FINAL ACCOUN

rcentage ofvarious
in comparino
Account
helps
19.12 :Profit
Loss
& Also the
percenta
similarach
each
(3) Controlon
Expenses
previous
of the
year.
with the
compared
similar ratio of
and
expenses with
the expens caleulated taking
concret
rete steps for
net profit is
n
be helpful
p e n s e s to will
individual expenses comparison
Such
Balance Sheet Caan
previous ycars.
unnecessary
expenses. Sheet
-A
controlling the of Balance
ot Profit and 1
preparation
the preparation the
(4) Helpful in Profit through
the Net
ascertaining
prepared after
e Account
Account. Loss
Profit and
A Profit and Loss Account isof
Preparation started with the amount ot gross profit or grosovhich
brought down from the Trading Account. As such, all those expenses and losseswhi
Loss
now debited
to Profit &
Thesedebited
expenses
to theinclude
Account are expenses, selling exneno.
Tradingadministrative 0SS
have not been nses,
distribution
Account. expenses etc. These are called Indirect Expenses. Profit and I.on
the expenses and
losses are showno
is a Nominal Account and as such, all
Account
shown on its credit side.
and all the incomes and gains
are
aebit side
s & Loss Account:
Items written on the Dr. side of Profit
Gross Loss, it is shown on the
(1) Gross Loss-If trading account discloses
debit side first of all.
:Such as salary of officeemployees
(2) Office and Administrative Expenses
audit fee etc.
office rent, lighting, postage, printing, legal charges,
(3) Selling and Distribution Expenses -Such as advertisement charges
etc.
commission, carriage outwards, bad debts, packing charges
4) Miscellaneous Expenses-Such as interest on loan, interest on capital,
repair charges, depreciation, charity etc.
Items written on the Cr. side of Profit & Loss Account:
(1) Gross Profit :-The starting point ofthe Cr. side of Profit and Loss Account
is the gross profit brought down from the Trading Account.
2) Other Incomes and Gains-All items of incomes and gains are shown on
the credit side ofthe Profit & Loss Account, such as income from investments,ren
received, discount received, commission earned, interest received, dividend received
etc.
If the credit side of the profit and loss account exceeds that of debit side,
u
difference is termed as net profit. On the other hand, the excess of the debit
the credit side is termed as net loss. Net profit is added to the capital whereas net
siOc loss

is deducted from the capital.

Closing Entries relating to

Profit and Loss Account
ofal
Thepreparation profit of and loss account
concerned items are transterred to it by passing the following closing balance
requires that the
ances

(1) Accounts of various items of expenses and losses entneebi

the
are transferrea
side of Profit and Loss Account by means
of the following entry:
FINAL
ACCOUNTS 19.13
and
Loss A/c Dr.
Profit
To Salaries A/c
Rates and Taxes A/c
To Rent,
and Stationery A/c
To Printing
To Postage A/c
Expenses etc.
To General
Transfer of nominal
accounts showing Dr.balances to the Debit of P & L A/c)
the accounts of incomes and gains will be transferred to the
) Balances
(2) of all
lit side of Profit and LOSS Account by means of the following entry
credit.

Interest Received A/c Dr.

Commission Received A/c Dr.
Rent Received A/c Dr.
To Profit and Loss Ac
Transfer of nominal accounts showing Cr. balances
to the Cr. of P & L A/c)

(3) For the transfer of credit

balance of Profit & Loss A/c, known as net profit
Profit and Loss A/c Dr.
To Capital A/c
(Transfer of net profit to Capital A/c)

(4) For the transfer of debit balance of Profit

& Loss A/¢, known as net loss
Capital A/c Dr.
To Profit and Loss A/c
(Transfer of net loss to Capital A/Vc)

