final account 1
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FINAL ACCOUNTSFINAL ACCOUNTSand and
Reports to be AnnexureReports to be Annexure`̀ By: Dhirender KumarBy: Dhirender Kumar
Rakesh Rakesh KumarKumar
Devender Kumar Devender Kumar
Manish KumarManish Kumar
Fanish KumarFanish Kumar
Ajay KumarAjay Kumar
Final AccountsFinal Accounts
A formal records of business A formal records of business transactions in order to have an transactions in order to have an overview of the Companies profitability overview of the Companies profitability and financial condition at the end of the and financial condition at the end of the year.year.
RequirementRequirement
Money is invested in a business with the primary Money is invested in a business with the primary aim of earning profit. For knowing this, it is aim of earning profit. For knowing this, it is necessary that the Accountant must measure and necessary that the Accountant must measure and accumulate accounting data in such a manner that accumulate accounting data in such a manner that a amount of profit earned or loss suffered by the a amount of profit earned or loss suffered by the business may be determined and reported.business may be determined and reported. For the purpose of determining the profit or loss For the purpose of determining the profit or loss figure and financial position at the end of year a figure and financial position at the end of year a statement knows as statement knows as Final AccountFinal Account is prepared at is prepared at the end of accounting year which include all the the end of accounting year which include all the figures in details income, expenditure, assets and figures in details income, expenditure, assets and liabilities of the Firm .liabilities of the Firm .
Need of Final AccountNeed of Final Account
To know profitabilityTo know profitability For decision makingFor decision making To measure growthTo measure growth To control over expensesTo control over expenses
Users of Financial statementsUsers of Financial statements
Management of Company.Management of Company. Shareholder & Potential InvestorsShareholder & Potential Investors Lenders and CreditorsLenders and Creditors Employees and Trade UnionsEmployees and Trade Unions GovernmentGovernment Stock ExchangeStock Exchange
Guide lines regarding Final Guide lines regarding Final Accounts under Indian Company Act Accounts under Indian Company Act
19561956
Section 210 of Indian Companies Act 1956 Section 210 of Indian Companies Act 1956 provide that at the Annual General Meeting, the provide that at the Annual General Meeting, the Board of Directors of the Co. have to present Board of Directors of the Co. have to present Financial Statement before the members.Financial Statement before the members.
Such Balance Sheet and Profit & Loss Account Such Balance Sheet and Profit & Loss Account shall be prepared as per schedule VI to the shall be prepared as per schedule VI to the Companies Act 1956.Companies Act 1956.
Cont..Cont..
The schedule VI has four parts:The schedule VI has four parts:
It gives the details format of a Balance It gives the details format of a Balance Sheet. As per Part I the Balance Sheet Sheet. As per Part I the Balance Sheet can be prepared either in Horizontal form can be prepared either in Horizontal form or Vertical form.or Vertical form.
Part I : Part I :
Part I I :Part I I : It gives the guide lines for Profit & Loss It gives the guide lines for Profit & Loss Account such as quantitative details of Account such as quantitative details of some items must have. It does not some items must have. It does not specified any format for Profit & Loss specified any format for Profit & Loss Account. Account.
Cont..Cont..
Part IV :Part IV :
It gives the interpretation of certain It gives the interpretation of certain terms used in part I & II.terms used in part I & II.
Part III : Part III :
It deals with Balance Sheet abstract It deals with Balance Sheet abstract and the Company's general business and the Company's general business profile.profile.
Components of Final Account for Components of Final Account for Trading FirmTrading Firm
Final Account
Trading Account Profit & LossAccount
Balance Sheet
Components of Final Account for Components of Final Account for manufacturing Firmmanufacturing Firm
Final Account
Trading AccountProfit & Loss
AccountBalance Sheet
Manufacturing Account
Manufacturing AccountManufacturing Account
It is prepared with the intention to disclose It is prepared with the intention to disclose cost of the goods manufactured during a cost of the goods manufactured during a particular period.particular period.
Features of Manufacturing Features of Manufacturing AccountAccount
It is part of Trading Account.It is part of Trading Account. It is prepared by only manufacturing companies It is prepared by only manufacturing companies
in addition to Trading Account.in addition to Trading Account. In case of manufacturing more than one product In case of manufacturing more than one product
then it prepares separate account for each.then it prepares separate account for each. It contains direct cost of production.It contains direct cost of production. It is prepared to ascertain the cost of It is prepared to ascertain the cost of
manufacturing the goods.manufacturing the goods. The cost of manufacturing goods is transferred The cost of manufacturing goods is transferred
to Trading Account.to Trading Account.
