Final Account

Final Account is prepared by the

companies
To know the status of business
and fulfill the statutory obligation
 The Final Account consists of two parts:

 Income Statement or Trading and Profit and

Loss Account

 Balance Sheet or Position Statement

 Objective

Final Account is prepared to achieve these

objectives ofbusiness:

 To know the profit he has earned or the loss he has

incurred for the period

 And interested to know the financial position of the

business on a particular date.
The items are taken from trial balance

 To know the profit he has earned or the loss he

has incurred for the period

 And interested to know the financial position of

the business on a particular date.
Classification in Expenses and Income

 Expenses and income are classified into

capital and revenue
 Expenditure –

 Expenditure is an amount spend or incurred

either once or regularly
 Capital Expenditure

 It is an expenditure which is incurred for

the purpose of acquiring a fixed asset
which increases the earning. Capacity of
the business over a long period of time.
 Revenue Expenditure

 It is an expenditure which is incurred to

meet the day-to-day expenses of the
business.
 Receipts of Income

 Receipts or income is an amount earned

either once or regularly
 Capital Receipts

 Capital Receipts are those receipts which

are received by a business once in a
lifetime of the business or after a long
period of time.
 Revenue Receipts

 Revenue Receipts are those receipts

which are received frequent by a
business.
 Deferred Revenue Expenditure

 Deferred Revenue Expenditure is a

revenue expenditure but the benefit of this
expenditure does not get exhausted in the
same year but is available in future period
as well.
 Deferred Revenue Expenditure:

 It is written off over a number of years

during which its benefit is available and
hence. It will be shown in the Balance
Sheet till its benefit is available.
 Trading Account

 Trading Account is the first stage in the

final account. The business concerns
which are engaged is the resale of goods
after purchasing, prepare the trading
account. But the firms which
manufacturing the goods meant for sales
prepare manufacturing account.
 Trading Account

 Trading Account is prepared to ascertain

the trading results of the business i.e.
gross profit earned a gross loss suffered
during the accounting period.
Performa of the Trading Account
Trading Accounting for the year ending…… (in Rs.)
Debit (Dr.)
Credit (Cr.)

Rs.
Rs.
Opening stock xxx Sales less returns xxx
Purchases less return xxx Closing stock xxx
Direct expenses xxx Gross Loss C/D xxx
Carriage inwards xxx
Wages xxx
Fuel and power xxx
Coal gas and water xxx
Octroi xxx
Import duty xxx
Custom duty xxx
Consumable stores* xxx
Salary of foreman / works manager xxx
Royalty on manufactured goods xxx
Gross Profit C/D xxx

xxx xxx
 Consumable Store:

Opening balance of stores

xxx
 Add: Purchases of stores during the year
xxx
xxx - Less: Closing balance of stores
xxx
- Consumables during the year
xxx
 Profit and Loss Account
 Trading account shows only gross profit or gross
loss

 Next step is to prepare Profit and Loss Account

which show the net result of business in the form
of net profit or net loss for a particular period.

 All the indirect incomes and indirect expenses are

taken to this account.
 Indirect Expenses are classified:

 Officer administrative expenses

 Financial expenses

 Selling and distribution expenses

 Indirect Income are classified:
 Rent received

 Discount earned

 Interest earned

 Commission received

 Bad debt recovered

 Interest on securities

 Tax refund
 Net Profit

Net profit=Gross Profit + All Incomes – All

expenses
 Net Loss

Net Loss=Gross Loss + All Expenses – All

Incomes
 Net profit &Net Loss

 The net profit or net loss is transferred to

the owner’s Capital Account.
Legal charges xxx Dividend and shares xxx

Insurance xxx Interest and debentures xxx

Audit fees xxx Profit on sales of assets xxx

General expenses xxx Net loss xxx

Depreciation xxx
Repair and Maintenance xxx
Advertisement xxx
Packaging charges xxx
Salesmen salaries xxx
Discount allowed xxx
Bad debts xxx
Delivery van expenses xxx
Traveling expenses xxx
Samples distributed xxx
Bank charges xxx
Interest on loans xxx
Fines and penalties xxx
Bills discounted xxx
Loss on sales of assets xxx
Loss by fire xxx
Net profit xxx

xxx xxx
 Balance Sheet

 The next step in the final account is to be

known the financial status of a business on
a particular date, with the help of the
statement that reveals assets and
liabilities, such statement is called Balance
Sheet.
 Balance Sheet