Fotmat of a Profit and Loss Account

PROFIT AND LOSS A/C
Cr.
Dr. for the year ending. ***********

Amount Particulars Amount

To Gross Loss b/d By Gross Profit b/d

(Transferred from Trading A/c) (Transferred from Trading A/c)
Office expenses By Rent from Tenant
To Salaries By Rent (Cr.)
To Salaries & By Discount received
Wages Or Discount (Cr.)
o Rent, Rates & Taxes
To By Commission Received
Printing & Stationeryy
To Postage By Interest on Investments
To Lighting By Dividend on Shares
To Insurance Premium
By Bad Debts Recovered
To Telephone Charges By Profit on sale of Assets
To Legal Charges
To Audit Fees
By Income from other Sources
By Miscellaneous Income
fo Travelling Expenses By Net Loss (if any)
1o Establishment Expenses Transferred to Capital Alc
To Trade Expenses
To General Expenses
Seling and Distribution Expenses:
To
Carriage Outwards or
Carriage on Sales
To Advertisement
To Commission
To Brokerage
To Bad-debts
To Export duty
To Packing charges
To Delivery Van
Expenses
To Stable expenses
Miscellaneous expenses:
To Discount Allowed
To Repairs
To Depreciation
To Interest (Dr.)
To Bank Charges
To Entertainment Expenses
To Conveyance Expenses
To Donation and
Charity
To Loss on Sale of Assets
To Net Profit-
Transferred to Capital Alc

Notes-(1) Those expenses which are not related to the business are not written
Profit and Loss Account such as (1) Domestic and household in the
expenses of the proprietor,
(I) Income-Tax, and (III) Life Insurance Premium etc. These are known as Drawings
and deducted from Capital at the liabilities side of the Balanceexpenses
Sheet.
(2) Only those items of expenses and incomes are shown in
the Profit & Loss Account
which have not been shown in the Trading Account.

ILLUSTRATION 12.
From the following particulars, prepare a Profit & Loss Account for the yce
ending 31st March, 2019:
Particulars
Particulars
Gross Profit 10,52,500 Discount allowed 15,00

Trade Expenses 10,000 Lighting 3900

Cariage on Sales 4,200

50,000 Commission Received 6,000

Ofice Salaries 79,000 Bad-debts 3,000

Postage 3,600 Discount Cr. 1 , 0 0 0

Office Rent 37,500 Interest on Loan 7000

Legal Charges 2,000 Stable Expenses 11,500

Audit fee 8,000 Export Duty 2500

Donation 5,500 Miscellaneous Income

 Sundry Expenses
1,800 Unproductive Expenses 20,500
Selling Expenses
26,600 Travelling Expenses 12,500

3OLUTION: PROFIT & LOSS ACCOUNT

the year
Dr. for ending on 31st March, 2019 Cr.
Particulars Amount Particulars Amount

To Trade expenses 10,000 By Gross Profit 10,52,500

on sales 50,000 By Commission received 4,200
To Carriage
To Office Salaries 79,000 By Discount 3,000
To Postage 3,600 By Miscellaneous Income 2,500
To Office Rent 37,500
To Legal charges 2,000
To Audit Fee 8,000
To Donation 5,500
To Sundry expenses 1,800
To Selling expenses 26,600
To Discount allowed 15,000
To Lighting 3,900
To Bad-Debts 6,000
To Interest on Loan 11,000
To Stable expenses 7,000
To Export duty 11,500
To Unproductive expenses 20,500
To Travelling expenses 12,500
To Net Profit transfered to
Capital Account 7,50,800
10,62,200 10,62,200

Operating Profit and Net Profit

Profit may be oftwo types: () operating profit and (i) net profit.

Operating Profit is the profit earned through normal operating activities of the
business. It is arrived at by deducting the operating expenses from gross profit-
Expenses which are related to the main or normal activities of the business are calle
operating expenses. They include office and administrative expenses and selling an
etc. Operating Profit is also called Earning
aistributionexpenses, discount, bad-debts
Before Interest & Tax or EBIT".
Net Profit is arrived at by deducting operating as well as non-operating expenses
incidental or indirect to the main operations=
om the gross profit. Expenses which are include interest on loan-
the business are called non-operating expenses. They
narities and donations, loss on sale of fixed assets, extraordinary losses due to theft,
incomes are added while calculating-
S by fire and so on. Similarly, non-operating
profit. Non-operating incomes include receipt of interest, rent and dividend_
net
gain on sale of fixed assets etc.
 19.1
Profit from the followi
Net
ILLUSTRATION 13. Profitand
Protit,
Operating Particulars
Calculate Grs
ross