Content of Manufacturing Content of Manufacturing AccountAccount
Direct MaterialDirect Material Direct LabourDirect Labour Direct ExpensesDirect Expenses Manufacturing OverheadManufacturing Overhead Closing Stock of Raw MaterialClosing Stock of Raw Material
Pro-forma of Manufacturing AccountPro-forma of Manufacturing Account
ParticularParticular AmountAmount ParticularParticular AmountAmount
To Direct Material :To Direct Material :
Opening Stock of RawOpening Stock of Raw
Material WIP Material WIP ....................
Purchases of Raw Purchases of Raw
Material WIP Material WIP ....................
Carriage inwards Carriage inwards ....................
To Direct Labour :To Direct Labour :
Factory wages Factory wages
To Direct Expenses :To Direct Expenses :
Factory rent Factory rent ....................
Fuel, power, gas Fuel, power, gas ....................
Factory insurance Factory insurance ....................
Depreciation on factory Depreciation on factory
Building and Building and
machinery machinery ....................
To manufacturing overheadTo manufacturing overhead
....................
....................
....................
....................
By Closing Stock of RawBy Closing Stock of Raw
Material WIPMaterial WIP
By Cost of goods transferredBy Cost of goods transferred
to trading accountto trading account
....................
....................
.................... ....................
………………………………. (Name of the Firm). (Name of the Firm)Manufacturing AccountManufacturing Account
Dr. for the year ending …… Cr.Dr. for the year ending …… Cr.
Trading AccountTrading Account
A trading a/c is a part of the financial A trading a/c is a part of the financial statement which determines the gross statement which determines the gross profit or gross loss during an accounting profit or gross loss during an accounting year.year.
Features Trading AccountFeatures Trading Account
Trading Account gives the overall result of Trading Account gives the overall result of trading, i.e. gross profit or gross loss.trading, i.e. gross profit or gross loss.
The equation of trading Account is as:The equation of trading Account is as: Gross profit / loss = Sales – Cost of goodsGross profit / loss = Sales – Cost of goods soldsold Debit side of account contains all direct Debit side of account contains all direct
expenses, purchases and opening stock etc.expenses, purchases and opening stock etc. Credit side of account is contains sales and Credit side of account is contains sales and
closing stock etc.closing stock etc. The Gross Profit / Gross Loss is transferred to The Gross Profit / Gross Loss is transferred to
Profit & Loss account.Profit & Loss account.
Content of Trading A/cContent of Trading A/c
Opening stockOpening stock Purchases & ReturnsPurchases & Returns Direct ExpenseDirect Expense Sales & ReturnsSales & Returns Closing stockClosing stock
Pro-forma of Trading Account in Pro-forma of Trading Account in absence of Manufacturing Accountabsence of Manufacturing Account
………………………………. (Name of the Firm). (Name of the Firm)Trading AccountTrading Account
Dr. for the year ending …… Cr.Dr. for the year ending …… Cr.
ParticularParticular AmountAmount ParticularParticular AmountAmount
To Opening StockTo Opening Stock
To Purchases To Purchases ……….……….
Less: Returns Less: Returns ……….………. To To Direct expensesDirect expenses
To Gross Profit c/dTo Gross Profit c/d
………………..
………………..
………………..
………………..
By Sales By Sales ……….……….
Less: Returns Less: Returns ……….……….
By Closing StockBy Closing Stock
By Gross Loss c/dBy Gross Loss c/d
………………..
………………..
………………..
……………….. ………………..
Pro-forma of Trading Account in Pro-forma of Trading Account in presence of Manufacturing Accountpresence of Manufacturing Account
ParticularParticular AmountAmount ParticularParticular AmountAmount
To Opening Stock of finishedTo Opening Stock of finished
goodsgoods
To Cost of production ofTo Cost of production of
finished goods transferredfinished goods transferred
from Manufacturing Accountfrom Manufacturing Account
To Purchases of To Purchases of
finished goods ………finished goods ………
Less: Returns ……...Less: Returns ……...
To CarriageTo Carriage
To Gross Profit c/dTo Gross Profit c/d
………………..
………………..
