1. Financial Statement Trial balance proves the arithmetical accuracy of the business transactions, but it is not the end. The businessman is interested in knowing whether the business has resulted in profit or loss and what the financial position of the business is at a given period. The trader can ascertain these by preparing the final accounts. The final accounts are prepared at the end of the year from the trial balance. Con…

2. Parts of Final Accounts The final accounts of business concern generally include two parts. The first part is Trading and Profit and Loss Account. This is prepared to find out the net result of the business. The second part is Balance Sheet which is prepared to know the financial position of the business. Con…

3. Trading Account To know the gross profit or gross loss the trading account is prepared. Format of Trading Account Trading Account for the year ending __________ Dr. Cr. ParticularsAmount(SR)ParticularsAmount(SR) To Opening Stock To Purchases Less: Returns outward_______ To Wages To Freight x x x x x x By Sales Less :Returns Inward______ By Closing stock x x x

4. To Carriage Inwards To Clearing charges To Packing charges To Dock dues To Power (factory) To Octroi Duty To Gross Profit c/d (transferred to P&L x x x _________ By Gross Loss c/d (transferred to P&L a/c) x x x ___________

5. Items appearing in Trading account 1. Opening stock: Stock on hand at the beginning of the year is termed as opening stock. 2. Closing stock: Closing stock is the value of goods which remain in the hands of the trader at the end of the year. It does not appear in the trial balance. It appears outside the trial balance. (As it appears outside the trial balance, first it will be recorded in the credit side of the trading account and then shown in the assets side of the balance sheet). Con…

6. Example 1 From the following information, prepare a Trading Account for the year ended 31.12.2012. 2012 Jan 1 Opening stock SR. 15,000 2012 Dec 31 Purchases SR. 16,500 Sales SR. 30,600 Closing stock SR. 13,500 Solution: Trading Account for the year ending 31.12.2012 ParticularsAmount(SR)ParticularsAmount(SR) To Opening stock To Purchases To Gross profit c/d (transferred to P&L a/c) 15,000 16,500 12,600 ________ 44,100 By Sales By Closing stock 30,600 13,500 ________ 44,100

7. Example 2 Prepare Trading Account for the year ending 31st March 2012 from the following information. Opening stock SR. 1,70,000 Purchases return SR. 10,000 Sales SR. 2,50,000 Wages SR. 50,000 Sales return SR. 20,000 Purchases SR. 1,00,000 Carriage inward SR. 20,000 Closing stock SR. 1,60,000

8. Solution: Trading Account for the year ending 31st March, 2012. ParticularsAmount(SR)ParticularsAmount(SR) To Opening stock To Purchases 100000 Less Purchases return -10000 To Wages To Carriage inwards To Gross profit c/d (transferred to P&L a/c) 1,70,000 90,000 50,000 20,000 60,000 ________ 3,90,000 By Sales 250000 Less Sales return -20000 By closing stock 2,30,000 1,60,000 ________ 3,90,000

9. Profit and Loss Account After calculating the gross profit or gross loss the next step is to prepare the profit and loss account. The aim of profit and loss account is to ascertain the net profit earned or net loss suffered during a particular period. Format of Profit and Loss Account Profit and Loss Account for the year ended.................. Dr. Cr. ParticularsAmountParticularsAmount To Balance b/d (Gross Loss) To Salaries To Rent & rates To Stationeries x x x By Balance b/d (Gross profit) By Commission earned By Rent received x x x

10. To Postage expenses To Insurance To Repairs To Trading expenses To Office expenses To Interest paid To Bank charges To Sundry expenses To Commission paid To Discount allowed To Advertisement To Carriage outwards To Travelling expenses x x x By Interest received By Discount received By Net Loss (Transferred to Capital a/c) x x x

11. To Distribution expenses To Repacking charges To Bad debts To Depreciation To Net Profit (transferred to Capital a/c) x x x _______ _________