 In balance sheet assets are shown in right

hand side and liabilities in the left hand
side
The accounting equation of balance sheet is:

Assets = Liabilities + Owner’s Equity

 Marshalling of Balance Sheet

It may be done on two basis:

 On the basis of liquidity.

 it may be prepared on the basis of solvency.

 Format of Balance Sheet in order of Liquidity
Balance Sheet as on -------
Liabilities Rs. Assets Rs.
Current liabilities xxx Current assets xxx
Sundry creditors xxx Cash in hand xxx
Bills payable xxx Cash at bank xxx
Bank overdraft xxx Closing stock xxx
Outstanding expenses xxx Sundry debtors xxx
Income received xxx Bills receivable xxx
In advance xxx Prepaid expenses xxx
Long term loans xxx Outstanding income xxx
Proprietors capital xxx Investments xxx
Fixed assets xxx
Furniture and fittings xxx
Plant and machinery xxx
Land and building xxx
Vehicles xxx
Goodwill xxx

xxx xxx
 Balance Sheet in the order of solvency:
Balance Sheet as at:
Rs. Assets Rs.
Liabilities
Long term liabilities Fixed assets
Capital xxx Furniture and fittings xxx
Reserves and surplus xxx Plant and machinery xxx
Loans and advances xxx Land and building xxx
Current Liabilities Vehicles xxx
Sundry creditors xxx Goodwill xxx
Bills payable xxx Current assets
Bank overdraft xxx Cash in hand xxx
Outstanding expenses xxx Cash at bank xxx
Income received in advance xxx Closing stock xxx
Short term loans Xxx Sundry debtors xxx
Bills receivable xxx
Prepaid expenses xxx
Outstanding income xxx
Investments xxx
xxx

xxx xxx
 Difference between the Profit and Loss
Account and the Balance Sheet:
 Profit and loss account shows the net results of
the business in the form of net profit or net loss.
On the other hand a balance sheet depicts the
financial positions of the business in the form of
its assets and liabilities.
 Difference between the Profit and Loss
Account and the Balance Sheet

 The profit and loss account is completed in

one accounting year whereas the balance
sheet is prepared as on the last day of the
financial year.
 Difference between the Profit and Loss
Account and the Balance Sheet

 The items shown in the profit and loss

account ceases in that year, while the
items shown in the balance sheet will
continue as opening balance the next
accounting year.
 Numerical
 Illustration
1: From the following
Trial Balance prepare the
Manufacturing Account, Trading and
Profit and Loss Account for the year
ending 31st March, 1999 and the
Balance Sheet as on that date:
PARTICULARS DEBIT RS. CREDIT RS.

Shri Banker’s Capital Account 41000

Shri Banker’s Drawing Account 6100

Mrs. Banker’s Loan Account 4000

Sundry Creditors 45000

Cash in Hand 250

Cash at Bank 4000

Sundry Debtors 40500

Patents 2000

Plant and Machinery 20000

Land and Buildings 26000

Purchases of Raw Materials 35000

Raw Material as on 1.4.1998 3500

Work in process as on 1.4.1998 2000

Finished Stock as on 1.4.1998 18000

Carriage Inwards 1100

Wages 27000

Salary of Works Manager 5600

Factory Expenses 3400

Factory Rent and Taxes 2500

Royalties (paid on sales) 1200

Sales (less Returns) 123400

Advertising 3000

Office Rent and Insurance 4800

Printing and Stationery 1000

Office Expenses 5800

600
Carriage Outwards
Discounts 1400

Bad Debts 750

215500 215500
 The Stock on 31st March, 1999 was
as follows:
 Rs. 4000 Raw Materials, Rs. 4500
Work-in-progress and Rs. 28000
Finished Goods.
 Solution
Manufacturing Account
For the year ending March 31, 1999
Particulars Rs. Particulars Rs.

