two types – Discounts are of two types – Trade discount and cash Trade discount and cash discount.discount.

• Trade discount is allowed to Trade discount is allowed to retain the customer ship and retain the customer ship and does not get reflected in the does not get reflected in the accountsaccounts


Unit 7



• Cash discount is to encourage prompt Cash discount is to encourage prompt and regular payment of cash by the and regular payment of cash by the customers to whom goods are sold on customers to whom goods are sold on credit. It appears in Cash book. Discount credit. It appears in Cash book. Discount allowed is business expense and discount allowed is business expense and discount received is business income.received is business income.

• Need for Reserve for Discount on Debtors:Need for Reserve for Discount on Debtors:

• To cover the risk of discount allowable to To cover the risk of discount allowable to debtorsdebtors


Unit 7



• Accounting Entries:Accounting Entries:

When reserve for discount on debtors is created: P & L Account DrWhen reserve for discount on debtors is created: P & L Account Dr To Reserve for To Reserve for

discount on Drs a/cdiscount on Drs a/cWhen discount is allowed to Debtors: Discount allowed When discount is allowed to Debtors: Discount allowed

account Draccount Dr To Sundry To Sundry

debtor’s a/c debtor’s a/c When Discount on debtors is set off against Reserve: Reserve for Discount When Discount on debtors is set off against Reserve: Reserve for Discount

A/c DrA/c Dr To discount To discount

allowed a/callowed a/c


Unit 7



• Accounting Treatment:Accounting Treatment:

• Show Reserve for discount on Show Reserve for discount on debtors either as a liability in the debtors either as a liability in the balance sheet or deduct the same balance sheet or deduct the same from good debtors on the asset from good debtors on the asset side of the balance sheet. The side of the balance sheet. The later is the popular practicelater is the popular practice


Unit 7



• Important Note:Important Note:

• Reserve for discount on debtors Reserve for discount on debtors is computed on the amount of is computed on the amount of debtors minus new RBD, at a debtors minus new RBD, at a fixed percentage.fixed percentage.

• Any excess reserve is present, Any excess reserve is present, transfer it to P & L Account as transfer it to P & L Account as income.income.

Unit 7

7.2.8.Adjustments before preparing 7.2.8.Adjustments before preparing Final Accounts – Reserve for Discount Final Accounts – Reserve for Discount

on Creditorson Creditors

• Nature and purpose: Discounts Nature and purpose: Discounts are allowed by creditors when we are allowed by creditors when we pay them promptly and in time. pay them promptly and in time. Discount is thus received and Discount is thus received and treated as income. Anticipating treated as income. Anticipating such income, a reserve is such income, a reserve is maintained in the business.maintained in the business.


Unit 7


on Creditorson Creditors• Accounting entriesAccounting entries

1. Whenever discount is received: Creditors Account Dr1. Whenever discount is received: Creditors Account Dr

To Discount received To Discount received accountaccount

2. When Discount received is transferred to P&L: Discount received a/c Dr2. When Discount received is transferred to P&L: Discount received a/c Dr

(Reserve for discount is not available) To P & L Account(Reserve for discount is not available) To P & L Account

3. When Discount received is set off against Discount received a/c Dr 3. When Discount received is set off against Discount received a/c Dr

Reserve for Discount on Debtors : To Reserve for discount Reserve for Discount on Debtors : To Reserve for discount on creditors a/con creditors a/c

4. When Reserve is created in P&L A/c : Reserve for Discount on 4. When Reserve is created in P&L A/c : Reserve for Discount on Creditors a/c DrCreditors a/c Dr

To Profit and Loss To Profit and Loss AccountAccount


Unit 7


on Creditorson Creditors

• Accounting TreatmentAccounting Treatment

1. 1. Reserve for discount on creditors Reserve for discount on creditors shows debit balance and it is an shows debit balance and it is an asset. But it is deducted from the asset. But it is deducted from the amount of creditors on the liability amount of creditors on the liability side of balance sheet.side of balance sheet.