………………..
………………..
By Sales ………By Sales ………
Less: Returns ……...Less: Returns ……...
By Closing Stock of finished By Closing Stock of finished
goodsgoods
By Gross Loss c/d By Gross Loss c/d
………………..
………………..
………………..
……………….. ………………..
………………………………. (Name of the Firm). (Name of the Firm)Trading AccountTrading Account
Dr. for the year ending …… Cr.Dr. for the year ending …… Cr.
Profit & Loss AccountProfit & Loss Account
Prof. Carter : “A Profit & Loss Account is Prof. Carter : “A Profit & Loss Account is an account into which all gains & losses an account into which all gains & losses are collected in order to ascertain the are collected in order to ascertain the excess of gains over losses or vice a excess of gains over losses or vice a versa.versa.
Features Profit & Loss AccountFeatures Profit & Loss Account
Profit & Loss Account is prepared to Profit & Loss Account is prepared to calculate Net Profit or Net Loss of the firm.calculate Net Profit or Net Loss of the firm.
It follows Accrual accounting concept.It follows Accrual accounting concept. Debit side of account contains the all Debit side of account contains the all
indirect expenses, losses and Gross Loss.indirect expenses, losses and Gross Loss. Credit side of account contains the all Credit side of account contains the all
incomes, gain and Gross Profit.incomes, gain and Gross Profit. Net Profit / Net Loss is transferred to Net Profit / Net Loss is transferred to
Capital Account.Capital Account.
Content of Profit & Loss Content of Profit & Loss AccountAccount
Office & Administration expensesOffice & Administration expenses Selling & Distribution expensesSelling & Distribution expenses Financial expensesFinancial expenses Abnormal lossesAbnormal losses Income from main businessIncome from main business Financial incomeFinancial income
Pro-forma of Profit & Loss Pro-forma of Profit & Loss AccountAccount
ParticularsParticulars AmountAmount ParticularsParticulars AmountAmount
To Gross Loss b/dTo Gross Loss b/d
To SalariesTo Salaries
To RentTo Rent
To CommissionTo Commission
To AdvertisementTo Advertisement
To Bad To Bad
To Net ProfitTo Net Profit
………………..
………………..
………………..
………………..
………………..
………………..
………………..
By Gross Profit b/dBy Gross Profit b/d
By Net LossBy Net Loss
………………..
………………..
……………….. ………………..
………………………….(Name of Firm).(Name of Firm)
Profit & Loss Account Profit & Loss Account
Dr. for the year ending …….. Cr.Dr. for the year ending …….. Cr.
Balance SheetBalance Sheet
A statement which sets out the asset and A statement which sets out the asset and liabilities of a firm or an institution as on a liabilities of a firm or an institution as on a certain date. certain date.
Francis R Stead – “A balance sheet is a Francis R Stead – “A balance sheet is a screen picture of the financial position of a screen picture of the financial position of a going business at a certain moment.”going business at a certain moment.”
Features Balance SheetFeatures Balance Sheet
It is a statement prepared with the aim to It is a statement prepared with the aim to know the exact financial position of know the exact financial position of business at last date of the financial year.business at last date of the financial year.
It is a T shape statement. On the left hand It is a T shape statement. On the left hand side ‘Liabilities’ and on right hand side side ‘Liabilities’ and on right hand side ‘Assets’ of the business shown.‘Assets’ of the business shown.
A balance sheet is prepared from the Real A balance sheet is prepared from the Real a/c and Personal a/c only.a/c and Personal a/c only.
The equation of Balance Sheet is as:The equation of Balance Sheet is as: Assets = Capital + LiabilitiesAssets = Capital + Liabilities
Marshalling of Balance SheetMarshalling of Balance Sheet
The arrangement of the items in Balance The arrangement of the items in Balance Sheet in proper way is know as Marshalling Sheet in proper way is know as Marshalling of Balance Sheet. There is two type of of Balance Sheet. There is two type of Marshalling of Balance Sheet:Marshalling of Balance Sheet:
Liquidity orderLiquidity order
Permanence orderPermanence order
Liquidity OrderLiquidity Order
In Case of Liquidity Order Marshalling more In Case of Liquidity Order Marshalling more liquid Assets are shown first and then less liquid Assets are shown first and then less liquid and so on. Similarly on the liability liquid and so on. Similarly on the liability side, current liabilities in order to payment side, current liabilities in order to payment are shown first, then long term and lastly the are shown first, then long term and lastly the capital of proprietor.capital of proprietor.
