1. FINAL ACCOUNTS With adjustments,

2. FINAL ACCOUNTS
Final Accounts is the last step in the accounting process. Trial Balance is prepared at the end of all the accounting year to know the balances of all the accounts & to test the arithmetic accuracy of accounts. But the basic objective of accounting is to know about the profit or loss during the previous year & present financial position. This can be known only if Trading account and Profit & Loss account and Balance Sheet are prepared at the end pf year. These are also known as FINANCIAL STSTEMENTS which are prepared.

3. From Trial Balance. Final Accounts include the preparation of :
1) Trading and Profit & Loss account and
2) Balance Sheet
as these two statements are prepared to give the final results of the business, both of these are collectively called as final accounts. Accounting cycle finally ends with these statements as shown in next slide:

4. ACCOUNTING CYCLE
TRANSACTIONS

5. Types of Financial Statement
Final accounts or financial statements can be divided in two parts:-
Trading and Profit & Loss Account
Balance Sheet

6. Trading Account
Trading account is prepared by trading concerns i.e., concerns which purchase and sell finished goods, to know the gross profit or gross loss incurred by them from buying and selling of goods during a particular period of time. Gross profit or gross loss is the difference between the cost of goods sold and the proceeds of their sale. If the sale proceeds exceed the cost of goods sold , gross profit is made. Otherwise,gross loss is made.

7. Ascertainment of Cost of Goods Sold
Opening Stock ……….
Add: Purchases …….
Less: Purchase Return ……. ………
Goods Available for Sales ……….
Add: Direct Expenses ……….
Less: Closing Stock ……….
Cost of Goods Sold ……….

8. Specimen Proforma of Trading Account
Dr Trading Account of …….. For the year ending…… Cr
Particulars
Amt.
Particulars
Amt.
To Opening Stock
To Purchases
Less: Returns
To Direct Expenses:
Carriage Inward
Wages
Wages & salaries
Fuel & power
Coal, water & gas
Octroi
By Sales
Less: Returns
By Closing Stock
By Gross Loss c/d*

9. Import Duty
Custom Duty
Excise Duty
Consumable Store
Factory Rent, Rates,
and Taxes
Foreman/ Works Manager’s
Salary
Royalty on manufactured
goods
To Gross Profit c/d*

10. Profit & Loss Account
For non-corporate business organisation Profit & Loss account is second part of income statement. It is prepared to know the net loss of business during a particular period. Every businessman has to spend on expenses other than on manufacture or purchase of goods which are called indirect expenses. There can be other incomes except sales. So gross profit or loss is adjusted keeping in view these indirect expenses and other incomes to find out net profit or net loss.

11. Proforma of Profit & Loss Account
Particulars
To Gross Loss b/d
To Establishment Charges
To Administrative Charges
To Selling & Distribution expenses
To Financial Charges
Amt
By Gross Profit b/d
By other expenses
By Net Loss
(transferred to capital account)

12. To Depreciation & Provisions
To Abnormal Losses
To Net Profit
(transferred to Capital Account)

13. Balance Sheet
Balance Sheet is a component of financial statements which shows balances of capital, liabilities & assets. All nominal accounts are closed by transferring these to Trading & Profit & Loss Account. Only personal & real accounts are left.
Balance Sheet is the final phase in accounting cycle. It is a ‘mirror’ which reflects the true position of the assets & liabities of the business on a particular date.
“A statement of financial position of economic unit disclosing as at a given moment of time its assets, liabilities & ownership equities. Eric L.kohler

14. Liabilities Capital Add: Net Profit Less: Drawings Fixed Liabilities:
Balance Sheet as on ……………………
Liabilities
Capital
Add: Net Profit
Less: Drawings
Fixed Liabilities:
Long term loan
Public deposits
Current Liabilities:
Unexpired Income
Short Term Loans
Trade Creditors
Bank Overdraft
Amt
Assets
Fixed Assets:
Goodwill
Land and Buildings
Plant & Machinery
Motor Vehicles
Furniture
Patents & Trade Marks
Live Stock
Loose Tools
Investments

15. Bill Payable
Outstanding Expenses
Current Assets:
Closing Stock
Prepaid Expenses
Accrued Income
Debtors
Bill Receivable
Cash at Bank
Cash in hand

16. ADJUSTMENTS

17. ADJUSTMENTS CLOSING STOCK
The unsold goods lying in store at the end of accounting year. Treatment:
Stock a/c Dr.
To Trading a/c
Two fold effect of adjustment will be :-
Show on Credit side of the Trading account
On asset side of Balance Sheet

18. OUTSTANDING EXPENSES
Those expenses which have been incurred & not yet paid.
Treatment:
Expenses a/c Dr
To outstanding expenses
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 liabities side of Balance Sheet.

