Financial Statement

 ‘Final Statements’ generally refer to two statement

prepared by a business concern at the end of every
accounting year. They are (I) Income statement and
(2) Balance sheet. In case of trading concerns these
statements are prepared under the headings
‘Trading and profit and loss account’ and ‘Balance
sheet.’

 Incase of manufacturing concerns these statements

are titled ‘Manufacturing, Trading, and Profit and
Loss Account’ and ‘Balance Sheet.’
 Manufacturing concerns which convert raw
material into finished product is required to
prepare manufacturing account and then
prepare trading and profit and loss account.
This is necessary because they have to
ascertain cost of goods manufactured, gross
profit and net profit.
Particulars Amount Particulars Amount
To opening WIP *** By sale of scrap ***
To Raw Material used By closing WIP ***
OP. stock of RM By cost of goods produced ???
transferred to trading account (bal.
fig.)
Add: purchases of RM
Less: cl. Stock of RM ***
To wages o factory ***
expenses
To purchase expenses ***
To import duty ***
To carriage inward ***
To depreciation on ***
machinery
To repairs on machinery ***
 Trading account is prepared for an accounting period to
find the trading results or gross margin of the business
i.e., the amount of gross profit the concern has made
from buying and selling during the accounting period.

 The difference between the sales and cost of sales is

gross profit. For the purpose of computing cost of sales,
value of opening stock of finished goods, purchases,
direct expenses on purchasing and manufacturing are
added up and closing stock of finished goods is reduced.

 The balance of this account shows gross profit or loss

which is transferred to the profit and loss account.
Particulars Amount Particulars Amount
To opening stock *** By sale
To Purchase Less: sales return ***
Less: purchase return *** By closing stock ***
To direct expenses By gross loss t/f to P & l account ???
(bal. fig.)
Wages ***
Fuel and power ***
Carriage inwards ***
Power ***
Coal water gas ***
Import duty ***
Factory expenses ***
To gross profit t/f to P & L ???
account (bal. fig.)
 “Profitand loss account is an account into
which all gains and losses are collected in
order to ascertain the excess of gains over
the losses or vice versa.”
Particulars Amount Particulars Amount
To gross loss *** By gross profit
To salaries By commission received ***
To rent rates and taxes *** By discount received ***
To printing and stationary By profit on sale of asset ***
To postage and telegram *** By dividend or interest received ***
To legal charges *** By sundry revenue receipts ***
To depreciation *** By net loss t/f to P & l account ???
(bal. fig.)

To bad debts ***

To provision for bad debts ***
To advertising ***
To commission paid ***
To net profit t/f to P & L ???
account (bal. fig.)
 Gross profit 50,000  Office lighting 110
 Commission earned  Salaries 11,200
200  Postage ex penses
350
 Stationery 150
 Discount allowed
 Taxes 300 800
 Rent 1,300  Insurance 400
 Printing charges 750  Travelling expenses
 Repairs 250
1,000
 Discount received
 Interest on loan 450
600
 General expenses  Advertisement 900
1,750
 “Balance sheet is a ‘Classified summary’ of
the ledger balances remaining after closing
all revenue items into the profit and loss
account.” - Cropper.

 “Balance sheet is a screen picture of the

financial position of a going business concern
at a certain moment” - Francis.