2,00,000 Commission Paid

Particwlers 19,00,000Commission Received
2,400
Opening Stock 25,00,000Travelling Expenses
6,000
Purchases
4,800
70,000 Office Expenses 3500
Sales Term Loans
Purchase Returms 1,00,000
Interest on Long 22,000
Sales Returns 80,000
Dividend on
Investments
2,800
Wages
& Stationery
12,000 Printing sale Machinery
3,600
Advertising 1,78,000 Loss
on of 35,000
Salaries
62,000 Carriage Outwards
1,400
Rent&Taxes
15,000 Loss by
Theft 25,100
Lighting Gain on Sale of Building 50,000
valued at 2,50,000.
Closing Stock was ACCOUNT
AND PROFIT
& LOSS
TRADING
SOLUTION ended...
*******
Cr
Dr. for the year
Particulars
Particulars
2,00,000 By Sales 25,00,000
To Opening Stock
19,00,000
Less: Sales Returns 1,00,000 24,00,000
To Purchases
Stock 2,50,000
Less Purchase Retums70,000 18,30,000 By Closing
To Wages 80,000
To Gross Profit c'd 5,40,000
26,50,000 26,50,000
5,40,000
To Advertising 12,000 By Gorss Profit b/d
6,000
To Salaries 1,78,000 By Commission Received
To Rent& Taxes 62,000
To Lighting 15,000
To Commission paid 2,400
To Travelling Expenses 4,800
To Ofice Expenses 3,500
To Printing & Stationery 3,600
To Carriage Outwards 1,400
To Operating Profit c/d 2,63,300
5,46,000

5,46,000
263,300

To Non-operatingExpenses By Operating Profit b/d

Interest on Long-term Loans
22,000 By Non-Operating Incomes : 2,800

Loss on Sale of Machinery 35,000 Dividend on Investments S 0 , 0 0 0

Loss by Theft 25,100 Gain on Sale of Building8

To Net Profit transferred to
Capital Account 2,34,000 3,16,100

3,16,100
F I N A L A C U

ZLUSTRATION 14
From
the.following figures calculate operating profit :
Net Profit 1,00,000
Rent Received 10,000
Gain on sale of machine 15,000
Interest on loans 20,000
Donation 2,000

SOLUTION:
Operating Profit
Operating P r o f i t == Net Profit- Non operating income + Non operating expenses

Net Profit Rent Received

Gain on Sale of Machine
() Interest on Loans
(+) Donation
RI,00,000- F10,000-715,000 + 720,000+ 72,000
97,000

BALANCE SHEET
After ascertaining the net profit or loss of the business enterprise, the businessman
would also like to know the exact financial position of his business. For this purpose
a

business
statement is prepared which contains all the Assets and Liabilities of the
of
enterprise. The statement so prepared is calleda Balance Sheet because it is a sheet
balances of ledger accounts which are still open after the transfer of all nominal
acounts to the Trading and Profit& Loss Account. Balances of all the personal
and real
accounts are grouped as assets and liabilities. Liabilities are
shown on the left hand
side of the Balance Sheet and assets on the right hand side.
Definitions-A Balance Sheet has been defined as follows
is owed and what
In the words of Karlson:"A business form showing what
the proprietor is worth, is called a Balance Sheet.
"The Balance Sheet is a statement at a particular
According to A. Palmer and on the other hand
date showing on one side the trader's property and possessions
the liabilities."
Batliboi : " A Balance
Sheet is a statement prepared with a
According to J.R. business on a certain fixed date."
Ew to measure the exact financial position of a

Balance Sheet
Need and Importance of Preparing
a

Sheet are as follows

purposes of preparing a Balance
he
financiall
Balance Sheet is to ascertain the true
The main purpose of preparing a
PSon of the business at a particular point
of time.
various assets of the business such
the nature and cost of
l t helps in ascertaining amount owing
from Debtors, amount of fictitious
mount of Closing Stock,
aassets etc.
amount of various liabilities of the
nature and
I t helps in determining the
business.
 (4) It gives information abxut the exact amount of
the addition or deduction made into it in the current
capital at the end of the year and
year.
(5) It helps in finding out whether the firm is solvent or not. The firm is
the assets exceed the extemal liabilities. It would be insolvent if solvent if
opposite is the case
(6) lt helps in preparing the Opening Entries at the beginning of the next
year
Drafting a Balance Sheet
Characteristics of Balance Sheet:-
(1) A Balance Sheet is a part of the Final Accounts. This is the reason
that
Trading and Profit and Loss Account and the Balance Sheet are together called the
Accounts. However, the Balance Sheet is a statement and not an 'Final
account. It has no
debit or credit side and as such the words "To'
and 'By' are not used before the
of the accounts written therein. names