19. PREPAID EXPENSES
Those expenses which have been paid in advance i.e., whose benefit will be available in future is called prepaid expenses. Treatment:
Prepaid Expenses a/c Dr
To Expenses a/c
Two fold effect:
1.Will be shown in profit & loss a/c by way deduction from particular expense.
2. Will be shown on asset side of Balance Sheet.

20. ACCRUED INCOME
That income which has been earned but not received during the accounting year is called accrued income. 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

21. INCOME RECEIVED IN ADVANCE
Income received but not earned during accounting year is called income received in advance. 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.

22. DEPRECIATION
Depreciation 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

23. BAD DEBTS
Debts which are definitely irrecoverable are called Bad Debts.
Treatment:
Bad Debts A/c Dr
To Sundry Debtors a/c
Two fold effect:
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.

24. INTEREST ON CAPITAL
To see whether the business is really earning profit or not ,interest on capital at a certain rate is provided. Treatment :
Interest on capital A/c
To capital A/c
TWO FOLD EFFECT :
1.It will be shown on debit side of Profit and Loss A/c
2.Shown on liabilities side of Balance Sheet by way of addition to the capital.

25. INTEREST ON DRAWINGS
Interest on drawings is charged from proprietor ,as drawings reduce capital.
Treatment:
Drawings A/c
To Interest on Drawings A/c
Two fold effect will be:
1.It will be shown on credit side of Profit and Loss Account.
2.On liabilities side of Balance Sheet by way of addition to the drawings which are ultimately deducted from the capital.

26. PROVISION FOR DOUBTFUL DEBTS
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
To Provision for Doubtful Debts A/c
Two effected accounts will be:
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).

27. PROVISION FOR DISCOUNT ON DEBTORS
If 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
To Provision for Discount on Debtors A/c
Two-fold effect will be:
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.

28. RESERVE FOR DISCOUNT ON CREDITORS
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
To Profit & Loss A/c
Two fold effect will be:
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.

29. DEFERRED REVENUE EXPENDITURE
The expenditure done in initial stage but the benefit of which will also be available in subsequent years is called deferred revenue expenditure.
Treatment:
Profit &loss A/c
To advertisement A/c
The two fold effect will be:
1.It is show on the debit side of Profit &loss A/c
2.Shown on assets side by way of deduction from capitalised expenditure.

30. LOSS OF STOCK BY FIRE Loss of stock may occur due to fire.
The position of business may be:
All the stock is fully insured.
The stock is partly insured.
The stock is not insured at all.

31. a) IF THE STOCK IS FULLY INSURED
The whole loss will be claimed from the insurance company.
Entry: Insurance Co. A/c Dr.
To Trading A/c
Effect:-
1.It will be shown on credit side of Trading A/c.
2.It is shown on Assets Side of Balance Sheet.

32. b) IF STOCK IS PARTLY INSURED
The loss of stock covered by insurance policy will be claimed from the insurance company and the rest of amount will be loss for the business.
Entry : Insurance Co. A/c Dr.
Profit & Loss A/c Dr.
To Trading A/c
Effect of this entry:
1.Shown on credit side of Trading A/c with the value of stock & shown on debit side of P& L A/c for that part of the stock which is not insured.
2.Loss of stock Fire is shown on asset side of the Balance sheet which amount is to be realised from the insurance company.

33. c) IF STOCK IS NOT INSURED
Whole loss will be borne by the firm.
Entry:- Profit & Loss A/c Dr.
To Trading A/c
Effect of this entry :-
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

34. RESERVE FUND
Reserve is created out of profit & Loss A/c 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 will be:
1.It is shown on debit side of P&L A/c.
2.It shown on the liabilities side of Balance.

