Accounting for Managers Module -3 Compiled by P.Srikanth 1 / 27 Module 2 Final Accounts Accounting and Financial Management

Accounting for Managers Module -3 Compiled by P.Srikanth 2 / 27 Module 2 (8 Hours) Final Accounts Trading Account, Profit and Loss Account and Balance Sheet (Simple Problems)

Accounting for Managers Module -3 Compiled by P.Srikanth 3 / 27 The financial statements. Income Statement Balance Sheet Statement of Cash Flows

Accounting for Managers Module -3 Compiled by P.Srikanth 4 / 27 ELEMENTS OF FINANCIAL STATEMENTS 1. Asset: An Asset is a resource controlled by an enterprise and from which future economic benefits are expected t flow to the enterprise. 2. Liability: A liability is a present obligation of an enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. 3. Equity: Equity is the residual interest in the assets of the enterprise after deducting its liabilities. It is also termed as capital. 4. Income: Income is the increase in the economic benefits during the accounting period in the form of inflows or enhancement of assets or decrease in liabilities that result in the increase of equity other than those relating to the contribution from equity participants. 5. Expenses: Expenses are decreases in the economic benefits during the accounting period in the form of outflows of depletion of assets or increase of liabilities that results in the decrease of equity other than relating to the distribution to equity participants.

Accounting for Managers Module -3 Compiled by P.Srikanth 5 / 27 FINANCIAL STATEMENTS 1. Manufacturing Account: This is a statement of account prepared by an enterprise engaged in manufacturing activity to find out the cost of goods sold. 2. Trading and Profit and Loss Account: This is statement of account prepared to ascertain the profits (gross, net and operating profits) earned by an organisation during an accounting period. 3. Balance Sheet: This is a statement not an account which shows as on a particular date, the financial position of an enterprise in terms of the assets in its possession and the liabilities owed by it.

Accounting for Managers Module -3 Compiled by P.Srikanth 6 / 27 MANUFACTURING ACCOUNT Manufacturing Account is prepared by an enterprise engaged in manufacturing activities. It is prepared to ascertain the cost of goods manufactured during an accounting period. This account is closed by transferring its balance to the Trading Account.

Accounting for Managers Module -3 Compiled by P.Srikanth 7 / 27 Manufacturing Account of M/s ……….for the period ending on ………… Particulars Amount Rs. Particulars Amount Rs. To Opening Work in progress ” Raw material consumed: Opening Stock xxxx Add: Purchases xxxx ” Cartage inwards xxxx ” Freight inwards xxxx Less: Closing Stock xxxx To Wages ” Salary to works manager ” Power, electricity & water ” Fuel ” Postage & Telephone xxxxx xxxx By Sale of scrap ” Closing Work in Progress ” Transfer to trading account ( Cost of goods produced) Contd…. xxxxx xxxx … DrCr

Accounting for Managers Module -3 Compiled by P.Srikanth 8 / 27 Particulars Amount Rs. Particulars Amount Rs. To Depreciation on: -Plant & Machinery -Factory Land & Building ” Repairs to : -Plant & Machinery -Factory Land & Building ” Insurance on : -Plant & Machinery -Factory Land & Building ” Rent and Taxes ” General Expenses ” Royalty paid xxxx xxxxx Contd….

Accounting for Managers Module -3 Compiled by P.Srikanth 9 / 27 TRADING ACCOUNT Trading Account is one of the financial statements, which shows the result of buying and selling of goods and or services during an accounting period. The purpose of drawing a trading account is to know the gross profit or loss during the accounting period.

Accounting for Managers Module -3 Compiled by P.Srikanth 10 / 27 Trading Account of M/s …………….for the period ending on …………….. Particulars Amount Rs. Particulars Amount Rs. To Opening Stock ” Purchases xxxxx Less: Returns xxx ” Royalty ” Direct Expenses ” Rent and Rates ” Wages and Salaries ” Lighting ” Freight inward ”Customs and Octroi duty ” Carriage inwards ” Cartage inwards ” Fuel and Power ” Gross Profit (transferred to Profit and loss account) xxxxx xxxx By Sales xxxxx Less: Returns xxx ” Closing Stock ” Abnormal loss of stock ” Gross loss (transferred to profit and Loss Account) xxxxx xxxx xxxxx DrCr

Accounting for Managers Module -3 Compiled by P.Srikanth 11 / 27 Note: A. Closing Stock: a. If it is shown outside a trial balance in the adjustment, i. Credit the trading account ii. Show as an asset in the balance sheet b. If shown in the trial balance, show only in the balance sheet on the assets side B. Royalty: a. If it depends on the output it is a manufacturing expense and hence debited in the trading account. b. If it depends on the sales, debit the profit and loss account. C. Adjusted purchases: Adjusted Purchases = Net purchases + Opening Stock – Closing Stock D. Cost of Goods sold: Cost of goods sold = Opening Stock + Purchases + Direct Expenses – Closing Stock

Accounting for Managers Module -3 Compiled by P.Srikanth 12 / 27 PROFIT AND LOSS ACCOUNT It is prepared to ascertain the Net Profit or Net Loss incurred by a business entity during an accounting period. Net Profit: Excess of all revenues over expenses Net Loss: Excess of all expenses over revenues Operating Profit: Excess of operating revenues over operating expenses. All the indirect revenue expenses and loss (i.e., other than those shown in the credit side of the trading account) are debited in the profit and loss account and all the indirect incomes (i.e., other than those that are shown on the credit side of the trading account) are credit side of the profit and loss account.