2. The amount of reserve for 2. The amount of reserve for discount on creditors is computed discount on creditors is computed basing on total creditors.basing on total creditors.


Unit 7

7.2.9. Adjustments before preparing 7.2.9. Adjustments before preparing Final Accounts – Stock used for personal Final Accounts – Stock used for personal

purposespurposes

• Situation:Situation:

• Goods of the business might be Goods of the business might be used for personal purpose of the used for personal purpose of the proprietor and this is not sale proprietor and this is not sale transaction.transaction.

• The stock of goods in the The stock of goods in the business is reduced, but cash is business is reduced, but cash is not received in return.not received in return.


Unit 7

7.2.9. Adjustments before preparing 7.2.9. Adjustments before preparing Final Accounts – Stock used for Final Accounts – Stock used for

personal purposespersonal purposes

• Accounting TreatmentAccounting Treatment • This transaction is treated as similar This transaction is treated as similar

to drawings for personal purposes.to drawings for personal purposes.• The cost of goods so used is either The cost of goods so used is either

deducted from the purchases or deducted from the purchases or shown on the credit side of Trading shown on the credit side of Trading account.account.

• The capital of the proprietor is The capital of the proprietor is reduced by the amount of drawings reduced by the amount of drawings of goods in the balance sheet.of goods in the balance sheet.


Unit 7

7.2.9. Adjustments before preparing 7.2.9. Adjustments before preparing Final Accounts – Stock used for Final Accounts – Stock used for

personal purposespersonal purposes

• Accounting entriesAccounting entries

11. When goods are used for personal purpose: Drawings . When goods are used for personal purpose: Drawings account Draccount Dr

To goods account / purchases To goods account / purchases accountaccount

2. When drawings are transferred to capital A/c: Capital 2. When drawings are transferred to capital A/c: Capital account Draccount Dr

To drawings accountTo drawings account


Unit 7

7.2.10.Adjustments before 7.2.10.Adjustments before preparing Final Accounts – preparing Final Accounts –

Closing StockClosing Stock• Meaning: Meaning:

• Closing stock is the stock of goods Closing stock is the stock of goods - finished, semi-finished or raw - finished, semi-finished or raw material – at the end of accounting material – at the end of accounting period, lying unsold.period, lying unsold.

• Its valuation is important to Its valuation is important to calculate trading profit / loss.calculate trading profit / loss.


Unit 7


Closing StockClosing Stock

• Closing stock does not appear in Closing stock does not appear in the trial balance because the the trial balance because the closing stock is taken only after closing stock is taken only after the closing of books of accounts.the closing of books of accounts.

• ValuationValuation


Unit 7


Closing StockClosing Stock• Closing stock is valued either at cost Closing stock is valued either at cost

price at which it was purchased or at price at which it was purchased or at market price on the date of valuation market price on the date of valuation which ever is lower. This is as per which ever is lower. This is as per conservatism principle.conservatism principle.

• Accounting treatmentAccounting treatment1. To bring closing stock into account, the 1. To bring closing stock into account, the

entry is entry is Closing Stock A/c Dr Closing Stock A/c Dr

To Trading AccountTo Trading Account


Unit 7


Closing StockClosing Stock

2. 2. Closing stock is taken to the Closing stock is taken to the credit side of Trading account credit side of Trading account

3. Closing stock being an asset 3. Closing stock being an asset appears on the asset side of appears on the asset side of balance sheet.balance sheet.

4. Closing stock of the current 4. Closing stock of the current year automatically becomes year automatically becomes opening stock of the coming opening stock of the coming year.year.


Unit 7

7.2.10.Adjustments before 7.2.10.Adjustments before preparing Final Accounts – preparing Final Accounts – Closing StockClosing Stock

5. 5. Opening stock shows debit Opening stock shows debit balance and it is transferred to balance and it is transferred to Trading account to close it. The Trading account to close it. The entry isentry is

• Trading Account DrTrading Account Dr• To Opening stock To Opening stock

accountaccount..