(2) A Balance Sheet is a summary of the Personal and Real

still open and have not been closed Accounts, which are
by transfer to the Trading and Profit & Loss
Account. Debit balances of all Personal and Real
Accounts are put on the right
side known as Assets side, whereas the
credit balances are put on the left hand
hand
known as Liabilities side. side
(3) The totals of the two sides of the Balance Sheet must be equal. If the totals are
not equal, there will be an error somewhere.
(4) Balance Sheet is prepared on a
particular date and
such, it discloses the financial position of a business on a
not for fixed period. As
a

period. It is True particular date and not for a

only for the date on which it is prepared because even a
transaction would cause a change in the assets and single
liabilities.
(5) It shows the financial position of the business
concept.
according to the going concern
Grouping and Marshalling of Assets and
Liabilities in Balance Sheet
The Assets and Liabilities shown in the
Balance Sheet are properly grouped and
presented in a
particular order. The term
'grouping'
similar nature under a common showing the items of
means
heading. For example, the amount owing from various
customers will be shown under the
heading "Sundry Debtors'.
heading Current Assets' the balance of Cash, Bank, Debtors, StockSimilarly,
under the
etc. will be shown.
Marshalling' is the arrangement of various assets and liabilities in a proper order.
Marshalling can be made in one of the following two ways
(1) In the Order of Liquidity:-
most easily convertible into Cash such as
According to this method, an asset which is
Cash in hand is written first and then wil
follow those assets which are
comparatively less easily convertible, so that the least
liquid asset such as goodwill, is shown last.
In the same way, those liabilities which
are to bepaid at the earliest will be wr
first. In other words, current liabilities are written first of all, then non-current
long-term liabilities and lastly, the proprietor's capital.
Generally, sole proprietors and partnership firms prepare their Balance Sheet
the order of liquidity. Proforma of a Balance Sheet in the order of liquidity will be aIS
follows
FINAL A

ALANCE SHEET
(IS (al....... ***'

Liabilities Assets
Current Liabilities : -
Current Assets : -

Bank Overdraft
Cash in hand
Cash at Bank
Bills Payable
Bills Receivable
Sundry Creditors
Short Term Investments
Outstanding expenses
Sundry Debtors/Book Debts
Unearned Income
Closing Stock
Non-current Liabilities
Long term loans Prepaid Expenses)
Accrued Income
Reserves
Capital
Non-current Assets
Add: Net Profit Furniture
Loose Tools
Less: Drawings
Motor Vehicle
Less: Income Tax
Long Term Investments
Less: Life Insurance Premium
Plant and Machinery
Land and Buildings
Patents and Trade Marks
Goodwill

Notes(1) The words 'As at' are used in the heading of the Balance Sheet. Because it is
true only for the date on which it is prepared.
2) The total of both the sides of the Balance Sheet is always equal.
are treated as current assets. Though Cash cannot
be realised from
(3) Prepaid expenses
prepaid expenses, the service will be available against these without further payment.
(2) In the Order of Permanence-This method is exactly the reverse of the
first method discussed above. Assets which are most difficult to be converted into cash
such as Goodwill are written first and the assets which are most liquid such as Cash in
hand are written last. Similarly, those liabilities which are to be paid last, will be
written first. In other words, the proprietor's capital is written first of all, then
non-current or long term liabilities and lastly, the current liabilities. Joint stock
companies are required under the Companies Act to prepare their Balance Sheet in the
order of permanence.
Itis essential to understand the clasification ofvarious assets and liabilties before
preparing a Balance Sheet.

