final account bba

8/3/2019 Final Account BBA

1/37

1

FINAL ACCOUNTSAs per accounting cycle the transactions arefirst recorded in journal, from where theyare posted to the relevant ledger account

then account is balanced and a trial balanceis prepared. After the trial balance finalaccounts are prepared to achieve the

objectives of accountancy


2/37

2

FINAL ACCOUNTS

ORGANIZATION

MANUFACTURING

ORGANIZATION

Final Account in the form of:

Manufacturing Trading A/c

Profit & Loss A/c

Balance Sheet

PROFIT MAKING

ORGANIZATIONAlso calledBusiness

organization

NON-PROFIT MAKING

ORGANIZATIONFinal Account in the form of: Receipt & Payment A/c

Income & Expenditure A/c Balance Sheet

TRADING ORGANIZATION

Final Account in the form of:

Trading A/c

Profit & Loss A/c

Balance Sheet


3/37

3

FINAL ACCOUNTS

Final accounts are the means of conveying to themanagement, owners and interested outsiders aconcise picture of profitability and financial

position of business. It is the end product ofaccounting process which gives consolidatedaccounting information of the accounting period,after the accounting period is over.

(i) Net result i.e. profit or loss made by theorganization during the accounting period. (ii) To know the financial position of the business

i.e. assets and liabilities of the business as ongiven date


4/37

4

FINAL ACCOUNTS

Components:

- Trading a/c

- Profit and loss a/c

- Balance sheet


5/37

5

Trading account Trading account is the first part of final account

which is prepared to calculate the gross profitor gross loss of the business concern. Thedetermination of the gross profit/loss is veryimportant because it is essential for the trader

to know whether his core activity is efficient inearning or not.

Need or Importance's: - To determine the cost of production - To assemble all the direct expenses - To ascertain the performance by Gross profit

margin.

- To help to calculate the ratio of cost of goodsold.l h d d


6/37

6

Usual items on the debit side1. Opening stock: It is the goods which remain unsold at

the end of previous year.2. Purchase and purchase returns: Purchase means

purchase of raw materials or resale goods made duringthe year. Both cash and credit purchase are taken intoconsideration but purchase return is deducted frompurchase, which gives net purchase.

3. Purchase expenses: All the expenses that are incurredto brin

g the raw material or goods upto the godown arepurchase expenses.

4. Manufacturing expenses: All expenses incurred in

factory for manufacturing the goods. Usual items on the CREDIT side

1. Sales and sales return: Sales include both cash andcredit sales of trading goods but sales return must bededucted to give net sales.

2. Closing stock: It denotes the value of goods whichremain unsold

at the end of trading period. It should bevalued at cost or market price, whichever is less.

3. Good lost by fire, theft

D T di C


7/37

7

Dr. Trading A c Cr.

To Opening stock To Purchases

Less: Purchase return

Less: Goods drawing Less: Goods used in business

To Carriage or carriage inwards To Freight inwards To Import duty To Octroi (Municipal charge) To Clearing charge (port charge) To wages (Wages and salaries) To Factory rent, rates, tax, insurance To Depreciation of Factory

To Motive power To Excise duty To Royalty, fees etc To Gross Profit c/d

By Sales

Less: Sales return

By Good Loss by Fire, theft etc

By closing stock

By Gross Loss c/d


8/37

8 8

Trading A/C

Net SalesCost of goods sold Gross profit /Gross loss

Function:Calculate the gross profit or gross loss.

Net Sales =

Sales

Returnsinwards

Cost of goods sold =Opening stock(Net Purchases

+Carriage inwards) +Direct Expenses

- Closing stockNet Purchases =Purchases Returns

outwards

Gross profit:Net Sales>Cost of sales

Gross loss:Cost of sales>Net sales


9/37

9

prepare a trading account on 31st December, 2009 of X & Co from thefollowing balances.

Rs Rs

Stock on 1st January 11,000 Returns outwards 500

Bills receivables 4,500 Salary expenses 200

Purchases 39,000 Office fixtures 1,000

Wages 2,800 Cash in hand 500

Insurance 700 Cash at bank 4,750

Sundry debtors 30,000 Factory Rent and taxes 1,100

Carriage inwards 800 Carriage outwards 1,450

Commission (Dr.) 800 Sales 60,000

Dep of factory building 1000 Dep of Office building 500

Motive power 200 Royalty 300

Interest on Bank Loan 700 Bills payable 3,000

Stationary 450 Creditors 19,650

Returns inwards 1,300 Capital 17,900

Closing Stock 10,000


10/37

10

Profit and loss account

Profit and loss account is the second partof final account. After the preparation of

Trading a/c the next step is to prepareprofit and loss a/c with a view toascertain net profit or net loss during theaccounting period.

