2. Preparation of Final Accounts involve:
Trading Account ( The objective is to ascertain the gross
profit and gross loss of an organization during an accounting
period.)
Profit and Loss account ( To ascertain net profit or net loss
during an accounting period)
Balance Sheet ( It shows the financial position of the of a
business by detailing the sources of funds and utilization of
funds.)
3. Trading Account
Particulars Amount Particulars Amount
To Opening Stock By sales
To Purchases
Less Purchase Return
By
Closing
Stock
To Carriage Inwards
To wages
Gas, water and Fuel
Lighting and Heating
Factory Expenses
To Gross profit (IF)
4. Profit and loss Account
Particulars Rs Particulars Rs.
Management expenses (Admin.
Salaries, Office rent and Taxes,
Telephone, stationary, Insurance, audit
fees, Legal Charges, Electricity)
By Gross profit b/d
Maintenance Expenses ( Repairs and
Depreciation)
Other Income( dis.,
Comm. Recd.)
Selling and Distribution Expenses
( Advertisement, Carriage Outward,
Bad Debts, Commission)
Non Trading Income
( Interest, rent,
dividend)
Financial expenses ( Interest ,
Discount on bills)
Abnormal gains
( Profit on investment
and sale of an asset)
Abnormal Losses( Loss by fire, sale
of an asset)
5. Balance Sheet
Rs Rs Rs
Fixed Assets:
Land, Building, Plant and Machinery, Furniture
Current Assets:
Stock, Debtors, Bills Receivable, Cash at Bank,
Cash and Hand
Current Liabilities:
Creditors, Bills Payable, Outstanding Expenses
Working Capital
Net Asset Employed Financed By:
Capital
Add: Net Profit
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6. Treatment of Adjustments
Outstanding Expenses : ( due for accounting period but
not paid) Add this amount in the particular expense either
in trading or P&L A/c and show as Current Liabilities in
Balance Sheet.
Prepaid Expenses: (Expenses paid in advance) Deduct this
amount in the particular expense either in trading or P&L
A/c and show as Current Assets in Balance Sheet.
7. Outstanding Income: (Income due in accounting
period but still not received) Add this amount in the
particular income in P&L A/c and show as Current
Assets in Balance Sheet.
Income Received in advance: (Income received in
advance by business before it being earned by the
business.) Deduct this amount in the particular income
in P&L A/c and show as Current Liabilities in Balance
Sheet.
Depreciation: Show this amount in the P&L A/c and
deduct form that particular fixed asset in the Balance
Sheet.
Interest on Capital: Show this amount as Financial
expense P&L A/c and added in capital in Balance Sheet.
8. Bad Debts and Provision for bad debts and discount on
debtors
First, all the amounts of bad debts will be subtracted from
total amounts of debtors
Provision for bad debts will be subtracted from the
remaining amount of debtors
At last, discount on debtors will be subtracted from the last
remaining amount of debtors
Debit side of profit and loss account
9. Conclusion
Final accounting is an essential practice for
every enterprise to know the actual
performance of the organization. All mature
organization should necessary prepare final
accounts of the organization for the
effectiveness of business organization.