FINAL ACCOUNT
MEANING OF FINAL ACCOUNT
The Final Account is a group of three accounts i.e. Trading Account, Profit and Loss
Account and Balance Sheet. Final Account gives final result of the business. It is prepared by
every business to know the profit or loss to the business and to know the financial position of
the business. Final account includes two statements i.e.
1) Income Statement 2) Statement of Financial Position
1) Income Statement – It includes Trading account and Profit & Loss Account. It shows
profit or loss to the business during particular financial year.
2) Statement of Financial Position – It includes Balance Sheet. It shows financial
position of the business at the end of the accounting year. It shows position of Assets
and Liabilities of the business.
OBJECTIVES/ IMPORTANCE /NEED OF THE FINAL ACCOUNTS
1) To know gross and net profit or loss to the business during year.
2) To detect errors and frauds if any.
3) To know financial position of the business i.e. position of assets and liabilities.
4) To know tax amount payable to Government.
TRADING ACCOUNT –
It is one part of the Income Statement of Final account. It is prepared to know the Gross Profit
or Gross Loss to the business. In this account, only Direct Income and Direct Expenses are
recorded.
** Direct Income – Income to the business by selling goods or services. It increases with an
increase in the sales. E.g. Sale of goods.
** Direct Expenses – Expenses incurred to carry out production activity. It also include
expenses related to the factory (as production carried out in the factory). These expenses
increases with an increase in production. E.g. wages, purchases, power & fuel, factory
expenses, etc.
PROFIT & LOSS ACCOUNT –
It is part of the Income statement of the Final account. It is prepared to know Net Profit or Net
Loss to the business. In this account, only Indirect Income and Indirect Expenses are recorded.
** Indirect Income – Income non business activity. Income other than selling of
goods/services is known as indirect income. These incomes are not depends on the sale of
goods. E.g. interest received from bank on deposits etc.
** Indirect Expenses – Expenses incurred which are not related with production. These
expenses are divided into three parts 1.Office expenses, 2.Selling and distribution expenses,
3. Financial expenses
BALANCE SHEET –
It is part of the final account. It is a statement of the financial position of the business. The
balance sheet is a financial statement which shows the financial position of the business. It
shows the assets and liabilities of the business. Only Assets and Liabilities are recorded in the
balance sheet.
PROFORMA
In the books of ABC
Trading A/c for the year ended 31st March 2024
Dr. Cr.
Particulars Amount Particulars Amount
(Rs) (Rs.)
To Opening Stock xxx By Sales
To Purchases xxx xxx
xxx xxx Less Sales Returns
Less Purchase Return (xxx) xxx
(xxx) xxx xxx
xxx By Goods Destroyed by Fire xxx
To Carriage Inward xxx By Goods Destroyed by Fire
To Wages xxx By Drawings (Goods xxx
To Wages and Salaries xxx withdrawn by xxx
To Freight xxx proprietor)
To Factory Exp. xxx By Closing Stock
To Power & Fuel xxx By GROSS LOSS (Balance
To Royalties xxx Amount)
To Octroi xxx
To Custom Duty xxx
To Factory Lighting xxx
To Factory Rent xxx
To Factory Insurance xxx
To Manufacturing Exps. xxx
To Carriage
To GROSS PROFIT (Balance
Amount)
xxxx xxxx
In the books of ABC
Profit and Loss A/c for the year ended 31st March 2024
Particulars Amount Particulars Amount
(Rs) (Rs.)
To GROSS LOSS (from xxx By GROSS PROFIT (From xxx
Trading A/c) Trading A/c)
To Salaries xxx By Rent (received) xxx
To Rent, Rates & Taxes xxx By Interest (received) xxx
To Printing & Stationery xxx By Commission (received) xxx
To General Exps. xxx By Discount (received) xxx
To Sundry Exps. xxx By Miscellaneous Receipts xxx
To Depreciation A/c xxx By Income from Investments xxx
To Postage and Telegram xxx By Interest on Drawings xxx
To Telephone Exps. xxx By NET LOSS (Balance xxx
To Conveyances xxx Amount)
To Advertisement xxx
To Interest on loan taken xxx
To Interest on Capital xxx
To R.B.D.D. A/c
Old Bad Debt
xxx
Add : New Bad Debts
xxx
Add : New R.D.D.
xxx
Less : Old R.D.D.
xxx xxx
xxx
To Repairs xxx
To Bank Charges xxx
To Legal Charges xxx
To Packing Charges xxx
To Loss on sale of fixed assets xxx
To Audit Fees xxx
To Loss by Fire/Theft A/c xxx
To Discount (allowed) xxx
To Commission (Allowed) xxx
To Carriage outward xxx
To Insurance xxx
To Unproductive Wages xxx
To Entertainment Exps. xxx
To Royalties on Sales xxx
To NET PROFIT (Balance xxx
Amount)
xxxx xxxx
** Bad Debts and RDD given in Trial Balance are OLD Bad Debts and OLD RDD
** Bad Debts and RDD given in Adjustment are NEW Bad Debts and NEW RDD
** RDD – Reserve for Doubtful Debts
** RBDD – Reserve for Bad and Doubtful Debts
Balance Sheet as at/on 31st March 2024
Liabilities Amt. Amt. Assets Amt. Amt.