12. Example 3 Prepare Profit and Loss Account, from the following balances of Mr. Fazil for the year ending 31.12.2011. Office rent SR. 30,000 Salaries SR. 80,000 Printing expenses SR. 2,000 Stationeries SR. 3,000 Tax, Insurance SR. 4,000 Discount allowed SR. 6,000 Advertisement SR. 36,000 Travelling expenses SR.26,000 Gross Profit SR. 2,50,000 Discount received SR. 4,000

13. Solution: Profit and Loss Account of Mr. Fazil for the year ending 31st Dec. 2011 Dr. Cr. ParticularsAmount(SR)ParticularsAmount(SR) To Salaries To Office rent To Stationeries To Printing expenses To Tax, insurance To Discount allowed To Travelling expenses To Advertisement To Net profit (transferred to capital a/c) 80,000 30,000 3,000 2,000 4,000 6,000 26,000 36,000 67,000 _______ 2,54,000 By Balance b/d (Gross Profit) By Discount received 2,50,000 4,000 _________ 2,54,000

14. Example 4 Prepare Trading and Profit Loss Account for the year ending 31 st March 2012 from the books of Mr. Akram. SR. SR. Stock (31.3.2011) 15,000 Carriage outwards 4,000 Purchases 1,65,000 Wages 30,000 Purchases return 10,000Sales returns 5,000 Postage 3,000 Salaries 20,000 Discount received 5,000 Stationeries 2,000 Bad debts 1,000 Interest 8,000 Sales 3,00,000 Insurance 4,000 Stock (31.3.2012) 80,000

15. Solution: Trading and Profit & Loss A/c of Mr. Akram for the year ended 31st March, 2012. Dr. Cr. ParticularsAmount(SR)ParticularsAmount(SR) To Opening stock To Purchases 1,65,000 Less Returns -10,000 To Wages To Gross profit (transferred to P&L a/c) To Salaries To Postage To Bad debts To Carriage outwards 15,000 1,55,000 30,000 1,75,000 ________ 3,75,000 20,000 3,000 1,000 4,000 By Sales 3,00,000 Less returns -5,000 By Closing stock By Balance b/d (Gross profit) By Discount received 2,95,000 80,000 ________ 3,75,000 1,75,000 5,000

16. To Stationeries To Interest To Insurance To Net profit (transferred to Capital a/c) 2,000 8,000 4,000 1,38,000 ________ 1,80,000 ________ 1,80,000

17. Question. 1. From the following trial balance of Mr. Ali, prepare Trading, Profit and Loss Account for the year ending 31.12.2013. Closing stock is valued at SR. 1,35,000. ParticularsAmount(Dr.)ParticularsAmount(Cr.) Purchases Salaries & wages Office expenses Trading expenses Factory expenses Carriage inwards Returns inward Discount allowed Commission Stock Income tax Cash in hand 5,40,000 3,50,000 4,000 8,000 11,000 8,000 12,000 4,000 2,000 60,000 40,000 2,00,000 ________ 12,39,000 Sales Returns outward Discount received Interest received Capital 10,40,000 12,000 6,000 3,000 1,78,000 _________ 12,39,000

18. Balance Sheet Balance sheet is a statement showing the financial position of a business. On the left hand side of the statement, the liabilities and capital are shown. On the right hand side, all the assets are shown. Format of Balance Sheet Balance Sheet of............ as on............ LiabilitiesAmountAssetsAmount Sundry creditors Bills payable Bank overdraft Outstanding expenses Mortgage loans Reserve fund x x x Cash in hand Cash at bank Bills receivable Sundry debtors Investments Closing stock x x x

19. Capital x x x Add: Net profit x x x (or) Less: Net loss x x x Less: Drawings - x x x x x x Less: Income tax - x x x x x x _______ x x x Prepaid expenses Furniture & fittings Plant & machinery Land & buildings Patents & trade marks Goodwill x x x _______ x x x