Unit 7

7.3. Trading 7.3. Trading AccountAccount

• Purpose of Trading Account: Purpose of Trading Account:

• Trading Account gives the over all result of Trading Account gives the over all result of trading, i.e.., purchasing and selling of trading, i.e.., purchasing and selling of goods.goods.

• It takes into account the cost of goods sold It takes into account the cost of goods sold and the value at which they have been sold and the value at which they have been sold

• If the sale value is more than cost of goods If the sale value is more than cost of goods sold, it is gross profit. Otherwise it is gross sold, it is gross profit. Otherwise it is gross lossloss

• It is prepared by both Manufacturing and It is prepared by both Manufacturing and trading organizations.trading organizations.

• Trading A/c is a revenue account.Trading A/c is a revenue account.

• Closing entries are:Closing entries are:

1. Trading Account Dr1. Trading Account Dr

To Opening stock a/cTo Opening stock a/c

To Purchases etc.,To Purchases etc.,

(Being trade expenses, op.stock etc (Being trade expenses, op.stock etc transferred totransferred to

Trading A/c)Trading A/c)

2. Sales a/c Dr2. Sales a/c Dr

Closing Stock a/c DrClosing Stock a/c Dr

To Trading AccountTo Trading Account

(Being closing stock and sales transferred (Being closing stock and sales transferred to Trading A/c)to Trading A/c)

3. Trading Account Dr3. Trading Account Dr

To P & L AccountTo P & L Account

(Being gross profit transferred to P&L (Being gross profit transferred to P&L Account)Account)

Debit Debit RsRs

Credit Credit (Rs)(Rs)

To Opening StockTo Opening Stock

To Purchases lessTo Purchases less

Purchase returns Purchase returns lessless

stock personally stock personally usedused

To wagesTo wages

To carriage inwardsTo carriage inwards

To local tax paidTo local tax paid

To royalty paid on To royalty paid on raw material raw material extractionextraction

To Freight, cartageTo Freight, cartage

To customs & import To customs & import dutyduty

To gas electricity & To gas electricity & waterwater

To other direct To other direct expensesexpenses

To Gross profit To Gross profit transferred to Profit transferred to Profit and Loss Accountand Loss Account

By Sales less sales By Sales less sales returnsreturns

By Closing stockBy Closing stock

By gross loss By gross loss transferred to transferred to Profit and Loss Profit and Loss AccountAccount

Form of Trading Account


Unit 7

7.4. Preparation of 7.4. Preparation of Trading AccountTrading Account

• Steps to prepare Trading AccountSteps to prepare Trading Account

1. Take Opening stock of goods on 1. Take Opening stock of goods on the debit side and Closing stock to the debit side and Closing stock to the credit side of Trading Accountthe credit side of Trading Account

2. Identify all expenses of trade, 2. Identify all expenses of trade, purchase and direct expenses and purchase and direct expenses and show them on debit side show them on debit side


Unit 7


3. Give effect to adjustments like 3. Give effect to adjustments like outstanding and prepaid items outstanding and prepaid items and drawings of goods etc., .to and drawings of goods etc., .to the relevant accountsthe relevant accounts

4. Show sales less returns and 4. Show sales less returns and closing stock on the credit side closing stock on the credit side of Trading accountof Trading account


Unit 7


5. If there is excess of credit, treat 5. If there is excess of credit, treat it as Gross Profit and transfer it as Gross Profit and transfer it to P&L Account it to P&L Account

6. If there is excess of debit, over 6. If there is excess of debit, over credit, treat it as Gross Loss and credit, treat it as Gross Loss and transfer it to P & L Accounttransfer it to P & L Account

IllustrationIllustrationFinancial Accounting

Unit 7

• From the following balances From the following balances extracted from Trial balance, extracted from Trial balance, prepare Trading Account. The prepare Trading Account. The closing stock at the end of the closing stock at the end of the period is Rs56000period is Rs56000


