Amity Business School

GROUPING AND MARSHALLING OF

ASSETS AND LIABILITIES
Grouping means putting together items of similar
nature under a common heading. For example: Fixed
assets
Marshalling refers to the order in which the various
assets and liabilities are shown in the Balance Sheet.
The assets and liabilities can be shown either
- in order of liquidity
- in order of permanency

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METHODS OF PRESENTING THE FINAL

ACCOUNTS
The trading and profit and Loss Account and
the Balance Sheet can be presented in the
- Horizontal Form
- Vertical form

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Things to Remember
All items that appear in Trial Balance will be shown only one in
Final Accounts; while the items appearing outside Trial Balance
will be shown at two places
Items on Dr. side of Trial Balance will either go to Dr. Side of
Trading and P&L A/c or on assets side of the Balance Sheet
and vice versa
All accounts relating to goods, E.g. Purchases, Sales,
Purchases Return, Sales Return are written in Trading A/c.
Balances of all Personal and Real Accounts will be shown in
Balance sheet
The total of both sides of Balance Sheet will always be equal

The following is the Trial balance of Ramesh as on Dec 31, 2009.

draw final accounts from the information given.
Particulars
Dr
Cr
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Amount (Rs)
Amount (Rs)
Capital
15,000
Stock (1-1-2001)
3,000
Cash at bank
1,000
Cash in hand
500
Machinery
10,000
furniture
1,300
Purchases
20,000
Wages
5,000
Carriage Inward
3,300
Salaries
7,000
Discount Allowed
400
Discount Received
500
Advertising
5,000
Office Expenses
4,000
Sales
50,000
Sundry Debtors
9,000
Sundry Creditors
4,000
Value of closing stock as on Dec 31, 2009 was Rs 5,000

ADJUSTMENTS

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1) Closing Stock

If closing stock given in Trial balance, it will be shown as a

current asset in the Balance Sheet.

If closing stock is given outside the Trial balance

i) On the credit side of Trading Account as a separate item
ii) On the asset side of Balance Sheet as a separate item under
Current assets
Example

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2) Outstanding Expense or
Accrued Expense
If given outside Trial balance
i)

Add it in the particular expense for the year (Eg outstanding salaries)

ii)

Salary outstanding is a liability and will be shown as a liability in the

Balance Sheet

If outstanding expenses are given in the trial balance , the same will
appear in the liability side of the Balance Sheet.
Example

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3) Prepaid expenses or Unexpired

Expenses
If given outside Trial balance
i)

Subtract it in the expenses of the year (ex prepaid rent)

ii)

Prepaid expenses is an asset and will be shown as an asset in the

Balance Sheet

If prepaid expenses are given in the trial balance , the same will appear
in the asset side of the Balance sheet.
Example

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4)Accrued or Outstanding
income
If given outside Trial balance
i)

Add in particular income in Trading and P & L account

ii)

Accrued income is an asset and will be shown as an asset in the

Balance Sheet

If outstanding incomes are given in the trial balance , the same will
appear in the asset side of the Balance Sheet.
Example

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5)Unearned income or Income

Received in Advance
If given outside Trial balance
i)

Subtract from the income in Trading and P & L account

ii)

Income received in advance is a liability and will be shown on the

Liability side of the Balance Sheet.

If Income received in advance is given in the trial balance , the same

will appear in the liability side of the Balance Sheet.

Example

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6)Depreciation

If depreciation appears outside the Trial balance

i)

Expense on Profit and Loss Account

ii)

Subtract from the asset in the asset side of the Balance Sheet

If depreciation appears in the Trial balance Expense side in P&L

Example

Prepare final accounts as on Dec 31, 2001

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Particulars
Dr (Rs)
Cr (Rs)
X's Capital
29,000
X's Drawings
760
Purchases and sales
8,900
15,000
sales and purchases returns 280
450
Stock (1-1-2001)
1,200
Wages
800
Building
22,000
Freight and Carriage
2,000
Trade Expenses
200
advertisement
240
Interest
350
Taxes and Insurance
130
Debtors and Creditors
6,500
1200
Bills Receivable and Bills Payable
1,500
700
cash at Bank
1,200
Cash in hand
190
Salaries
800
46,700
46,700
i) Stock as on Dec 31, 2001 was valued at Rs 1,500
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

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7)Interest on Capital
If outside the Trial balance
i)

Expense in the Profit and loss account. Therefore it will be

debited to Profit and loss Account

ii) Add in the capital heading in the Balance Sheet

If any additional capital is introduced during the year, interest on
additional capital will also be calculated from the date it was
introduced in the business.
If interest on capital appears in the Trial Balance, the same will
appear in the debit side of the P & L Account.