To Opening Work-in-process 2000 By Transfer to Trading 71600

Account (Cost of finished
goods produced)
To Raw Materials Used: 34500 By Closing Work in Process 4500
Opening Stock =3500
Add: Purchases= 35000
38500

Less: Closing Stock=4000

To Carriage Inwards 1100

To Wages 27000

To Salary of Works Manger 5600

To Factory Expenses 3400

To Factory Rent and Taxes 2500

76100 76100
 Trading and Profit and Loss Account
For the year ending March 31, 1999

Particulars Rs. Particulars Rs.

To Opening Stock of 18000 123400

Finished Goods By Sales

To Manufacturing A/c (cost 71600 By Closing Stock of Finished Goods 28000

of goods produced)

To Gross Profit c/d 61800

151400 151400

To Royalties 1200 By Gross Profit b/d 61800

To Advertising 3000 By Discount Received 2100

To Office Rent and Insurance 4800

To Printing and Stationery 1000

To Office Expenses 5800

To Carriage Outwards 600

To Bad Debts 750

To Discount Allowed 1400

To Net Profit Carried to Capital 45350

Account

63900 63900
 Balance Sheet
As on 31st March, 1999
Liabilities Amount( Assets Amount(
Rs.) Rs.)

Current Assets:

Sundry Creditors 45000 Cash in Hand 250

Mrs. Banker’s Loan 4000 Cash at Bank 4000

Capital Account Closing Stock:

Raw Materials 4000
Balance Account Balance
Work in Process 4500
on 1.4.1998 41000 Finished Goods 28000
Profit 45350 36500
86350

Less: Drawings 6100 80250

 Sundry Debtors 40500

FixedAssets:

Patents 2000

Plant and Machinery 20000

Land and Buildings 26000

129250 129250
Illustration 2
The following is the Trial Balance of
Shri Om, as on 31st March, 1999.
You are requested to prepare the
Trading and Profit and Loss Account
for the year ended 31st March, 1999
and Balance Sheet as on that date
after making the necessary
adjustments:
PARTICULARS DEBIT RS. CREDIT RS.

Sundry Debtors 500000

Sundry Creditors 200000

Outstanding Liability for Expenses 55000

Wages 100000

Carriage Outwards 110000

Carriage Inwards 50000

General Expenses 70000

Cash Discounts 20000

Bad Debts 10000

Motor Car 240000

Printing and Stationery 15000
Furniture and Fittings 110000

Advertisement 85000

Insurance 45000

Salesman’s Commission 87500

Postage and Telephone 57500

Salaries 160000

Rates and Taxes 25000

Drawings 20000

Capital Account 1443000

Purchases 1550000
Sales 1987500

Stock on 1.4.99 250000

Cash at Bank 60000

Cash in Hand 10500

3630500 3630500
 The following adjustments are to be made:
1 Stock on 31st March, 1999 was valued at Rs. 7,25,000.
2 A Provision for Bad and Doubtful Debts is to be created to
the extent of 5 per cent on Sundry Debtors.
3 Depreciate:
– Furniture and fittings by 10%
– Motor car by 20%
4 Shri Om had withdrawn goods worth Rs. 25000 during the
year.
5 Sales include goods worth Rs. 75000 sent out to Shanti and
Co. on approval and remaining unsold on 31st March,
1999. The cost of the goods was Rs. 50000.
6 The salesmen are entitled to a Commission of 5% on total
sales.
7 Debtors include Rs. 25,000 bad debts.
8 Printing and Stationery expenses of Rs. 55,000 relating to
1997-98 had not been provided in that year but were paid
in this year by debiting outstanding liabilities.
9 Purchases include purchase of Furniture worth Rs. 50000.
 Shri Om
Trading and Profit and Loss Account
For the year ended 31st March, 1999

Particulars Rs. Particulars Rs.