Unit 7

ParticularsParticularsAmount in Amount in

RsRs..Stock on 1-1-2004Stock on 1-1-2004Returns inwardsReturns inwardsReturns outwardsReturns outwardsPurchasesPurchasesDebtorsDebtorsCreditorsCreditorsCarriage inwardsCarriage inwardsCarriage outwardsCarriage outwardsImport duty on materials received from abroadImport duty on materials received from abroadClearing chargesClearing chargesRent of business shopRent of business shopRoyalty paid to extract materialsRoyalty paid to extract materialsFire insurance on stockFire insurance on stockWages paid to workersWages paid to workersOffice salariesOffice salariesCash discountCash discountGas, electricity and waterGas, electricity and waterSalesSales

7070070700 20002000 30003000 102000102000 5600056000

450004500050005000400040006000600070007000

120001200010000100002000200080008000

1000010000 10001000

40004000250000250000


Unit 7

TRADING ACCOUNT FOR THE YEAR ENDING - - - -

ParticularsParticulars

RsRs ParticularsParticulars RsRs

To stock on 1-1-2004To stock on 1-1-2004To Purchases 102000To Purchases 102000Less ReturnsLess ReturnsOutwards Outwards 30003000To Carriage inwardsTo Carriage inwardsTo import dutyTo import dutyTo Clearing chargesTo Clearing chargesTo RoyaltyTo RoyaltyTo Fire InsuranceTo Fire InsuranceTo WagesTo WagesTo Gas, electricity, waterTo Gas, electricity, waterTo P & L Account (GP)To P & L Account (GP)

70700707009900099000500050006000600070007000

1000010000200020008000800040004000

9130091300

By sales By sales 250000250000Less Returns Less Returns Inwards Inwards 30003000By Closing stockBy Closing stock

24700247005600056000

303000 303000 303003030000

Solution

CrDr

Unit 7

7.6. Profit and Loss 7.6. Profit and Loss AccountAccount

• Nature and Salient features:Nature and Salient features:

• P&L Account is a revenue account, P&L Account is a revenue account, showing all revenue expenses and showing all revenue expenses and incomesincomes

• The result is net profit or net loss, The result is net profit or net loss, transferred to Capital account transferred to Capital account

• Office, administrative, selling and Office, administrative, selling and distribution expenses are transferred distribution expenses are transferred to debit of P&L Accountto debit of P&L Account


Unit 7


• Revenue losses such as bad debts, Revenue losses such as bad debts, depreciation, loss on sale of certain depreciation, loss on sale of certain assets, loss as a result of calamities are assets, loss as a result of calamities are also taken to debit side of the account.also taken to debit side of the account.

• All incomes such as rent received, All incomes such as rent received, interest received, discount received etc., interest received, discount received etc., are taken to credit side.are taken to credit side.

• Reserves and provisions are charged Reserves and provisions are charged against profit by taking them on debit against profit by taking them on debit side.side.


Unit 7


• Adjustments in the nature of Adjustments in the nature of outstanding, prepaid, accrued, incomes outstanding, prepaid, accrued, incomes received in advance etc., are received in advance etc., are incorporated.incorporated.

• The Transferring entries are:The Transferring entries are:

1. P & L Account Dr1. P & L Account Dr

• To All expenses, reserves & Losses a/cTo All expenses, reserves & Losses a/c

• (Being all revenue expenses, provisions (Being all revenue expenses, provisions etc., transferred to P&L A/C)etc., transferred to P&L A/C)


Unit 7


2. 2. All Incomes Accounts DrAll Incomes Accounts Dr

• To P & L Account To P & L Account

• (Being incomes of revenue in (Being incomes of revenue in nature are taken to P & L account)nature are taken to P & L account)

3. P & L Account Dr3. P & L Account Dr

• To Capital AccountTo Capital Account

• (Being Net profit transferred to (Being Net profit transferred to Capital Account)Capital Account)