Need or Importances: - To determine the net profit or net loss - To determine the ratios of indirectexpenses and net profit


11/37

11

Usual items on the debit side

1. Gross loss: Transferred from Trading a/c.

2. Office and Administrative expenses: All

expenses related to office and administrative. 3. Selling and Distribution expenses: It includes

the expenses arise due to the sales promotion

and distribution of final product. 4. Other items: Other expenses not treated in

above heads but they are necessarily post in p/la/c

Usual items on the Credit side 1. Gross profit: Transferred from trading a/c.

2. Revenue received: This includes the income

received in any course of business transactions.

D P fi & L A/ C


12/37

12

Dr. Profit & Loss A/c Cr.To salaries or salaries & wagesTo Office rent/lighting/insuranceTo Printing and stationary

To legal charges/audit feesTo Postage and telegramTo depreciation of office buildingTo Interest on loan/ Bank chargesTo discount allowed

To Salesman salaries/ CommissionTo Advertisement/Free samplesTo Bad debtsTo Traveling expensesTo Carriage outward

To Repairs and renewalsTo manager commissionTo provision for taxationTo provision for debtsTo Loss on sale of fixed assetsTo Net profit c/d

By Gross Profit b/d

By Commission received

By Discount received

By Rent received By Bad debts recovered

By Transfer fees

By Interest received

By Dividend received By Profit on sale of fixed

asset

By Sale of scrap

By Miscellaneous income By Net loss c/d


13/37

13

Profit and loss A/C

Gross profitOther incomeExpensesNet profit / Net loss

Functions: calculate the net profit / net loss.

Other income=rental income + commission income+

Expenses=rent and rates+commission+electricity+

Net profit:Gross profit+Income>Expenses

Net loss:Expenses>Gross profit+Income


14/37

14

prepare a Profit & Loss account on 31st December, 2009 of X & Cofrom the following balances.

Rs Rs

Stock on 1st January 11,000 Dep. of delivery van 500



Travelling expenses 2,800 Gross Profit 20,000

Insurance of Factory 700 Cash at bank 4,750

Discount (Cr) 200 Factory Rent and taxes 1,100



Dep of factory building 1000 Dep of Office building 500

Motive power 200 Postage 300

Interest on Bank Loan 700 Bills payable 3,000

Printing & Stationary 450 Creditors 19,650

Commission received 300 Capital 17,900Closin Stock 10 000 Office Rent 2 000


15/37

15

Balance sheet

Balance sheet, the last part or third part offinal account, is the accounting statementprepared from accounting balance at a givendate in order to show the financial position ofthe organisation. A balance sheet shows theassets and liabilities grouped properly classifiedand arrange in a specific manner.

Need or Importances: - To shows the financial position of organisation - To test the liquidity position - To know the solvency position - To insists the assets and liabilities

management

Li biliti B l Sh t A t


16/37

16

Share holder's Fund Share capital Reserve & surplus

P/L a/c Retained earning Sinking fundLong Term Liabilities Debentures

Bonds Bank loan Mortgage loan Secured loanCurrent Liabilities Bank overdraft Creditors Bills payable Outstanding expenses Provision for taxation Proposed dividend Advance income

Fixed Assets

Land and Building/Plant and Machinery

Furniture and fixture/ Motor vehicles

Long term investment Goodwill/Patent/Trade mark/Copyright

Current Assets

Debtors /Account receivable

Stock/Inventory Marketable securities

Loans and Advance

Cash & Bank

Prepaid and Accrued income

Short term investment

Fictitious Assets

P/L a/c (Dr.)

Preliminary expenses

Advertisement expenses

Liabilities Balance Sheet Assets

B l h 1 b f & f h


17/37

17

prepare a Balance Sheet on 31st December, 2009 of X & Co from thefollowing balances.

Rs Rs

Prepaid rent 1,000 Machinery 50,000



Travelling expenses 2,800 Cash in Hand 2,000

Advance Commission 700 Cash at bank 5,000

Net Profit (P/L a/c) 10,000 Factory Rent and taxes 1,100



Dep of factory building 1000 Good will 500Reserve & surplus 3,000 Postage 300

Bank Loan 20,000 Bank Overdraft 3,000

Printing & Stationary 450 Creditors 5,000

Commission received 300 Share Capital ?

di d fi d l d b l h


18/37

18

prepare a trading and profit and loss account and balance sheet on31st December, 2009 of XYZ Co from the following balances.

