1. Trading and Profit & loss account
Balance sheet

2.  Financial statements are prepared on the basis of
ledger balances.
 These statements are prepared to enlighten the
decision makers about the financial results of
operation of business.
 These include:
 Trading account
 Profit and loss account
 Balance sheet

3. To know the results of business.
To know the financial position of business.
To assist managerial decision making.

4. To avail loans from bank or financial institutions.
To assess income tax.
To provide information to the users.

5.  Prepared to know the gross profit or gross loss.
 It is a nominal account
 Includes all the direct expenses which are incurred
till manufacturing of goods on debit side.
 Direct expenses include all those expenses which
brings goods into saleable condition.
 On credit side, it has sales and closing stock.

6. Gross profit = sales – cost of goods sold
Gross loss = Cost of goods sold - sales
Cost of goods sold= opening stock + purchases
+direct expenses – closing stock

7. Particulars Amount (Rs.) Particulars Amount (Rs.)
To opening stock ----- By sales
Less: Return inward
-----
To Purchases
Less: Return outward
----- By closing stock -----
To wages ----- By gross loss c/d -----
To carriage inward -----
To freight -----
To manufacturing exp. -----
To Royality -----
To coal, gas and water -----
To factory lighting -----
To gross profit c/d -----
Total ----- Total -----
Dr. Cr.
Trading Account
For the year ending on __________

8.  Prepared to ascertain net profit or net loss.
 It is a nominal account.
 Incomes are recorded on credit side and all
expenses on debit side.
 Expenses and incomes transferred to P&L a/c
are indirect in nature.
*Indirect expenses are incurred after manufacturing of goods

9. Particulars Amount (Rs.) Particulars Amount (Rs.)
To Gross loss b/d ----- By gross profit b/d -----
To selling &
distribution expenses
----- By financial incomes -----
To office and
administration
expenses
----- By revenue receipts -----
To financial expenses ----- By net loss c/d -----
To miscellaneous
expenses
-----
To net profit c/d -----
Total ----- Total -----
Dr. Cr.
Profit and Loss Account
For the year ended _________

10. Sellinganddistributionexpenses
• Packing
• Advertiseme
nt
• Warehouse
rent
• Delivery van
expense
• Selling agent
expenses
• Carriage
outward
• Bad-debts
• Sales tax
• Export duty
Officeandadministrationexpenses
• Office
salaries
• Office rent
and rates
• Telephone
expenses
• Legal
expenses
• Audit
charges
• Office
lighting
• Printing &
stationary
• Insurance
Financialexpenses
• Interest on
loan
• Interest on
overdraft
• Interest on
capital
• Bank
charges
• Discounting
of bills

11. Miscellaneousexpenses
• Repairs and renewals
• Donations
• Charity
• Loss due to accidents
• Depreciation
Revenuereceipts
• Bad debts recovered
• Commission received
• Interest received
• Profit on sale of fixed
asset
• Interest on drawings
• Income from
investments.

12. Particulars Amount (Rs.) Particulars Amount (Rs.)
Opening stock 3,000 Sales 1,10,000
Purchases 70,000 Return outward 600
Return inward 500 Discount 500
Wages 20,000 Loan 1,000
Coal, gas and water 4,000 Creditors 20,000
Factory rent 1,000 Capital 17,150
Commission 2,150
Cash in hand 2,200
General expenses 500
Debtors 40,000
Salaries 5,800
Office rent 100
1,49,250 1,49,250
Closing stock as on 31st December 2015 was Rs.20,000

13.  Statement prepared to know financial position
of business.
 On a certain date
 Assets on right hand side and liabilities &
capital on left hand side.
 Can be prepared in order of liquidity or
permanance.

14. Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital
Add: Net Profit
Add: interest on
capital
Less: Drawings
Less: Net loss -----
Fixed assets
Tangible
Intangible -----
Reserves & surpluses ----- Investments -----
Secured loans ----- Current assets, loans &
advances
-----
Unsecured loans ----- Fictitious assets -----
Current liabilities and
provisions
----- P&L (Dr. balance) -----
Contingent liabilities
Total Total

15. Furniture 7,650 Capital 1,05,000
Bills receivable 10,050 Commission 9,000
Sundry debtors 75,720 Sales 1,28,000
Cash in hand 6,250 Returns outward 4,570
Interest 3,200 Bank overdraft 8,000
Salaries 5,200 Creditors 27,320
Wages 25,890
Opening stock 40,500
Goodwill 25,000
Carriage 2,720
Purchases 60,900
Insurance 500
Audit fee 1,100
Legal expenses 610
Drawings 13,200
Repairs 3,400
2,81,890 2,81,890
Closing stock was valued at Rs.1,550

16.  Need of adjustments:
 To rectify the errors done in recording of
transactions in the books of accounts.
 To record the transactions which are omitted to be
recorded.
 To record such expenses and incomes which have
accrued but have not been paid or received,
 To find out correct profit or loss and financial
position of business.

17. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Shown on asset side of
balance sheet
 Shown on asset side of
balance sheet
 Shown on credit side of
trading account.

18. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Shown on liability side
of balance sheet
 Shown on liability side
of balance sheet
 Added to particular
related expense in
trading and P&L a/c.

19. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Appear on asset side of
balance sheet
 Appear on asset side of
balance sheet
 Deducted from
particular related
expense in trading and
P&L a/c.

20. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Shown on debit side of
P&L a/c.
 Shown on debit side of
P&L a/c.
 Deducted from
particular asset in
balance sheet.

21. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 shown on asset side of
balance sheet.
 Added to particular
income on credit side of
trading and P&L a/c.
 Also shown on asset
side of balance sheet.

22. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Appear on the liability
side of balance sheet.
 Appear on the liability
side of balance sheet.
 Deducted from
particular income from
credit side of P&L a/c.

23. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Debit side of P&L a/c.  Debit side of P&L a/c.
 Added to capital on
liability side of balance
sheet.

24. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 On credit side of P&L
a/c.
 On credit side of P&L
a/c.
 Subtracted from capital
on liability side of
balance sheet.

25. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Debit side of P&L a/c  Debit side of P&L a/c
 Subtracted from debtors
on asset side of balance
sheet.

26. IF IN TRIAL BALANCE
IF OUTSIDE TRIAL
BALANCE
 Debit side of P&L a/c  Debit side of P&L a/c
 Subtracted from debtors
on asset side of balance
sheet.

27.  Bad debts (T.B) + further bad debts (adjustments)
+ new provision (adjustment) – old provision (T.B)

28. Amount Amount
Stock 2,000 Debtors 2,000
P&M 1,000 Wages 500
Salaries 200 Capital 5,000
L&B 3,000 Creditors 1,000
Bad debts 100 Trading expenses 250
Provision for bad
debt
950 Discount received 50
Purchases 10,000 Sales 15,000
Cash 2,000 Drawings 1,050
Interest received 100

29.  The following adjustments are to be made:
 Stock on 31st Dec 2015 was of Rs.2,500.
 Make a provision of 5% on debtors.
 Bad debts Rs.200
 Write off 10% depreciation on P&M.
 Due to salesman for salary of Rs.50.
 Wages paid in advance for Rs.20
 Make a provision for discount on debtors and
creditors @ 2%.