Unit 7

Dr PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING --- Cr

rParticularsParticulars RsRs ParticularsParticulars RsRs

To Trading Account (GL)To Trading Account (GL)To Salaries + Out standing –To Salaries + Out standing –Prepaid salaries as per Prepaid salaries as per adjustmentsadjustmentsTo Rent of the premisesTo Rent of the premisesTo Travelling expensesTo Travelling expensesTo Rates and TaxesTo Rates and TaxesTo Printing and stationeryTo Printing and stationeryTo Postage and TelegramTo Postage and TelegramTo Telephone chargesTo Telephone chargesTo Insurance –Prepaid amount as To Insurance –Prepaid amount as per adjustmentper adjustmentTo Interest paidTo Interest paidTo Discount allowedTo Discount allowedTo Sundry expensesTo Sundry expensesTo AdvertisementTo AdvertisementTo CommissionTo CommissionTo Carriage outwardsTo Carriage outwardsTo Bad DebtsTo Bad DebtsTo Reserve for Bad debtsTo Reserve for Bad debtsTo Reserve for discount on To Reserve for discount on DebtorsDebtorsTo DepreciationTo DepreciationTo Legal chargesTo Legal chargesTo Audit feeTo Audit feeTo Interest on CapitalTo Interest on CapitalTo Capital Account (Net Profit)To Capital Account (Net Profit)

By Trading account (GP)By Trading account (GP)By Interest earned + By Interest earned + Accrued interest as per Accrued interest as per adjustmentsadjustmentsBy Commission earnedBy Commission earnedBy discount earnedBy discount earnedBy Rent receivedBy Rent receivedBy Bad debts recoveredBy Bad debts recoveredBy Interest on drawingsBy Interest on drawingsBy Reserve for discount on By Reserve for discount on CreditorsCreditorsBy Dividends receivedBy Dividends receivedBy Royalty ReceivedBy Royalty ReceivedBy Capital Account( Net By Capital Account( Net Loss)Loss)

FORMAT


Unit 7

IllustrationThe following Trial Balance is extracted from the books of a merchant on 31-12-2004.

ParticularsParticulars RsRs

Furniture and fittingsFurniture and fittingsMotor VehiclesMotor VehiclesBuildingsBuildingsCapital AccountCapital AccountBad DebtsBad DebtsProvision for Bad debtsProvision for Bad debtsSundry DebtorsSundry DebtorsSundry CreditorsSundry CreditorsStock on 1-1-2004Stock on 1-1-2004PurchasesPurchasesSalesSalesBank Over DraftBank Over DraftSales ReturnsSales ReturnsPurchase ReturnsPurchase ReturnsAdvertisingAdvertisingInterest on Bank Over DraftInterest on Bank Over DraftCommissionCommissionCashCashTaxes and InsuranceTaxes and InsuranceGeneral ExpensesGeneral ExpensesSalariesSalaries

6406406250625075007500

1250012500125125200200

38003800250025003460346054755475

154501545028502850200200125125450450118118375375650650

12501250782782

33003300Financial Accounting

Unit 7

• The following adjustments are The following adjustments are to be made.to be made.

• Stock in hand on 31-12-2004 Stock in hand on 31-12-2004 was Rs3250was Rs3250

• Depreciate Buildings at the rate Depreciate Buildings at the rate of 5%, Furniture and fittings @ of 5%, Furniture and fittings @ 10% and Motor Vehicles @ 20%.10% and Motor Vehicles @ 20%.

• Rs.85 is due for interest on Rs.85 is due for interest on bank overdraft.bank overdraft.


Unit 7

• Salaries of Rs.300 and taxes Rs.120 are Salaries of Rs.300 and taxes Rs.120 are outstanding.outstanding.

• Insurance amounting to Rs.100 is Insurance amounting to Rs.100 is prepaidprepaid

• One-third of the commission received is One-third of the commission received is in respect of work to be done next yearin respect of work to be done next year

• Write off a further sum of Rs.100 as bad Write off a further sum of Rs.100 as bad debts and provision for bad and debts and provision for bad and doubtful debts to be made equal to doubtful debts to be made equal to 10% on sundry debtors.10% on sundry debtors.