Pro-forma of Balance Sheet in Pro-forma of Balance Sheet in Liquidity OrderLiquidity Order
LiabilitiesLiabilities AmountAmount AssetsAssets AmountAmount
Current LiabilitiesCurrent Liabilities
CreditorsCreditors
Bills PayableBills Payable
Bank OverdraftBank Overdraft
Outstanding ExpensesOutstanding Expenses
Income received in advanceIncome received in advance
Fixed LiabilitiesFixed Liabilities
LoanLoan
MortgageMortgage
CapitalCapital
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
Current AssetsCurrent Assets
Cash in handCash in hand
Cash at BankCash at Bank
Stock in tradeStock in trade
Bills ReceivableBills Receivable
Prepaid ExpensesPrepaid Expenses
InvestmentsInvestments
Fixed AssetsFixed Assets
Furniture & FixturesFurniture & Fixtures
Plant & MachineryPlant & Machinery
BuildingBuilding
Land Land
GoodwillGoodwill
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
TotalTotal ……………….. TotalTotal ………………..
……………….(Name of the Firm)
Balance Sheet
As on …………
Permanence OrderPermanence Order
In Case of Permanence Order Marshalling In Case of Permanence Order Marshalling more permanent Assets are shown first and more permanent Assets are shown first and then less permanent and so on. Similarly then less permanent and so on. Similarly on the liability side, permanent liabilities in on the liability side, permanent liabilities in order to payment are shown first, then long order to payment are shown first, then long term liabilities as on.term liabilities as on.
Pro-forma of Balance Sheet in Pro-forma of Balance Sheet in Permanence OrderPermanence Order
LiabilitiesLiabilities AmountAmount AssetsAssets AmountAmount
CapitalCapital
Fixed LiabilitiesFixed Liabilities
LoanLoan
MortgageMortgage
Current LiabilitiesCurrent Liabilities
CreditorsCreditors
Bills PayableBills Payable
Bank OverdraftBank Overdraft
Outstanding ExpensesOutstanding Expenses
Income received in advanceIncome received in advance
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
Fixed AssetsFixed Assets
Furniture & FixturesFurniture & Fixtures
Plant & MachineryPlant & Machinery
BuildingBuilding
Land Land
GoodwillGoodwill
InvestmentsInvestments
Current AssetsCurrent Assets
Cash in handCash in hand
Cash at BankCash at Bank
Stock in tradeStock in trade
Bills ReceivableBills Receivable
Prepaid ExpensesPrepaid Expenses
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
………………..
TotalTotal ……………….. TotalTotal ………………..
……………………………….(Name of the Firm).(Name of the Firm)
Balance SheetBalance Sheet
As on …………As on …………
Example of Final Account Prepare the final account from given trail balance and other information.
Balance as on 31-03-2009 are as follows:
Particular Debit Amount Credit Amount
Opening Stock
Capital
Debtors and Creditors
Purchase and sales
Returns
Wages and Salaries
Commission
Machinery & Furniture
Bad Debts
Provision for debt & doubtful debts
Bills Receivable & Bills Payable
Land & Building
Insurance
Cash and Bank
Drawing
25000
-
30000
200000
7500
16500
-
50000
4000
-
15000
200000
14500
25000
25000
-
225000
17500
350000
5000
-
6500
-
-
5000
3500
-
-
-
-
Additional information: Value of closing stock as on 31-03-2009 is Rs. 20000. Wages and salaries outstanding Rs. 500. Insurance prepaid Rs. 2000. Provision for doubtful debts on Debtors @ 5%. Depreciation on machinery and Furniture @ 10%. Goods costing Rs. 1200 were sold on approval basis for Rs. 15000. These goods
were not approved by customer as yet.
Solution:
Trading Account
Dr. For year ending 31-03-2009 Cr.
359500359500
327500
32000
By Sales 350000
Less: Returns 7500
Less: Goods sold to
Approval basis 15000
By Closing Stock 20000
Add: Goods sold to
Approval basis 12000
25000
195000
17000
122500
To Opening Stock
To Purchases 200000
Less: Returns 5000 To Wages & Salaries 16500
Add:O/S wags & salaries 500
To Gross Profit c/d
AmountParticularAmountParticular
Particulars Amount Particulars Amount
To Bad debts 4000
Add: New provision 1500
Less : Old provision 5000
To Insurance 14500
Less: Prepaid 2000
To Depreciation on Machinery & furniture
To Net Profit
500
12500
5000
111000
By Gross Profit b/d
By Commission
122500
6500
129000 129000
Profit & Loss Account
Dr. for the year ending 31-03-2009 Cr.