To Opening Stock 250000 By Sales 1987500 1912500

Less; Goods sent on
Approval 75000
To Purchases: 1550000 1475000 By Closing Stock 725000 775000
Less:Drawings 25000 Add: stock on approval (at
1525000 cost) 50000
Less: Furniture 50000
To Wages 100000

To Carriage Inwards 50000

To Gross Profit c/d 812500

2687500 2687500
To Salaries 160000 By Gross Profit b/d 812500

To Rates and Taxes 25000

To Postage and Telephone 57500

To Insurance 45000

To Printing and Stationery 15000

To General Expenses 70000

To Depreciation:
Furniture (11000 + 5000) 16000
Motor Car 48000
To Salesmen’s Commission 95625

(5% on Rs. 1912500)

To Advertisement 85000

To Carriage Outwards 110000

To Bad Debts 10000
Add: Addl.Bad Debt 25000
Add: Prov. For Bad debts 55000
(5% on Rs. 400000 20000
See W. N. 3)
To Cash Discount 20000

To Net Profit 103758

812500 812500
 Shri Om
Balance Sheet
As on 31.3.1991

Liabilities Amount( Assets Amount(

Rs.) Rs.)
Capital as on 1.4.98 1443000 Furniture & Fittings 110000
Add: Net Profit 10375
1453375
Additions during the yr
Less: Drawings 50000 144000
(20000 +25000) 45000
1408375 160000
1353375
Less: Printing & Stationery of last
Less: Depn. 16000
year 55000

Sundry Creditors 200000 Motor Car 240000 192000

Less Depn. 48000
Salesmen’s Commission 8125 Closing Stock (725000 + 775000
Outstanding (Rs. 95625 – 50000)
Rs. 87530)
 Sundry Debtors 500000
Less:Goods sent on
Approval 75000
425000
Less: Addl. Bad Debts
25000
400000
Less: Provision for doubtful
debts 5% on 400000
380000
20000
Cash at Bank 60000

Cash in Hand 10500

1561500 1561500
 Working Notes:
1 Both Sales and Sundry Debtors have been
reduced by Rs. 75,000 representing invoice value
of goods sent on approval. Rs. 50000 have been
added to the closing stock being the cost of goods
sent on approval.
2 Last year’s short provision for Printing and
Stationery has not been charged to the current
year’s Profit and Loss Account. It is preferable to
charge it directly to in Capital Account.
3 Sundry Debtors = Rs. 500000 – (Rs. 75000
Goods on Approval + Rs. 25000 Bad Debt) = Rs.
400000.
Problem I:
From the following particulars, prepare Manufacturing Account,
TradingAccount, and Profit and Loss Account:
Rs.
Purchase of Raw Materials 13195
Return Inward 70
Stock on 31.12.1998:
Raw Materials 1210
Work in Progress 1000
Finished Goods 1370
Productive Wages 2000
Factory Expenses 1840
General Office Expenses 300
Salaries 600
Distribution Expenses 100
Selling Expenses 700
Purchasing Expenses 600
Export Duty 300
Import Duty 200
Interest on Bank Loan 600
Stock on 1.1.1998
Raw Materials 400
Work in Progress 300
Finished Goods 410
Sales 19500
Return Outward 85
Carriage Outward 105
Carriage Inward 100
Cash Discount 10
Sale of Scrap 20
Depreciation of Machinery 500
Repairs of Machinery 100
Depreciation of Office Furniture 40

(Ans.: Gross Profit: Rs. 3470, Net Profit = Rs. 7150)

Problem 2 : From the following balances draw up a Trading and Profit and Loss
Account and Balance Sheet:
Particulars Amount (Rs.)

P. Parikh Capital 2000

Bank Overdraft 5000

Machinery 13400

Cash in Hand 1000

Fixtures and Fittings 5500

Opening Stock 45000

Bills Payable 7000

Creditors 40000
Debtors 63000

Bills Receivables 5000

Purchases 50000

Sales 129000

Return from Customers 1000

Returns to Creditors 1100

Salaries 9000

Manufacturing Wages 4000

Commission and T.A. 5500

Trade Expenses 1500

Discount (Cr.) 4000

Rent 2200
The Closing Stock amounted to Rs. 52000.
(Ans.: Gross Profit Rs. 82100; Net Profit Rs. 67900
a and Balance Sheet Total Rs. 1,39,900)