• Prepare Trading Account and Profit and Prepare Trading Account and Profit and Loss Account.Loss Account.


Unit 7

Dr Trading Account for the year ending 31-12-2004 Cr

ParticularsParticulars RsRs ParticularsParticulars RsRs

To Stock on1-1-2004To Stock on1-1-2004To Purchases 5475To Purchases 5475Less returns Less returns 125 125To P & L A/C (GP)To P & L A/C (GP)

34603460

5350535096909690

By Sales 15450By Sales 15450Les ReturnsLes Returns 200 200By Closing StockBy Closing Stock

1525152500

32503250

TotalTotal 1850018500 TotalTotal 1850185000 Profit and Loss Account for the year ending 31-12-2004

Dr Cr ParticularsParticulars

Rs Rs


To Salaries 3300To Salaries 3300Add Outstanding Add Outstanding 300300To AdvertisingTo AdvertisingTo Interest on OD 118To Interest on OD 118Add Outstanding Int Add Outstanding Int 85 85To Taxes and Insurance 1250To Taxes and Insurance 1250Add Out standing tax Add Out standing tax 120 120 13701370Less Prepaid Insurance Less Prepaid Insurance 100 100To General expensesTo General expensesTo bad debtsTo bad debtsTo RBD(New) 370To RBD(New) 370Less old RBD balance Less old RBD balance 100100To Depreciation:To Depreciation: On Bldgs @ 5% 375On Bldgs @ 5% 375 On FF @ 10% 64On FF @ 10% 64 On M Vehicles @20% On M Vehicles @20% 12501250To Capital Account (NP)To Capital Account (NP)

36003600450450203203

12701270782782125125270270

1689168915511551

By Trading Account By Trading Account (GP)(GP)By Commission 375By Commission 375Less Pre-received Less Pre-received 125125

96909690 250250

TotalTotal 99409940 TotalTotal 99409940

Unit 7

Note: Sundry Debtors are Rs.3800 and there have been bad debts outside TB Rs100. The good debtors are Rs.3700. The new RBD is 10% of 3700, i.e.Rs370. The old RBD unspent is Rs100 (200 -100). Therefore RBD to be charged against profit is Rs270


Unit 7

7.7. Balance Sheet7.7. Balance Sheet

• Meaning: Meaning:

• Balance Sheet is a statement of Balance Sheet is a statement of assets and liabilities of a assets and liabilities of a business as on a certain datebusiness as on a certain date

• Assets are stated on right hand Assets are stated on right hand side and liabilities on the left side and liabilities on the left hand side, in case Balance Sheet hand side, in case Balance Sheet is prepared horizontally. is prepared horizontally.


Unit 7

7.7. Balance Sheet7.7. Balance Sheet

• If balance sheet is prepared vertically, If balance sheet is prepared vertically, assets are mentioned first (Application assets are mentioned first (Application of funds) and later the liabilities are of funds) and later the liabilities are mentioned (Sources of funds)mentioned (Sources of funds)

• The assets and liabilities are arranged The assets and liabilities are arranged in the liquidity order, i.e.., more liquid in the liquidity order, i.e.., more liquid assets come first and those that can assets come first and those that can not be readily converted come next.not be readily converted come next.

Unit 7

7.7. Balance 7.7. Balance SheetSheet

• A balance sheet of a company form A balance sheet of a company form of organization, assets and liabilities of organization, assets and liabilities are arranged on permanency order, are arranged on permanency order, i.e.., assets, which are more i.e.., assets, which are more permanent come first and less permanent come first and less permanent next. Format of a Balance permanent next. Format of a Balance Sheet is aSheet is a


Unit 7

7.7. Balance Sheet7.7. Balance SheetBALANCE SHEET OF -- - - - - - - - - - -FOR THE YEAR ENDINGBALANCE SHEET OF -- - - - - - - - - - -FOR THE YEAR ENDING - - - - - -