35. GOOD DISTRIBUTED AS FREE SAMPLES.
To promote the sale of goods, some of the produced 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

36. MANAGER’S COMMISSION
To increase the profit, manager is given some % age of commission on profits .It can be given at a certain percentage on the net profits but before charging such commission.
Treatment:
Profit & Loss A/c
To Commission Payable
After charging such commission
This commission in calculated by a formula :-
Commission Payable = % of commission * Residual profit
100+Rate of Commission

37. GOODS ON SALE OR APPROVAL BASIS
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 yet returned , it should be treated as stock lying with customers.
Treatment :
Sales A/c Dr.
To debtors A/c (with sales price)
Stock A/c Dr.
To trading A/c ( at cost Price of goods)
Effects :-
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.

38. EXAMPLE M gives the following trial balance as on 31st March ,2010 Dr.
Cr.
Plant &machinery
60000
capital
50000
Fixture & fittings (for office)
2400
M’s currents A/c
2500
Stock as on April 1, 2009:
Raw materials
Finished Goods
16300
25400
Sundry creditors
22300
Purchases
93100
Loan at 18% from Indian Bank
20000
Wages
51300
Sales
250600
Other manufacturing expenses
16200
Sale of scrap
3600
Office expenses
18700
Sundry expenses
26000
Cash at bank
6600
Patents
18000
Selling expenses
15000

39. On 31st march ,2010 the stock of raw material was 13,300
On 31st march ,2010 the stock of raw material was 13,300. deprecation provided by M is 15 % on Plant and Machinery and 10% on fixtures & fittings (on book value). Patents have two more years to run and concern a vital production process .Manufactured goods were transferred to selling department at a value of Rs. 2,00, The value of finished goods (at transfer price ) on hand on 31st March ,2010 was Rs.30,000; the value of the finished goods as on April 1,2009 was at cost to M. Draw the Manufacturing, trading & P&L a/c for and the Balance Sheet of M as at the end of the year.

40. MANUFACTURING ,TRADING AND PROFIT AND LOSS ACOOUNT OF M for the year ending 31st March ,2010
To raw material consumed: Rs.
Opening stock ,300
Add: Purchases ,100
1,09400
Less: Closing Stock ,300
96,100
By Trading A/c (Transfer)
2,00,000
To wages
51,300
To Manufacturing Expenses
16,200
To Depreciation on Plant & machinery(15% on Rs 60,000)
9,000
To Depreciation on Patents(1/3 of Rs.18,000)
6,000
Less: Sale of Scrap
1,78,600
3,600
Cost of Goods Produced
1,75,000
To profit transferred to
P&L a/c (12.5% of Transfer Price
i.e., Rs.25,000 X 100 )
Rs. 2,00,000
25,000

41. To opening stock of finished Goods
To value of goods manufactured transferred from manufacturing a/c
To gross Profit c/d to profit & Loss A/c
To office Expenses
To Depreciation on fixtures & fittings
To selling expenses
To Interest on Loan from Indian Bank(18% on Rs 20000)
To stock reserve (12.5% on Rs.30,000 Closing Stock of Finished Goods)
To Net Profit Transferred to M’s Current A/c
25,600
2,00,000
55,200
2,80,600
18,700
240
15,000
3,600
3,750
38,910
80,200
By Sales
By Closing Stock Of finished Goods
By Gross Profit b/d
By Profit transferred from Manufacturing a/c
2,50,600
30,000
2,80,000
25,000

42. BALANCE SHEET M as on 31st March ,2010
Sundry creditors
Loan at 18%from Indian Bank
20,000
Add: Interest outstanding
for ,600
M’s current Account :
Balance as on ,500
Add: Net Profit ,910
Capital
22,300
23,600
41,410
50,000
1,37,310
Cash at the bank
Sundry debtors
Closing stock of raw materials
Closing stock of
finished goods ,000
Less: to
bring goods to cost value 3,750
Patents ,000
Less: written off ,000
Furniture & fittings ,400
Less: 10% Depreciation
Plant & Machinery ,000
Less: 15% Depreciation ,000
6,600
26,000
13,300
26,250
12,000
2,160
51,000