20. Example 5 From the following Trial Balance of Arshad, prepare trading and profit and loss account for the year ending on 31st March 2012 and the balance sheet as on the date: Trial Balance as on 31st March, 2012. Stock on 31st March 2012 was SR. 6,000. ParticularsAmount (Dr.)Amount (Cr.) Opening Stock (1.4.2011) Purchases Discount allowed Wages Sales Salaries Travelling expenses Commission Carriage inward Administration expenses 5,000 16,750 1,300 6,500 2,000 400 425 275 105 30,000

21. Trade expenses Interest Building Furniture Debtors Creditors Capital Cash _____________________________________ TOTAL 600 250 5,000 200 4,250 2,045 ________ 45,100 2,100 13,000 _______ 45,100

22. Solution : Trading and Profit and Loss Account for the year ending 31st March, 2012. Dr. Cr. ParticularsAmount(SR)ParticularsAmount(SR) To Opening stock To Purchases To Wages To Carriage inward To Gross profit c/d (transferred to P&L a/c) To Discount To Salaries To Travelling expenses To Commission 5,000 16,750 6,500 275 7,475 _______ ___36,000 1,300 2,000 400 425 By Sales By Closing stock By Balance b/d (Gross Profit) 30,000 6,000 _______ ___36,000 7,475

23. To Administration expenses To Trade expenses To Interest To Net profit (transferred to capital a/c) 425 105 600 250 2,395 _______ 7,475 _________ 7,475

24. Balance Sheet as on 31st March, 2012. LiabilitiesAmount(SR)AssetsAmount(SR) Creditors Capital 13,000 Add Net profit + 2,395 2,100 15,395 _______ 17,495 Cash Debtors Stock Furniture Building 2,045 4,250 6,000 200 5,000 ________ 17,495

25. Question.2. The trial balances of Mr. Abdullah shows the following balances on 31st March 2014. Prepare final accounts. Closing stock on 31st March 2014 was SR. 30,000. Debit BalanceAmount(SR)Credit BalanceAmount(SR) Purchases Sales returns Opening stock Discount allowed Bank charges Salaries Wages Freight inwards Freight outwards Rent, rates and taxes Advertising Cash in hand Plant and machinery Sundry debtors Cash at bank 70,000 5,000 20,000 2,000 500 4,500 5,000 4,000 1,000 5,000 6,000 1,000 50,000 60,000 7,000 __________ 2,41,000 Capital account Sales Purchase returns Discount received Sundry creditors 56,000 1,50,000 4,000 1,000 30,000 ___________ 2,41,000

26. REVIEW A) Fill in the blanks: 1. ____________ account enables the trader to find out gross profit or loss. 2. By preparing profit and loss account _________ can be find out. 3. Closing stock is _______ in the trading account. 4. All incomes are _____________ in the profit and loss account. 5. Bad debt is a __________ expense. 6. ‘Salaries and wages’ appear on the _______________account. 7. Balance sheet shows the ________ of a business. [Answers: 1. Trading, 2. net profit or loss, 3. credited, 4. credited 5. selling, 6. profit and loss account, 7. financial position]

27. B) Choose the correct answer: 1. Trading account is prepared to find out a) gross profit or loss b) net profit or loss c) financial position 2. Opening stock is a) debited in trading account b) credited in trading account c) credit in profit and loss account 3. Balance sheet is a a) statement b) account c) ledger 4. Fixed assets have a) short life b) long life c) no life

28. 5. Cash in hand is an example of a) current assets b) fixed assets c) current liability 6. Capital is a) income b) assets c) liability 7. Drawing must be deducted from a) net profit b) capital c) gross profit 8. Current liabilities are recorded in the balance sheet on a) not recorded b) liability side c) assets side 9. Net profit is added to a) gross profit b) drawings c) capital [Answers: 1.(a), 2.(a), 3.(a), 4.(b), 5. (a), 6.(c), 7.(b), 8.(b), 9.(c)]