- - - - - - -- - - - - - -Capital and LiabilitiesCapital and Liabilities

RsRs AssetsAssets

RsRs

Sundry CreditorsSundry CreditorsLess Reserve for Discount onLess Reserve for Discount on CreditorsCreditorsBills PayableBills PayableBank Over DraftBank Over DraftLoans BorrowedLoans BorrowedOutstanding ExpensesOutstanding ExpensesPre-received IncomesPre-received IncomesCapital (Opening)Capital (Opening)Add Additions to capitalAdd Additions to capitalAdd interest on capital if anyAdd interest on capital if anyAdd Net profit as per P&L a/cAdd Net profit as per P&L a/cLess personal drawingsLess personal drawingsLess Net loss as per P&L A/CLess Net loss as per P&L A/C

Cash in handCash in handCash at BankCash at BankLand and Building Land and Building Add Additions if anyAdd Additions if anyLess depreciationLess depreciationPlant and Machinery less Plant and Machinery less depreciationdepreciationFurniture and Fixtures less Furniture and Fixtures less depreciationdepreciationSundry debtors Sundry debtors Less Bad debts out side Trial Less Bad debts out side Trial BalanceBalanceLess Reserve for Bad DebtsLess Reserve for Bad DebtsLess Reserve for discount on Less Reserve for discount on DebtorsDebtorsBills ReceivableBills ReceivableLoans and advances given to others Loans and advances given to others + Interest outstanding+ Interest outstandingInvestments + outstanding income Investments + outstanding income on investmentson investmentsOther outstanding incomesOther outstanding incomesPre-paid expensesPre-paid expensesClosing stockClosing stock

TotalTotal TotalTotal

Unit 7

7.8. Preparation of 7.8. Preparation of Balance SheetBalance Sheet

Guidelines to prepare Balance SheetGuidelines to prepare Balance Sheet

1. Check whether the given Trial 1. Check whether the given Trial Balance tallies or not. If it does not Balance tallies or not. If it does not tally, make a note of the amount of tally, make a note of the amount of difference. difference.


Unit 7


2. Identify assets from the debit 2. Identify assets from the debit side of Trial balance and arrange side of Trial balance and arrange them in liquidity order on the them in liquidity order on the assets side of B/Sassets side of B/S

3. Identify liabilities from the 3. Identify liabilities from the credit side of Trial Balance and credit side of Trial Balance and arrange them on the liabilities arrange them on the liabilities side of Balance Sheetside of Balance Sheet


Unit 7


4. 4. Note those items of adjustments, Note those items of adjustments, which are given out side Trial Balance.which are given out side Trial Balance.

5. Every adjustment should be recorded 5. Every adjustment should be recorded at two places, either Trading account at two places, either Trading account or Profit and Loss Account and or Profit and Loss Account and Balance Sheet. Invariably, an Balance Sheet. Invariably, an adjustment is recorded in Balance adjustment is recorded in Balance sheet.sheet.


Unit 7


• For ExampleFor Example: :

Closing stock given in the adjustments, Closing stock given in the adjustments, will be first recorded in the trading a/c will be first recorded in the trading a/c and later on the asset’s side of balance and later on the asset’s side of balance sheetsheet. .

• Outstanding salaries first are added Outstanding salaries first are added with salaries in P&L account and with salaries in P&L account and then on the liabilities side of balance then on the liabilities side of balance sheet. sheet.


Unit 7


• 6. The difference in the trial balance, 6. The difference in the trial balance, if any, should match with the if any, should match with the difference between asset and difference between asset and liabilities side of liabilities side of

balance sheet and accordingly balance sheet and accordingly interpret and incorporate. At the interpret and incorporate. At the end , the balance sheet should tally.end , the balance sheet should tally.