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8)Interest on Drawings
If outside the Trial balance
i)

Income in the Profit and loss account. Therefore it will be credited to

Profit and loss Account

ii)

Subtract from the capital heading in the Balance Sheet

If interest on drawings appears in the Trial Balance, the same will appear in
the credit side of the P & L Account.

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9)Interest on Loans
If outside the Trial balance
i. Debit side of profit and loss Account
ii. Liability side of Balance sheet

If in the trial balance

i. Expense side in the Profit and Loans Account
Implied adjustment

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10) Bad Debts

If appearing outside trial balance

i)

On debit side of profit and Loss Account, these will be shown as

additions to bad debts already written of

ii)

On asset side of the balance sheet, these will be deducted from Sundry
debtors.

If appearing in the trial Balance

i)

Debit side of profit and loss account

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11)Provision for Bad

Debts

If appearing outside trial balance

i)

On debit side of profit and Loss Account, these will be shown as

additions to bad debts already written of

ii)

On asset side of the balance sheet, these will be deducted from Sundry
debtors.

If appearing in the trial Balance

i)

Debit side of profit and loss account

Prepare final accounts as on Dec 31, 2004

Particulars
Dr (Rs)
Furniture and fittings
6,400
Motor Vehicles
62,500
Buildings
75,000
Capital
Bad Debts
1,250
Provision for bad debts
Sundry Debtors and Creditors
38,000
Stock as on January 1, 2004
34,600
Purchases and Sales
54,750
Bank o/d
Sales and Purchases Returns
2,000
Advertising
4,500
Interest
1,180
Commission
Cash
6,500
Taxes and Insurance
12,500
General Expenses
7,820
Salaries
33,000

340,000

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Cr (Rs)

125,000
2,000
25,000
154,500
28,500
1,250

3,750

340,000

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Illustration contd..
The following adjustments are to made:
a) Stock in hand as on Dec 31, 2004 was Rs 32,500
b) Depreciate Building @ 5%, Furniture and Fittings @ 10% and motor
Vehicle @ 20%
c)

Rs 850 is due for interest on Bank Overdraft

d) Salaries Rs 3,000 and taxes Rs 1,200 are outstanding.

e) Insurance amounting to Rs 1,000 is prepaid
f)

One third of the commission received is in respect of work to be done

next year.

g) Write of further Rs 1,000 as Bad Debts and Provision for Bad debts is
to be made equal to 5% on Sundry Debtors.

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12) PROVISION FOR DISCOUNT

ON DEBTORS
If the adjustment appears outside the Trial Balance

Debit side of Profit and loss Account

Deduction from the amount of sundry debtors in the asset side

If adjustment appears in the Trial balance

Debit side of Profit and loss Account

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13) MANAGERS
COMMISSION
If the adjustment appears outside the Trial Balance

Debit side of Profit and Loss Account

Liability side in the balance sheet

Two cases
a) Commission allowed on the Net Profit before charging such commission
b) Commission allowed on the Net Profit after charging such commission

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14) DRAWINGS OF GOODS BY THE

PROPRIETOR
If the adjustment appears outside the Trial Balance

Deduct it from purchases on the debit side of the Trading Account

Deduct it from either capital or add to drawings on the liabilities side of

the Balance Sheet

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15) GOODS DISTRIBUTED AS FREE

SAMPLES
If the adjustment appears outside the Trial Balance

Subtract from purchases or shown on the credit side of the Trading

Account.

Debit side of the Profit and Loss Account as advertisement expenses

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16) GOODS IN TRANSIT

If the adjustment appears outside the Trial Balance

Credit side of Trading Account by way of addition in closing stock.

Asset side in the Balance Sheet as a current Asset