Rs Rs

Stock on 1st January 11,000 Returns outwards 500

Bills receivables 4,500 Office expenses 200


Wages 2,800 Cash in hand 500

Insurance 700 Cash at bank 4,750

Sundry debtors 30,000 Tent and taxes 1,100



Interest (Dr) 700 Bills payable 3,000

Stationary 450 Creditors 19,650

Returns inwards 1,300 Capital 17,900

Additional Information:Closing Stock is Rs. 8000.


19/37

19

The rules to prepare the Final Account:Debit Credit

AssetsDrawings

Expenses/Loss

LiabilitiesCapital

Income/ Gains

Balance Sheet

Trading A/c

Profit & Loss A/c


20/37

20

The rules to prepare the Final Account

A/C

Head

Trial

Balance

Final A/c

Assets Dr side Balance Sheet-Assets Side

Liabilities Cr Side Balance Sheet-Liabilities Side

Capital Cr Side Balance Sheet-Liabilities SideExpenses/Loss

Dr Side Direct Expenses- Trading A/c Dr side

Indirect Expenses- Profit & Loss A/c

Dr sideIncome/Gains

Cr side Direct Income like sales Trading A/cCr side

Other Income Profit & Loss A/c Crside


21/37

21

Some ExceptionsA/CHead

TrialBalance

Final A/c

Drawing Dr side Balance Sheet-Assets Side or Drawing canbe deducted from Capital in Liabilities side

ReturnOutward

Cr Side Return outward (purchase return) shouldbe deducted from Purchase in Trading A/c

ReturnInward

Dr Side Return inward (Sales return) should bededucted from Sales in Trading A/c


22/37

22

Adjustments for Final

Accounts


23/37

23

Prepayments and Accruals Expenses and revenues are not always paidor received on time.

Cash paid and received in a year shouldnot be entered directly into the profit andloss account of that year.

Adjustment should be made.

P id


24/37

24

Prepaid expensesthose to be used in the following period buthave been paid for in advance.

Accrued expensesthose which have been used up in the currentyear, but have not yet been paid for.

Prepaid incomethose to be earned in the following period buthave been received in advance.

Accrued incomethose which have been earned in the currentperiod but have not yet been received.

Pr p id Exp ns s


25/37

25

Prepaid Expenses Those Expenses to be used in the following period but

have been paid for in advance.

Following transaction is given below:Trial Balance as on 31st Dec, 2009

Adjustment journal entries: Dr. Cr.Prepaid Rent expenses a/c 3000

To Rent expenses a/c 3000

Treatment Adjustment entries:Balance sheet Current Assets Prepaid rent expenses 3000Profit & Loss a/c: Rent expense: 15000

Less: Prepaid rent 3000 12000

Particulars Debit Credit Transferred

Rent 15000 Profit & Loss a/cAdjustment : Rent includes Rs 3000 of 1st Quarter, 2010.

Accrued Expenses:Outstanding/Due


26/37

26

Accrued Expenses:Outstanding/Due those which have been used up in the current year, but

have not yet been paid for.


Adjustment journal entries: Dr. Cr.Rent expenses a/c 1000

To Accrued Rent a/c 1000

Treatment Adjustment entries:Balance sheet Current Liabilities Accrued rent 1000Profit & Loss a/c : Rent expense: 11000

Add: Accrued rent 1000 12000


Rent 11000 Profit & Loss a/cAdjustment : Rent Accrued Rs 1000 on 31st Dec, 2009.

Prepaid Income:Advance Income


27/37

27

Prepaid Income:Advance Income Those income to be earned in the following period but

have been received in advance.


Adjustment journal entries: Dr. Cr.Service fees a/c 200

To Advance income a/c 200

Treatment Adjustment entries:Balance sheet Current Liabilities Advance income 200Profit & Loss a/c : Service fees: 1200

Less: Advance 200 1000


Service fees 1200 Profit & Loss a/cAdjustment : Service fees earned to the extent of 1000.

Accrued income


28/37

28

Accrued income Those income which have been earned in the current

period but have not yet been received.


Adjustment journal entries: Dr. Cr.Accrued interest income a/c 500

To Interest income a/c 500

Treatment Adjustment entries:Balance sheet Current Assets Accrued interest income 500Profit & Loss a/c : Interest income: 2500

Add: Accrued income 500 3000


InterestIncome 2500 Profit & Loss a/cAdjustment : Interest income accrued Rs 500 on31st Dec,2009

Other Adjustments:Depreciation


29/37

29

Other Adjustments:Depreciation Depreciation is the Gradual reduction of Fixed Assets

because of wear & tear i.e. Continious use


Adjustment journal entries: Dr. Cr.Depreciation a/c 5000

To Machinery a/c 5000

Treatment Adjustment entries:Profit & Loss a/c Expenses Depreciation on Machinery 500