ILLUSTRATIONILLUSTRATION::


Unit 7

Prepare Balance Sheet from the following Trial Balance from the books of a merchant on 31-12-2004


Furniture and fittingsFurniture and fittingsMotor VehiclesMotor VehiclesBuildingsBuildingsCapital AccountCapital AccountBad DebtsBad DebtsProvision for Bad debtsProvision for Bad debtsSundry DebtorsSundry DebtorsSundry CreditorsSundry CreditorsStock on 1-1-2004Stock on 1-1-2004PurchasesPurchasesSalesSalesBank Over DraftBank Over DraftSales ReturnsSales ReturnsPurchase ReturnsPurchase ReturnsAdvertisingAdvertisingInterest on Bank Over DraftInterest on Bank Over DraftCommissionCommissionCashCashTaxes and InsuranceTaxes and InsuranceGeneral ExpensesGeneral ExpensesSalariesSalaries

6406406250625075007500

1250012500125125200200

38003800250025003460346054755475

154501545028502850

200200125125450450118118375375650650

12501250782782

33003300

Unit 7

• The following adjustments are to be The following adjustments are to be made.made.

• Stock in hand on 31-12-2004 was Rs3250Stock in hand on 31-12-2004 was Rs3250

• Depreciate Buildings at the rate of 5%, Depreciate Buildings at the rate of 5%, Furniture and fittings @ 10% and Motor Furniture and fittings @ 10% and Motor Vehicles @ 20%.Vehicles @ 20%.

• Rs.85 is due for interest on bank Rs.85 is due for interest on bank overdraft.overdraft.

• Salaries of Rs300 and taxes Rs.120 are Salaries of Rs300 and taxes Rs.120 are outstanding.outstanding.


Unit 7

• Insurance amounting to Rs.100 Insurance amounting to Rs.100 is prepaidis prepaid

• One-third of the commission One-third of the commission received is in respect of work to received is in respect of work to be done next yearbe done next year

• Write off a further sum of Write off a further sum of Rs.100 as bad debts and Rs.100 as bad debts and provision for bad and doubtful provision for bad and doubtful debts to be made equal to 10% debts to be made equal to 10% on sundry debtors.on sundry debtors.


Unit 7

7.8. Preparation of 7.8. Preparation of Balance Sheet Balance Sheet continuedcontinued

BALANCEBALANCE SHEET OF THE MERCHANT AS ON 31-12-SHEET OF THE MERCHANT AS ON 31-12-20042004

Solution

Capital and LiabilitiesCapital and Liabilities RsRs AssetsAssets RsRs

Sundry CreditorsSundry CreditorsBank Over Draft Bank Over Draft 28502850Add interest due Add interest due 8585Commission received in Commission received in advanceadvanceOutstanding TaxesOutstanding TaxesOutstanding SalariesOutstanding SalariesCapital Capital 1250012500Add Net Profit Add Net Profit 15511551

2500250029352935125125120120300300

1405114051

CashCashBuilding Building 75007500Less Depreciation Less Depreciation 375375 Furniture and Fixtures Furniture and Fixtures 640640Less Depreciation Less Depreciation 6464Motor Vehicle Motor Vehicle 62506250Less Depreciation Less Depreciation 12501250Sundry Debtors Sundry Debtors 38003800Less bad debts as per Less bad debts as per Adjustments Adjustments 100100 Balance Balance 3700 3700 Less Reserve for Bad Less Reserve for Bad Debts(New) Debts(New) 370 370 Closing Stock Closing Stock Pre-Paid InsurancePre-Paid Insurance

65065071257125

576576500050003330333032503250

100100

TotalTotal 2003120031 TotalTotal 2003120031

Unit 7

NOTE: Every adjustment given NOTE: Every adjustment given outside Trial Balance finds place outside Trial Balance finds place in two accounts –Trading account in two accounts –Trading account / Profit and Loss Account and / Profit and Loss Account and invariably in Balance Sheet.invariably in Balance Sheet.


Documents

Unit 7 UNIT – 7 UNIT – 7 FINAL ACCOUNTS. Unit 7 Final accounts Structure Introduction and Objectives Introduction and Objectives Adjustments before preparing