Accounting for Managers Module -3 Compiled by P.Srikanth 13 / 27 Profit and Loss Account of M/s …….for the period ending on ……… Particulars Amount Rs. Particulars Amount Rs. To Gross Loss b/d ” Salaries and Wages ” Rent, Rates and Taxes ” Fire Insurance Premium ” Repairs and Maintenance ” Depreciation ” Audit Fess ” Bank charges ” Legal charges ” Miscellaneous Expenses ” Discount Allowed ” Carriage Allowed ” Freight Outward ” Commission to salesman xxxxx xxxx By Gross Profit b/d ” Interest Earned ” Commission Earned ” Rent Earned ” Profit on sale of fixed assets ” Income from investments ” Sale of scrap ” Miscellaneous Income ” Net loss (transferred to capital Account ) Contd….. xxxxx xxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 14 / 27 Particulars Amount Rs. Particulars Amount Rs. To Travelling Expenses ” Entertainment Expenses ” Sales Promotion Expenses ” Advertisement and Publicity ” Bad Debts ” Packing Expenses ” Interest on loan ” Loss by theft ” Loss by fire ” Loss by embezzlement ” Net profit (transferred to capital account) xxxxx xxxx xxxxx Contd….

Accounting for Managers Module -3 Compiled by P.Srikanth 15 / 27 B A L A N C E S H E E T A balance sheet is a financial statement that shows the balance of assets and liabilities as on a particular date: * It is only a statement and not an account * It is prepared as on a particular date but not for a particular period * It is a summary of balances in accounts which not have been closed * It shows the nature and amount of assets and liabilities

Accounting for Managers Module -3 Compiled by P.Srikanth 16 / 27 The format of a balance sheet (Horizontal Form) is as follows: Balance Sheet of M/s …………….as on ……………. LiabilitiesAmt(Rs)AssetsAmt(Rs) Capital: Opening Balance xxx Add: Net Profit xxx (Less: Net Loss xxx) xxxx Less: Drawings xx Closing Balance Long Liabilities Current Liabilities Income received in advance Sundry Creditors Outstanding Expenses Bills Payable Bank Over Draft xxxx Fixed Assets Goodwill Land and Buildings Plant and Machinery Furniture and Fixtures Investment Current Assets Closing Stock Accrued Income Prepaid Expenses Sundry Debtors Bills Receivable Cash at Bank Cash in Hand xxxx xxxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 17 / 27 Vertical form of Profit and Loss Account Profit and Loss Account of M/s ……………..for the period ending on ……………. ParticularsRs. A. Net Sales Sales (gross) Less: Returns B. Cost of Goods Sold Opening Stock Add: Purchases Less: Returns Add: Direct Expenses Carriage / cartage / freight / wages / Insurance Cost of goods available for sales Less: Closing Stock C. GROSS PROFIT xxxx Xxxx xxxxx xxxx xxx xxxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 18 / 27 ParticularsRs. D. Operating Expenses a) Selling Expenses Carriage outwards / sales promotions Expenses / discount allowed / travelling Expenses / commission allowed / Entertainment expenses b) Office & Administrative Expenses Sales expenses / Rent, Rates & taxes / Repairs / insurance / printing & stationery / Water & electricity / Postage & telegrams / staff welfare expenses /conveyance expenses/ miscellaneous expenses / depreciation E. NET OPERATING PROFIT / LOSS C-D F. Net Operating Result a) Interest earned / commission earned / discount earned / miscellaneous incomes b) Non-Operating expenses and losses ex: interest allowed ” Loss on sale of fixed assets G. NET PROFIT xxxxx xxxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 19 / 27 Vertical form of Balance Sheet Balance Sheet of M/s …………….. as on ………….. ParticularsRs. A. SOURCES OF FUNDS a) Proprietor’s funds b) Long term debts B. APPLICATION OF FUNDS a) NET WORKING CAPITAL i) Current Assets *Cash in hand *Cash at Bank *Bills Receivable *Accrued Income *Debtors *Stock *Prepaid Expenses xxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 20 / 27 Particulars Rs. ii) Less: Current Liabilities Bank Over Draft Accrued Expenses Bills Payable Trade Creditors Income received in advance b) INVESTMENTS C) FIXED ASSETS Furniture & Fixtures Patents and Trade Marks Plant and Machinery Building Goodwill xxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 21 / 27 Schedule of Proprietor’s funds ParticularsRs. A. Capital in the beginning B. Add: Additional capital introduced Interest on Capital Salary to partner Profit for the current accounting period C. Less: Drawings Interest on Drawings Loss for current accounting period Capital at the end of the Accounting Period (A+B-C) xxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 22 / 27 Balance Sheet of a Joint Stock Company VERTICAL FORM Name of the Company Balance Sheet as at Particulars Sche dule No. Figures as at the end of current financial year Figures as at the end of previous financial year I. SOURCES OF FUNDS: (1)Shareholder's funds (a) Capital (b) Reserves and Surplus (2)Loan funds (a) Secured loans (b) Unsecured loans TOTAL : II. APPLICATIONS OF FUNDS: (1)Fixed assets (a) Gross block (b) Less depreciation (c) Net block (d) Capital work-in-progress (2)Investments xxxxxx XXXXX xxxxxx XXXXX xxxxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 23 / 27 Particulars Sche dule No. Figures as at the end of current financial year Figures as at the end of previous financial year (3) Current assets, loans, and advances : (a) Inventories (b) Sundry debtors (c) Cash and bank balances (d) Other current assets (e) Loans and advances Less : Current liabilities and provisions : (a) Liabilities (b) Provisions Net current assets (4)(a) Miscellaneous expenditure to the extent not written off or adjusted (b) Profit and Loss account TOTAL : xxxxxx