Liabilities Amount Assets Amount
Capital 225000
Less: Drawing 25000
Add: Net Profit 111000
Current Liabilities
Bills Payable
Creditors
Outstanding wages & salaries
311000
3500
17500
500
Fixed Assets
Land & Building
Machinery & Furniture 50000
Less: Depreciation 5000
Current Assets
Bills Receivable
Debtors 30000
Less: Sales on
approval basis 15000
Less: Provision for
bad debts 1500
Cash and Bank
Prepaid Insurance
Stock in trade 20000
Add: Sales on
approval Basis 12000
200000
45000
15000
13500
25000
2000
32000
Total 332500 Total 332500
Balance Sheet
As on 31-03-2009
At the end of every accounting period each At the end of every accounting period each company comes out with Financial Statement. The company comes out with Financial Statement. The following reports are annexure with Financial following reports are annexure with Financial Statement.Statement.
Report from directorReport from director Auditor’s ReportAuditor’s Report Corporate Governance ReportCorporate Governance Report Financial StatisticsFinancial Statistics Major Accounting PoliciesMajor Accounting Policies
Report to be AnnexureReport to be Annexure
Director’s ReportDirector’s Report
It is a report prepared by Directors of Company It is a report prepared by Directors of Company regarding overall performance of company. The regarding overall performance of company. The contents of a Director’s reports are as below :contents of a Director’s reports are as below :
Highlights of Financial Result.Highlights of Financial Result. An overview of performance of the Co. An overview of performance of the Co.
during the year.during the year. Future Projects in hand or expected.Future Projects in hand or expected.
Cont..Cont..
Future expansion programme.Future expansion programme. About appointment / reappointment of Auditors.About appointment / reappointment of Auditors. About retirement / appointment / reappointment About retirement / appointment / reappointment
of Directors.of Directors.
Auditor’s ReportAuditor’s Report
An Auditor’s Report is formal opinion whether the An Auditor’s Report is formal opinion whether the auditee's financial statements have been auditee's financial statements have been prepared in accordance with Generally Accepted prepared in accordance with Generally Accepted Accounting Principles (GAAP), whether they are Accounting Principles (GAAP), whether they are free of material misstatement (e.g. free of free of material misstatement (e.g. free of important and significant errors), and whether important and significant errors), and whether they show a true and fair view of the operating they show a true and fair view of the operating results, financial position and cash flows of the results, financial position and cash flows of the auditee. auditee.
Type of Auditor’s ReportType of Auditor’s Report
Unmodified Opinion reportUnmodified Opinion report Qualified Opinion reportQualified Opinion report Adverse Opinion reportAdverse Opinion report Disclaimer of Opinion reportDisclaimer of Opinion report
Corporate Governance ReportCorporate Governance Report
It is report prepared by Board of Directors It is report prepared by Board of Directors of Co. It is represent that governance of of Co. It is represent that governance of company is how fair & good. Usually CG company is how fair & good. Usually CG report have following contents:report have following contents:
Board of DirectorsBoard of Directors
Audit CommitteeAudit Committee
Shareholder CommitteeShareholder Committee
Managerial remunerationManagerial remuneration
Financial StatisticsFinancial Statistics
It contents the past record such as annual It contents the past record such as annual turnover, profit , debts of company and turnover, profit , debts of company and total wealth of the company and total wealth of the company and comparative time series analysis of these comparative time series analysis of these records to show the growth trend of records to show the growth trend of companycompany
Major Accounting PoliciesMajor Accounting Policies
Accounting policies refers to the specific Accounting policies refers to the specific accounting principal and methods for accounting principal and methods for applying those principles adopted by the applying those principles adopted by the Co.Co.
According to AS - 1 of ICAI, a Co. is free According to AS - 1 of ICAI, a Co. is free to formulate its own accounting policies.to formulate its own accounting policies.
These policies have to disclosed with These policies have to disclosed with Financial Statement.Financial Statement.
Any QuestionAny Question