Classification of Assets
According to the nature of assets, these may be classified into the following :-
which are for
(1) Non-current Assets Non-current
:-
assets are those acquired
continued use and last for many years such as Land & Building, Plant and Machinery,
Motor Vehicles, Furniture etc. Acording to Finney & Miller:
"Non-current Assets are assets of a relatively permanent nature used in the
operations of business and not intended for sale".
 sell
but use ,
changcsat OUNTY
in the
19.20 such
assets
is
always
not

shown
to
in the.
Balance
Sheet c
kecping

of these
are

As the
p u r p o s e

and ich are either in the

Sorm
whic
igored those
are
market valucs ar ofthe
sscls
are
the edate of Balance
of
depreciation. :Currentl
assc within
one
ycar

Assets into
casth
Current
(2) c o m v e r t e d

be cas1 assets
which a r e e convertible in.
cash or c a n Uplon those
o r d i n a r i l . i b .

of Hovand & definedas time ordinarily in

In the words ort time
short a
assets
are
usually within a
year
The
cuent

course
of
business
Short
erm Investmen,
Term Investmen ts, Debtlurs
normal
through the valuing thes
Receivable,

cash Bills While valuing

Stock etc.
Current asso
Issets
include
Cash,
Income,
Closing whichever is less and a ASSets
Prepaid Expenses,
Acerued
realisable
value
Debtors.
able
cost or
is valued at out of Sundry
Closing Stock debts is
deducted
either in the forn f Ca
which are
for doubtful those
provision
assets are Keceivable, Sho
(3) Liquid
Assets:-Liquid

into cash,
such as Casn,
Blls

Exnen Term
can be quickly
converted
In other words, if Prepaid xpenses an
Closing
or Stock are excluded
Accrued Currentetc.
fromIncome Assets, the balance will be Liquid
Liquid As
annot be
Assets
Debtors,
estments,
assets which Canns
are the
Assets-These

Fictitious or
Nominal these assets. Such as
(4) derived irom
can be
realised in Cash or no further benefit
the expenditure
not yet written off suh.
balance of P & L Alc and assets but are shown Ond
include Debit
These assets are not really
them to the Protit & Loss Accn
Advertisement Expenses
etc.
of transferring
Assets side only for the purpose
of time.
gradually over a period which are exhausted or consumed
assets
:-These are the
(5) Wasting Assets oil wells. Their value reduces through being
over a period of
time such as mines and lease for a definie
on
the properties taken
worked. These also include Patents and
period of time.
those which have:
Assets:-Tangible assets are
(6) Tangible and Intangible
existence or which can be seen and
felt like Plant and Machinery, Buildig
physical
assets are those which do not have any physi
Furniture, Stock, Cash etc. Intangible Pateni
existence or which cannot be seen or felt such as
the Goodwill, Trade Marks,
as tangible assets because they
also helpu
etc. Intangible assets are as much valuable
firm in earning profits. For example, Goodwill helps in attracting customersd
patents are actually the know-how which help in producing the goods.

Distinction between Tangible Assets and Intangible Assets

Intangible Assets
S. Basis of Tangible Assets
No. Distinction
have
not
1. |Physical These assets have physical These assets do
CXistence

Existence existence. Examples of these physical a s s e t s

s a r e

assets are Plant and Examples of these: Trade

Machinery, Furniture etc. Goodwill, Patents,

Marks etc.
 19.21
FINAL ACCOUNTS

V/s These assets can be These assets usually fall in

2. Non-current or current the category of non-current
non-current assets
Current assets.
assets.
assets are
Depreciation is charged on Intangible
3. Deprecíation or fixcd tangible assets. amortised.
Amortisation
do not
Acceptance as Lenders accept these assets Lenders usually
assets as
as security for providing|accept intangible
Security loan. security for providing
loan.

cannot be
due Tangible assets may be lost Intangible assets
5. Risk of loss |lost due to fire.
to fire due to fire.

