2. We would like to express our special thanks of gratitude to
our teacher RESHMA KUMARI TIWARI ma’am who gave us
the golden opportunity to do this wonderful project on the
topic FINAL ACCOUNTS, which helped us in understanding
the concept of final accounts better.
4. In the Accounting Cycle, the preparation of Trial Balance is
followed by the next level of called “Final Account’’.
Basically, financial statements are organised summaries of detailed
information about the financial position and performance of an
enterprise. Traditionally, the term financial statement is used to
denote only two basic statements which as under
•Balance Sheet ( or Position Statement)
8. •Manufacturing account is a part of final accounts which is prepared to
show the cost of goods manufactured during the accounting period
separately.
•This financial statement does not show profit and loss figures but
rather the cost of direct materials and labour.
•The purpose of preparing Manufacturing Account is to find production
cost
10. •These are also known as ‘Direct cost’ or ‘variable cost’.
•These are directly related to the product and vary directly with
output.
Eg:-If car manufacturer doubles the output of car, more
material will be used, and more wages will be paid.
Prime cost = cost of raw materials used + direct expenses
11. •These are also known as ‘fixed cost’ or ‘indirect cost’. These are not
directly related to the product but are necessary to production just the
same.
•They don’t vary with production/output they remain the same. If the firm
doubles its production there is no need to pay more factory rent or factory
insurance.
•Includes all the factory direct expenses such as wages of cleaners
and maintenance staff, Petrol and oil, repairs , depreciation of plant
and machinery, factory rent, factory insurance etc.
12.
13.
14. Trading account is a part of final accounts which is
mainly prepared to ascertain gross profit or gross loss of a
business.
It is the first stage in the preparation of final accounts of a
trading concern.
•It records only net sales and direct cost of goods sold.
•The balance of this account discloses the gross profit or
gross loss.
•The balance of this account is transferred to the profit
and loss account.
15. •It is the first stage in the preparation of final accounts of a
trading concern.
• It records only net sales and direct cost of goods sold.
• The balance of this account discloses the gross profit or
gross loss.
• The balance of this account is transferred to the profit
and loss account.
16.
17. “A profit and 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” – Prof. Carter
18. •It is the second stage in the preparation of final
accounts.
•It relates to a particular accounting period and is
prepared at the end of that period.
•Accrual basis of account is followed in the preparation of
this account.
•This account is credited with the gross profit and income
from other sources and debited with indirect expenses
and losses.
•The balance of this account is the net profit or net loss.
19. “Balance sheet is a statement which sets out the assets
and liabilities of a firm or an institution as at a certain
date.”
-Francis R. Stead
20. •It is prepared at the particular date and not for a
particular period.
•It is prepared after the preparation of the profit
and loss account.
•It shows the financial position of a business as a
going concern.
•The balance sheet is not an account but only a
statement of assets and liabilities on the left hand
side, the liabilities of the business are shown
whereas on the right hand side the assets of the
business appear.
•The total of the assets side must be equal to
liabilities side.
21. Transactions occurring after preparing Trial Balance,
that must be considered while preparing Final
Accounts.
GOLDEN RULE : All the items appearing in the Trial
Balance are to be entered at one place out of these
three(trading a/c, profit and loss a/c, balance sheet).
ITEMS IN ADJUSTMENT are to be treated at two
places.
22. It refers to the unsold goods lying in store at the end of
accounting year.
Treatment: Stock a/c Dr.
To Trading a/c
Two fold effect
1) Show on Credit side of the Trading account
2) On asset side of Balance Sheet
23. It refers to those expenses which have become due but
not yet paid.
Treatment: Expenses a/c Dr.
To outstanding expenses a/c
Two fold effect:
1.Will be shown on debit side of trading & profit & loss
a/c by way of addition to particular expense.
2. Will be shown on liabilities side of Balance Sheet
24. It refers to those expenses which have been paid in
advance .
Treatment: Prepaid Expenses a/c Dr.
To Expenses a/c
Two fold effect:
1. in profit & loss a/c by way of deduction from
particular expense.
2. Will be shown on asset side of Balance Sheet.
25. It refers to that income which has been earned but not
received during the accounting year.
Treatment: Accrued Income a/c Dr.
To Income a/c
Two fold effect:
1.Will be shown on credit side of P & L a/c
2. Will be shown on asset side of Balance Sheet
26. Income received but not earned during accounting year.
Treatment: Income a/c Dr.
To Income Received in advance
Two fold effect: 1.Will be shown on credit side of P & L
a/c by the way of deduction from particular income.
2. Will be shown on liabilities side of Balance Sheet.
27. It is the reduction in the value of fixed asset due to its
use, wear & tear.
Treatment: Depreciation a/c Dr.
To Asset a/c
Two fold effect:
1.Is shown on debit side of P & L a/c.