Accounting for Managers Module -3 Compiled by P.Srikanth 24 / 27 Notes - 1. Details under each of the above items shall be given in separate Schedules. The Schedules shall incorporate all the information required to be given under A - Horizontal Form read with notes containing general instructions for preparation of balance sheet. 2. The Schedules, referred to above, accounting policies and explanatory notes that may be attached shall form an integral part of the balance-sheet. 3. The figures in the balance-sheet may be rounded off to the nearest '000' or '00' as may be convenient or may be expressed in terms of decimals of thousands. 4. A foot-note to the balance sheet may be added to show separately contingent liabilities.

Accounting for Managers Module -3 Compiled by P.Srikanth 25 / 27 Profit and Loss Account of a Joint Stock Company VERTICAL FORM Name of the Company Income Statement for the year ending Particulars Sche dule No. Figures as at the end of current financial year Figures as at the end of previous financial year Sales Less: Sales returns Sales Tax/Excise Duty Net Sales (1) Cost of goods sold: Materials consumed Direct labour Manufacturing Expenses Add/Less: Adjustment for change in stock Cost of goods sold (2) GROSS PROFIT (1) - (2) xxxxx Xxxx xxxxx XXXX xxxxx XXXX

Accounting for Managers Module -3 Compiled by P.Srikanth 26 / 27 Particulars Sche dule No. Figures as at the end of current financial year Figures as at the end of previous financial year Less: Operating Expenses Office and Administrative Expenses Selling and Distribution Expenses OPERATING PROFIT Add: Non-Operating Income Less: Non-Operating Expenses (including interest) Profit before interest and tax Less: Interest Profit before tax Less: Tax Profit After Tax Appropriations Transfer to reserves Dividends declared/paid Surplus carried to B/S xxxxx XXXX xxxxx XXXX xxxxx XXXX xxxxx XXXX xxxxx XXXX

Accounting for Managers Module -3 Compiled by P.Srikanth 27 / 27 Problem Chettinad corporation gives you the following adjustment transactions The closing stock was valued at Rs 2,000 The depreciation on machinery was Rs 100 Salaries outstanding for the year were Rs200 Rent paid amount to Rs 300.

Accounting for Managers Module -3 Compiled by P.Srikanth 28 / 27 Head of the accountDebitCredit Rs. Capital 3,600 Machinery800 Sales 8,300 Sales Returns200 Opening Stock1,000 Drawings400 Wages800 Carriage inwards150 Salaries600 General expenses300 Rent500 Purchases4,000 Purchase Returns 50 Debtors3,000 Cash500 Carriage outwards100 Advertising200 Creditors ,550

Accounting for Managers Module -3 Compiled by P.Srikanth 29 / 27 Trading and profit and loss account of chettinad corporation for the yr… ParticularsAmount Rs ParticularsAmount Rs To opening stock 1000By sales 8300 To wages 800 Less:Sales returns Carriage inwards 150By closing stock 2000 To purchases 4000 Less: Purchase returns To Gross profit c/d ,100 CrDr

Accounting for Managers Module -3 Compiled by P.Srikanth 30 / 27 To carriage outwards 100By Gross profit b/d 4,200 To salaries 600 Add:o/s salaries To deprn on mach. 100 To general expenses 300 To rent 500 Add: O/s Rent To advertising 200 Net profit 1,900 4,200

Accounting for Managers Module -3 Compiled by P.Srikanth 31 / 27 Balance sheet as on…… LiabilitiesAmountAssetsAmount Capital 3600Machinery 800 Drawings -400 Net profit +2,5005,700 Less:Depn on m/c Rent paid 300 Sundry creditors 600Closing stock 2,000 o/s salaries 200Sundry debtors 3,000 Cash 500 6,500

Accounting for Managers Module -3 Compiled by P.Srikanth 32 / 27 End of the Module