Classification of Liabilities
follows :
liabilities may be classified as
According to their nature, the be
Non-current or Long-term
Liabilities Those liabilities which are to
(1) termed as non-current liabilities.
These include
after one year or more are
repaid
Loans etc.
Public Deposits, Long-term
Short-term Liabilities-Those liabilities which are expected to
(2) Current or
current or
within year of the date
of the Balance Sheet are termed as
be paid one
Bank Overdraft, Creditors, Bills Payable,
short-term liabilities. These include
Outstanding expenses etc.
are the liabilities which will
become payable
(3) Contingent Liabilities-These otherwise not. Such a s : -
only on the happening of some specific event,
case a bill discounted from
the bank is
1) Liabilities for bill discounted-In
firm will become liable to the bank.
dishonoured by the acceptor on the due date, the
in a court of law -This would
(11) Liability in respect of a suit pending
the firm.
become an actual liability if the suit is decided against
tirm
(II) Liability in respect of a guarantee given for another person:-The
is fails
Would become liable to pay the amount if the person for
whom guarantee given
to meet his obligation.
not shown in the Balance Sheet. They are, however,
Contingent liabilities are

shown as a footnote just below the balance sheet so that their existence may be
revealed.

Difference between Trial Balance and Balance Sheet

Balance Sheet
S. Basis of Trial Balance
No. Difference
1. Objecet check the |lt is prepared to know the
It is prepared to

arithmetical accuracy of the true financial position of the

books of accounts. firm o d
 orm IS not
possible to nave SInce net pront or loss isS
about profit information about net profit recorded in the Capital
Capital
or loss. or net loss from a trial shown in balance sheet, it
is
balance. possible to have the infor.
mation about net profit or net
loss from a Balance Sheet.
3. Necessity
Though desirable, its It is necessary to
prepare a
preparation is not necessary. Balance Sheet.
4. Headings The headings of its two The headings of its two
columns are debit and credit. |sides are assets and
liabilities.
5. Period It is normally prepared every It is normally prepared at the
month or whenever needed. end of the
6. Types of All
accounting period
types of accounts Only personal and real
Accounts whether personal, real or accounts are
included in it.
nominal must be written in it.
7. Closing Stock
Normally, it does not contain It contains the item
the item of Closing Stock. of
Closing Stock.
8. Adjustments It can be
prepared without It cannot be prepared without
making adjustments for making
outstanding adjustments for
expenses, outstanding
prepaid expenses, accrued
expenses,
incomes etc.
prepaid expenses, accrued
9. Evidence incomes etc.
It is not accepted by the court It
is accepted by the court as
as documentary evidence.
documentary evidence. It is
also helpful while
making
payment of income-tax and
Goods & Services Tax
(GST).
Following points should be noted for
preparing Final Accounts
(1) If a trial balanceis not given in the
Balance first of all. If there is a question, it is better to prepare a Trnal
difference in the Trial
shown in the Balance Sheet. Balance,
te a "Suspense Alc' and the difference is placed
(2) It should be remembered that all
items which in the Trial Balance
should be shown
only once whereas items which appearappear outside the Trial Balance,
known as adjustments, have to be
shown at two places.
(3) The items which appear on the debit side
either on the debit side of the of the Trial Balance should be shown
the Balance Sheet. Trading or Profit and Loss A/c or on the Assets side
o
(4) The items which appear on the credit side of
the Trial Balance should be
either on the credit side
of the Trading or Profit& Loss
show"
of the Balance Sheet. A/c or on the Liabilities siae
FINAL ACCOUNTS 19.23

5) All accounts relating to Gioods such as Purchases, Sales, Purchase Returns and
Sales Returns are wrilen in the Trading Account. In addition to these, the Trading
Account
ccount wil also be debited with all expenses which are directly related to either
will als
rchase or mnanufacturing of goods. All the remaining expenses or the balances of the
purch

Nominal Accounts are shown in the Profit & Loss Account.

(6) The balances of Personal and Real Accounts are always shown in the Balance
Sheet.
(7) If the expenses in respect of 'Rent' and Lighting' are clearly stated as having
been incurred in respect of factory, these will be shown in the Trading Account,
otherwise these will be shown in Profit & Loss Account. For example, if 'Factory
Rent' is given in the question, it will be shown in Trading Account. Instead, if 'Rent'
is given, it will be shown in Profit & Loss Account.
(8) 1fa trial balance is not given in the question, and it is not clearly stated whether
a particular item is expense or income, it will be treated as expense such as Discount,
Commission, Brokerage or Rent etc.
(9) The total of both sides of the Balance Sheet will always be equal.
- -