2.Is shown on the Asset side of the Balance Sheet by way
of deduction from value of concerned asset
28. Debts which are definitely irrecoverable are known as
Bad Debts
Treatment: Bad Debts A/c Dr.
To Sundry Debtors a/c
Two fold effect:
1. Is shown on debit side of P & L a/c.
2. Is shown on assets side of Balance Sheet by way of
deduction from Sundry Debtors
29. It is a provision created to cover any possible loss on account
of bad-debts likely to occur in future
Treatment: Profit and Loss A/c Dr.
To Provision for Doubtful Debts A/c
Two fold effect: 1.On debit side of Profit and Loss A/c or
by way of addition to Bad Debts. (Old provision for doubtful
debts at the beginning of the year will be deducted).
2.Shown on assets side of Balance Sheet by way of deduction
from Sundry Debtors (deducting further bad debts if any).
30. Sometimes, sales are made by the merchant on condition that
if the amount of sales is paid within a certain period , he will
allow a certain percentage of discount .
Treatment :
Profit and Loss a/c Dr.
To Provision for Discount on Debtors a/c
Two-fold effect : 1.Shown on debit side of Profit and Loss A/c.
2.Shown by way of deduction from Sundry Debtors (after
deduction of further bad debts and provision for doubtful
debts) on assets side of Balance Sheet.
31. Firm may have chance to receive discount on last date of
accounting year, if the payment is made within the scheduled
period .These are anticipated profit and therefore this account
is made.
Treatment:
Reserve for Discount on Creditors a/c Dr.
To Profit & Loss a/c
Two fold effect : 1.It is shown on the credit side of Profit &Loss
A/c.
2.Shown on liabilities side of Balance Sheet by way of
deduction from sundry creditors.
32. The expenditure done in initial stage but the benefit of
which will also be available in subsequent years.
Treatment: Profit &loss a/c Dr.
To advertisement a/c
The two fold effect : 1.It is show on the debit side of
Profit &loss A/c.
2.Shown on assets side by way of deduction from that
expenditure.
33. Loss of stock may occur due to fire/accident. There are
three different cases:
a) All the stock is fully insured.
b) The stock is partly insured.
c) The stock is not insured at all.
34. a) IF THE STOCK IS FULLY INSURED Treatment:
Insurance Co. A/c Dr.
To Trading A/c
Two fold effect: 1.It will be shown on credit side of Trading A/c. 2.It is shown on
Assets Side of Balance Sheet.
b) IF STOCK IS PARTLY INSURED Treatment:
Insurance Claim. A/c Dr.
Profit & Loss A/c Dr.
To Trading A/c
Two fold effect: 1.Credit side of Trading A/c with the total value of such stock and
debit side of P& L A/c for part of the stock which is not insured. 2. Insurance Claim
A/c is shown on asset side of the Balance sheet which amount is to be realized from
the insurance company.
c) IF STOCK IS NOT INSURED Treatment:
Profit & Loss A/c Dr.
To Trading A/c
Two fold effect: 1.It is shown on the credit side of Trading A/c. 2.It is shown on the
debit side of P&L A/c
35. Reserve is created out of Profits and thus is an appropriation
of net profit for strengthening the financial position of the
business.
Treatment :
Profit & Loss A/c Dr.
To Reserve Fund A/c
Two fold effect :
1.It is shown on debit side of P&L A/c.
2.It shown on the liabilities side of Balance.
36. To promote the sale of goods, some of the finished goods
are distributed as free samples.
Treatment: Advertisement A/c Dr.
To Purchase A/c
Two fold effect:
1.Its is deducted from purchases .
2.It is shown on debit side of P&L A/c.
37. To increase the profit, manager is given some percentage
of commission on profits .It can be given at a certain
percentage on the net profits before charging such
commission or after charging such commission.
Treatment:
Profit & Loss A/c Dr.
To Commission Payable
This commission in calculated by a formula :-
Before charging such commission: Commission Payable =
Net profit *(Rate/100)
After charging such commission: Commission Payable=
Net Profit*(Rate/100+Rate). Entered on Dr. side of P/L
a/c and Liability side of B/S.
38. Sometimes goods are sold to customers on approval basis. If they
approve, it will become sale. If such goods are lying with
customers on last day of the accounting year and these can be
returned , it should be treated as stock lying with customers.
Treatment :
1. Sales A/c Dr.
To debtors A/c (with sales price)
2. Stock A/c Dr.
To Trading A/c (at cost Price of goods)
Two fold effect:
1.Shown on the credit side of trading account by way of
deduction from sales at sales price and added at closing stock at
cost price.
2.Shown on assets side as deduction from sundry debtors (sale
price) and stock at cost on the assets side of balance sheet
39. From the above presentation we come to the following
learning outcomes:
a) Accumulate, record, and analyze financial data.
b) Prepare accurate reports for decision making and
regulatory compliance.
c) Understand accounting and business terminology used
in business scenarios, and be proficient with commonly used
office software programs.
