Prepared by:

GROUP-C

Bohnimaan Baruah

Pragya Haloi

Sudhangshu Kashyap

Ronjini Konwar

Arunav Bhardwaj

Bhagya L. B. Narzary

Bidisha Singh

Arkid Konwar

We would like to express our special thanks of gratitude to our teacher RESHMA KUMARI TIWARI ma’am who gave us the golden opportunity to do this wonderful project on the

topic FINAL ACCOUNTS, which helped us in understanding the concept of final accounts better.

•Introduction

•Manufacturing Account

•Trading Account

•Profit And Loss Account

•Balance Sheet

In the Accounting Cycle, the preparation of Trial Balance is followed by the next level of called “Final Account’’.

Basically, financial statements are organised summaries of detailed information about the financial position and performance of an enterprise. Traditionally, the term financial statement is used to denote only two basic statements which as under

•Balance Sheet ( or Position Statement)

•Manufacturing Account

•Trading Account

•Profit and Loss Account

•Balance Sheet

•Manufacturing account is a part of final accounts which is prepared toshow the cost of goods manufactured during the accounting periodseparately.

•This financial statement does not show profit and loss figures butrather the cost of direct materials and labour.

•The purpose of preparing Manufacturing Account is to find productioncost

The Prime Cost Section

The Factory Overheads Section

•These are also known as ‘Direct cost’ or ‘variable cost’.

•These are directly related to the product and vary directly withoutput.

Eg:-If car manufacturer doubles the output of car, more material will be used, and more wages will be paid.

Prime cost = cost of raw materials used + direct expenses

•These are also known as ‘fixed cost’ or ‘indirect cost’. These are not directly related to the product but are necessary to production just the same.

•They don’t vary with production/output they remain the same. If the firm doubles its production there is no need to pay more factory rent or factory insurance.

•Includes all the factory direct expenses such as wages of cleaners and maintenance staff, Petrol and oil, repairs , depreciation of plant and machinery, factory rent, factory insurance etc.

Trading account is a part of final accounts which is mainly prepared to ascertain gross profit or gross loss of a business.

It is the first stage in the preparation of final accounts of a trading concern.

•It records only net sales and direct cost of goods sold.

•The balance of this account discloses the gross profit or gross loss.

•The balance of this account is transferred to the profit and loss account.

•It is the first stage in the preparation of final accounts of a trading concern.

• It records only net sales and direct cost of goods sold.

• The balance of this account discloses the gross profit or gross loss.

• The balance of this account is transferred to the profit and loss account.

“A profit and Loss Account is an account into which all gains and losses are collected in order to ascertain the excess of

gains over the losses or vice-versa” – Prof. Carter

•It is the second stage in the preparation of final accounts.

•It relates to a particular accounting period and is prepared at the end of that period.

•Accrual basis of account is followed in the preparation of this account.

•This account is credited with the gross profit and income from other sources and debited with indirect expenses and losses.

•The balance of this account is the net profit or net loss.

“Balance sheet is a statement which sets out the assets and liabilities of a firm or an institution as at a certain date.”

-Francis R. Stead

•It is prepared at the particular date and not for a particular period.

•It is prepared after the preparation of the profit and loss account.

•It shows the financial position of a business as a going concern.

•The balance sheet is not an account but only a statement of assets and liabilities on the left hand side, the liabilities of the business are shown whereas on the right hand side the assets of the business appear.

•The total of the assets side must be equal to liabilities side.

Transactions occurring after preparing Trial Balance, that must be considered while preparing Final

Accounts.

GOLDEN RULE : All the items appearing in the Trial Balance are to be entered at one place out of these three(trading a/c, profit and loss a/c, balance sheet).

ITEMS IN ADJUSTMENT are to be treated at two places.

It refers to the unsold goods lying in store at the end of accounting year.

Treatment: Stock a/c Dr.

To Trading a/c

Two fold effect

1) Show on Credit side of the Trading account

2) On asset side of Balance Sheet

It refers to those expenses which have become due but not yet paid.

Treatment: Expenses a/c Dr.

To outstanding expenses a/c

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 liabilities side of Balance Sheet

It refers to those expenses which have been paid in advance .

Treatment: Prepaid Expenses a/c Dr.

To Expenses a/c

Two fold effect:

1. in profit & loss a/c by way of deduction from particular expense.

2. Will be shown on asset side of Balance Sheet.

It refers to that income which has been earned but not received during the accounting year.

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

Income received but not earned during accounting year.

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.

It 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

Debts which are definitely irrecoverable are known as Bad Debts

Treatment: Bad Debts A/c Dr.

To Sundry Debtors a/c

Two fold effect:

1. 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

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 Dr.

To Provision for Doubtful Debts A/c

Two fold effect: 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).

Sometimes, 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 Dr.

To Provision for Discount on Debtors a/c

Two-fold effect : 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.

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 Dr.

To Profit & Loss a/c

Two fold effect : 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.

The expenditure done in initial stage but the benefit of which will also be available in subsequent years. Treatment: Profit &loss a/c Dr.

To advertisement a/c

The two fold effect : 1.It is show on the debit side of Profit &loss A/c.

2.Shown on assets side by way of deduction from that expenditure.

Loss of stock may occur due to fire/accident. There are three different cases:

a) All the stock is fully insured.

b) The stock is partly insured.

c) The stock is not insured at all.

a) IF THE STOCK IS FULLY INSURED Treatment: Insurance Co. A/c Dr.

To Trading A/c Two fold effect: 1.It will be shown on credit side of Trading A/c. 2.It is shown on

Assets Side of Balance Sheet.

b) IF STOCK IS PARTLY INSURED Treatment: Insurance Claim. A/c Dr. Profit & Loss A/c Dr.

To Trading A/c Two fold effect: 1.Credit side of Trading A/c with the total value of such stock and debit side of P& L A/c for part of the stock which is not insured. 2. Insurance Claim A/c is shown on asset side of the Balance sheet which amount is to be realized from the insurance company.

c) IF STOCK IS NOT INSURED Treatment: Profit & Loss A/c Dr.

To Trading A/c Two fold effect: 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

Reserve is created out of Profits 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 :

1.It is shown on debit side of P&L A/c.

2.It shown on the liabilities side of Balance.

To promote the sale of goods, some of the finished 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.

To increase the profit, manager is given some percentage of commission on profits .It can be given at a certain percentage on the net profits before charging such commission or after charging such commission. Treatment:

Profit & Loss A/c Dr.

To Commission Payable

This commission in calculated by a formula :-

Before charging such commission: Commission Payable = Net profit *(Rate/100)

After charging such commission: Commission Payable= Net Profit*(Rate/100+Rate). Entered on Dr. side of P/L a/c and Liability side of B/S.

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 returned , it should be treated as stock lying with customers.

Treatment : 1. Sales A/c Dr.

To debtors A/c (with sales price)

2. Stock A/c Dr.

To Trading A/c (at cost Price of goods)

Two fold effect:

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

From the above presentation we come to the following learning outcomes:

a) Accumulate, record, and analyze financial data.

b) Prepare accurate reports for decision making and regulatory compliance.

c) Understand accounting and business terminology used in business scenarios, and be proficient with commonly used

office software programs.