ILLUSTRATION 15.
Given below is the Trial Balance of Gopi Chand Bros. as at 31st March, 2020. You
are required to prepare a Trading and Profit & Loss A/c for the
year ended 31st March,
2020 and Balance Sheet as at that date :
Debit Balamces Credit Balances
Opening Stock 45,000 Sundry Creditors
Purchases 22,100
1,20,000 Return outwards 2,500
Return inwards 3,200 Sales
Carriage inwards 3,50,000
2,400 Capital 2,00,000
Carriage outwards 1,500 Loan from Bank
Office furniture 24,000
8,000 Discount Received 2,000
Sundry Debtors 68,000 Commission
Dock Charges 5,000
1,600
Electric Power
10,000
Fuel, Gas and Water 12,000
Bad-debts 1,100
Advertisement 25,000
Salary 36,000
Cash in hand
Cash at Bank 8,100
Motor Vehicles 30,000
Motor Repairs 58,000
3,000
Interest on Bank Loan
Rent and Insurance 2,400
Business Premises 24,500
Household expenses 1,06,000
33,000
6,02,200
Stock at the and T* 6,02,200
 19.24 FINAL ACCOUNTS
AND LOSS ACCOUNT
sOLUTION TRADING AND 'ROTT
enling /st AMarch, 2020
Dr r the rar Cr
Particulars
Particwlars 3,50,000
45,000 By Sales
To Opent Stock
To Purchases 1,20,000 Less Return inwards 3,200 3,46,800
By Closing stock
Less Retum outwards 2,500 1,17,500 75,000
To Cariage inwands 2,400
5,0001)
To Dock charges
To Electric Power 10,000
To Fuel, Gas & Water 12,000
To Gross Profit c'd 2,29,900
4,21,800 4,21,800
To Carriage outwards 1,500 By Gross Profit b/d 2,29,900
To Bad debts 1,100 By Discount 2,000
To Advertisement 25,000 By Commission 1,600
To Salary 36,000
To Motor Repairs 3,000
To Interest on Bank Lo0an 2,400
To Rent and Insurance 24,500
To Net profit transferred to
Capital A/c 1,40,000
233,500 2,33,500
BALANCE SHEET
as at 31st March, 2020
Liabilities Assets
Loan from Bank 24,000 Cash in hand 8,100
Sundry Creditors 22,100 Cash at Bank 30,000
Capital 2,00,000 Sundry Debtors 68,000
Add: Net Profit 1,40,000 Closing Stock 75,000
3,40,000 Office furniture 8,000
Less: Drawings Motor Vehicle 58,000
(Household exp.) 33,000 3,07,000 Business Premises 1,06,000
3,53,100 3,53,100
Notes:
() The heading of Trading Alc and Profit & Loss A/c is put collectively as Trading and
P:ofit& Loss A/c'. The first part ofthis Account is Trading A/c, whereas the second part 1
Profit & Loss A/c. Trading Account, in fact, is a part of Profit & Loss Account.
(2) In the absence ofspecific instructions, dock charges will be debited to Trading Accoun
TLLUSTRATION16.
From the following balances taken from the books of Murli Manohar & Sons
and a
prepare Trading and Profit & Loss Account for the vear ended 31st
March 2019
Balance Sheet as at that date. Stock in hand on 31st March 2019 was56,000.
 F I N A L A C C O U N T S

19.25
Name of Accounts Dr Cr
Balances Balances
Stock a t C o m m e n c e m e n t
15,320
Purchases and Sales 1,00,000 1,20,000
2,200 3,000
10,000 1,30,000
Retums
Drawings and Capital
2,200
Cartage
6,600
Factory
heating and lighting
Works e x p e n s e s
15,200
7,300
Rent Received
800
Cash at Shop
Accounts Receivable
8,000
Kapil
Jadeja
5,000
1,500
Yadav
Accounts Payable
16,000
Prabhakar
7,540
Tendulkar
25,000
Horses and Carts
10,000 2,120
B/R and B/P
15,000
Rent paid
Fire Insurance Premium 4,800
Life Insurance Premium 6,000
Bank overdraft
67,000
Bank Interest
2,400
3,000
Telephone Expenses
5,200
Advertisement Expenses
Salaries and Wages 32,240
81,000
Freehold Property
1,500
Audit Fees
3,52,960 3,52,960
SOLUTION: TRADING AND PROFIT & LOSS ACCOUNT
Dr. the year ending 31st March, 2019
for
Particulars Particulars
To Opening Stock 15,320 By Sales 1,20,000
To Purchases 1,00,000 Less: Returninwards 2,200 1,17,800
Less: Return Outward 97,000 By Closing stock 56,000
3,000
To Cartage 2,200
lo Factory
Heating & lighting 6,600
Io Works expenses 15,200
To Gross Profit c/d 37,480
1,73,800 1,73,800
i Fuf"
FINAL ACCOUNTS
19.27