Balance sheet: Fixed Assets: Machinery 50000Less: Depreciation 5000 45000


Machinery 50000 Balance SheetAdjustment : Depreciation for the year @10%p.a

Adj tm t : Fi titi A t it ff


30/37

30

Adjustments: Fictitious Assets write off Like Depreciation, Fictitious (Intangible) Assets decrease

year to year called written off


Adjustment journal entries: Dr. Cr.Goodwill write off a/c 200

To Goodwill a/c 200

Treatment Adjustment entries:Profit & Loss a/c Expenses Goodwill write off 200

Balance sheet: Fixed Assets: Goodwill 1000Less: goodwill write off 200 800


Goodwill 1000 Balance SheetAdjustment : 1/5 th Goodwill is write off.

Other Adjustments:Bad Debts


31/37

31

Other Adjustments:Bad DebtsA Part of Debtors who failed to pay the due

amount


Adjustment journal entries: Dr. Cr.Bad debts a/c 500

To Debtors a/c 500Treatment Adjustment entries:Profit & Loss a/c : Expenses : Bad debts: 1000

Add: new bad debts: 500 1500

Balance sheet: Current Assets: Debtors 8000

Less: new bad debts 500 7500


Bad debts 1000 Profit & Loss a/c

Debtors 8000 Balance SheetAdjustment : Bad debts amounting 500.

Adj: Bad Debts & Provision for bad debts


32/37

32

Adj: Bad Debts & Provision for bad debtsFollowing transaction is given below:

Trial Balance as on 31st Dec, 2009

Treatment Adjustment entries:Profit & Loss a/c : Expenses : Bad debts: 1000

Add: new bad debts: 500Add: new provision: (8000-500) @2% 150 1650

Balance sheet: Current Assets: Debtors 8000Less: new bad debts 500Less: new provision 150 7350


Bad debts 1000 Profit & Loss a/c

Debtors 8000 Balance Sheet

Adjustment : Bad debts amounting 500.& Provision for bad debts @2%

Adjustments: Provision for Tax


33/37

33

Adjustments: Provision for TaxFollowing transaction is given below:

Trial Balance as on 31st Dec, 2009

Adjustment journal entries: Dr. Cr.Provision for tax exps a/c 3000

To Provision for tax a/c 3000Treatment Adjustment entries:Profit & Loss a/c : Expenses : provision fro tax : 3000

Balance sheet: Current Liabilities : Provision fro tax 5000Add: new Provision 3000 8000


Provision for tax 5000 Balance sheet (CL)

Adjustment : Provision for tax amounting Rs 3000.

Adjustments: Good Lost by fire theft etc


34/37

34

Adjustments: Good Lost by fire, theft etcFollowing transaction is given below:

Adjustment journal entries: Dr. Cr.Good Lost by theft a/c 1000Insurance Claim A/c 2000

To purchased a/c 3000

Treatment Adjustment entries:Trading A/c : Cr side (either deduction from purchase in Dr side)

By Good Lost 3000

Profit & Loss a/c : (Actual Loss) To Loss on fire, theft : 1000

Balance sheet: Current Assets : Insurance Claim 2000

Adjustment : Good Lost by fire Rs 3000, And InsuranceCompany admitted the claim of Rs 2000 only.


35/37

35

Prepare a trading and profit andloss account and balance sheet on

31st December, 2009 of XYZ Cofrom the following balances.

Trial Balance As on 31st December, 2009 of

XYZ Co from the following balances.

Particulars Rs (Dr) Particulars Rs (Cr)


36/37

36

u Rs (Dr) u Rs (Cr)

Stock at beginning 8,000 Returns outwards 600

Bad Debts 500 Sales Revenue 51,500

Purchases 30,000 Bank Loan 10,000

Wages 1,000 10% Debenture 15,000

Furniture & Fixture 18,000 Creditors 5,000

Sundry debtors 12,500 Capital 20,000

Carriage inwards 200 Provision for Tax 2,000

Commission 800 Rent Received 1,000

Interest 1,000 Profit & Loss a/c 6,000

Cash & bank 4,000 Proposed Divided 3,000

Stationary expenses 1,500 Transfer fees 400Returns inwards 500 Discount 500

Preliminary expense 1,000 Reserve & Surplus 5,000

Plant & Machinery 40,000 Total 120,000

Rent, and taxes 600


37/37

37

Additional Information:1. Closing Stock is Rs. 8000.2. Depreciation for furniture @ 20%. On Plant &

Machinery @ 10%3. Outstanding wages Rs 5004. Unearned rent is Rs 2005. 2/5 of the preliminary expenses is written off.6. Further bad debts Rs 1500 And provision for bad debts

@ 2%.

final account bba

Documents