800 Purchases less Returns 1,60,000

Postage
Fire Insurance Premium 3,600 Commission on Purchases 2,000
3,200
Patents 12,000 Incidental Trade Exp. 30,000
Income Tax 24,000 Investments
Office Expenses 7,200 Interest on Investments 4,500
1,00,000
Capital A/c
Sales less Returns 5,20,000
Rent 12,000
2,700
Discount Paid
Discount on Purchases 3,400

SOLUTION: TRADING AND PROFIT & LOSS ACCOUNT

Cr.
Dr. for the year ending..
Particulars Particulars
5,20,000
To Purchases less returms 1,60,000 By Sales less Returns
To Commission on Purchases 2,000
To Carriage on goods purchased 8,000
To Manufacturing expenses 42,000
To Freight 9,600
To Gross Profit c/d 2,98,400
5,20,000 5,20,000

To Cariage on goods sold 3,500 By Gross Profit b/d 2,98,400

To Advertisement 7,000 By Interest on Investments 4,500
To Lighting 6,000 By Discount on Purchases 3,400
To Postage 800
To Fire Insurance Premium 3,600
To Ofice Expenses 7,200
To Audit Fees 2,700
To Repair to Plant 2,200
To Incidental Trade expenses 3,200
To Rent 12,000
To Discount Paid 2,700
To Net Proit Transferred to
Capital A/c 2,55,400
3,06,300 3,06,300

BALANCE SHEET
as ****'** **********.

Liabilities Assets
Bankers 30,000 Cash in hand 2,500
Supplier's Alc 61,000 Customer's A/c 80,000
Capital 1,00,000 Closing stock 76,000
Add Net Profit 2,55,400 Investments 30,000
3,55,400 Motor Car 60,000
Less:Drawings 8.000 Plant 1,53,900
 FINAL ACCOUNTS
1 28

3,47,400 Patents 12,000

Less: Inconme Tax
(Drawings) 24,000 3,23,400
4,14,400 4,14,400
It is cash discount (and not trade discount) received at
Notes : ()Discount on Purchases
discount is not recorded in the books at all. Beino
the time of punchase. Ihe reason is that trade ing
the credit side of Profit & Loss A/c.
an income, it is recorded on
it will be shown only at one place ie
(2)1fClosing Stock appears inside the Trial Balance, I.e.,
only on the assets side the Balance Sheet.
of
ILLUSTRA TION 18.
Draw up the Balance Sheet of Kesri & Sons as at 3 1st March, 2017 from thee
following information in the order of liquidity.
Cash in hand 11,200; Sundry Creditors 28,800; Bills Payable 73,500; Bill
Receivable R5,300; Sundry Debtors T18,000.
Machinery as on April 1, 2016 F85,000 and Depreciation provided for the year
8,500; Fumiture and Fixtures as on 1 April, 2016 R21,000 and Depreciation provided
for the year 2,100; Closing Stock 15,400.
Proprietor's Capital Account 90,000; His drawings during the year 78,000. Net
profit as per Profit and Loss Account 31,000.

sOLUTION: BALANCE SHEET OF KESRI & SONS

as at 31st March, 2017

Liabilities Amount Assets Amount

Bills Payable 3,500 Cash in hand 11,200

Sundry Creditors 28,800 Bills Receivable 5,300
Capital 90,000 Sundry Debtors 18,000
Add: Net Profit 31,000 Closing Stock 15,400
1,21,000 Furniture and Fixtures 21,000
Less:Drawings 8,000 1,13,000 Less: Depreciation 2,100 18,900
Machinery 85,000
Less: Depreciation 8,500 76,500

1,45,300 1,45,300