Capital xxx Land and Building xxx
Less Drawings (xxx) Less Depreciation (xxx) xxx
xxx
Add NET PROFIT xxx Plant and Machinery xxx
Less NET LOSS (xxx) xxx Less Depreciation (xxx) xxx
Reserve xxx Furniture and Fixtures xxx
Reserve Fund Less Depreciation (xxx) xxx
Loan (Taken) xxx
Bank Loan xxx Motor Car xxx
Sundry Creditors xxx Less Depreciation (xxx) xxx
Bank Overdraft xxx
Bills Payable xxx Investment xxx
Outstanding Exps. xxx Goodwill xxx
Income Received in xxx Patents xxx
Advance Loose Tools xxx
Bills Receivable xxx
Sundry Debtors xxx
Less New Bad Debts (xxx)
xxx
Less New Reserve (xxx) xxx
Closing Stock xxx
Prepaid Exps. xxx
Income Receivable xxx
Cash in Hand xxx
Cash at Bank xxx
Loan (given) xxx
Trademark xxx
Copyright xxx
xxxx xxxx
Remember –
1) The items given at the debit side of the Trial balance are to be recorded only at the
debit side of Trading or P/L A/c or at the Asset side of the Balance Sheet.
2) The items given at the Credit side of the Trial balance are to be recorded only at the
Credit side of Trading or P/L A/c or at the Liability side of the Balance Sheet.
3) In Trading A/c either Gross Profit or Gross Loss is Possible.
4) In P/L A/c either Net Profit or Net Loss is Possible.
5) Balance Sheet must be Tally. The amount of Asset and Liability must be equal.
ADJUSTMENTS
It means additional information provided after completion of Trial Balance. Every
adjustment has minimum TWO Effects.
** SOME IMPORTANT ADJUSTMENTS –
1) Closing Stock
1st Effect – Recorded separately at the Credit side of Trial balance
2nd Effect – Recorded separately at the Asset side of Balance Sheet.
2) Outstanding Expenses (Expenses not Paid but payable)
1st Effect – Add in related expenses at debit side of Trial Balance or P/L A/c
2nd Effect – Show separately at Liability side of Balance Sheet
3) Prepaid Expenses (Expenses Paid in Advance )
1st Effect – Less from related expenses on debit side of Trial Balance or P/L A/c
2nd Effect – Show separately on Asset side of Balance Sheet
4) Depreciation
1st Effect – Less from related Asset on Asset side of Balance Sheet
2nd Effect – Show separately at debit Side of P/L A/c
5) Bad Debts and RDD
When Both i.e. Bad debts and RDD are given
1st Effect – Deduct New bad debts from Debtor at Asset side and then deduct RDD
from
remaining balance.
2nd Effect – Add New Bad debts and New RDD in Old Bad debts and Deduct Old
RDD at
Profit and Loss Account Debit side.
Problem -1
From the following Trial Balance of Sonali, prepare the Trading and Profit & Loss Account
for the year ending 31st March 2024 and a Balance Sheet as on that date, after taking into
consideration adjustments.
Trial Balance as on 31st March 2024
Debit Balance Rs. Credit Balance Rs.
Bills Receivable 23000 Capital 100000
Carriage Outward 6000 Sales 90000
Salaries 7500 Bills Payable 11200
Purchases 34500 Purchase Returns 2400
Furniture 45000 Sundry Creditors 26000
Sales Returns 2500 Loan 20000
Cash in Hand 14000 Commission Received 6800
Opening Stock 25000
Postage & Telegrams 1250
Sundry Debtors 65000
Printing & Stationery 2500
Insurance 3600
Discount Allowed 2150
Wages 9600
Office Expenses 11200
Carriage Inward 3600
256400 256400
Additional Information :
1) Closing stock at the end of the year was valued at Rs.65000.
2) Prepaid Insurance Rs.600
Problem – 2
The Trial balance of M/s. Shrikant Traders as on 31st March 2024 is given below :
Trial Balance as on 31st March 2024
Dr. Cr.
Particulars Amt. Particulars Amt.
Land & Building 20000 Capitals 25000
Plant & Machinery 6000 Sales 75500
Cash at Bank 550 Purchase Returns 1000
Purchase 47500 Sundry Creditors 12600
Sales Return 1500 Discount earned 150
Carriage Inward 350 Commission Received 750
Opening Stock 11000 Bank Loan 11000
Wages 6000
Sundry Debtors 17600
Salaries 2500
Postage & Telegram 200
Rent & Insurance 400
Bad Debts 250
Discount 100
Trade Expenses 300
Furniture 5000
Commission 500
Office Insurance 300
Printing & Stationery 700
Cash in Hand 2000
Patents 2500
Printing & Stationery 750
126000 126000
Adjustments :
1) Stock as on 31st March, 2024 was valued at Rs.15000.
2) Outstanding Salaries Rs.500
Prepare a Trading Account and Profit and Losses Account for the year ended 31st March
2024 and Balance Sheets as on that date.
Problem – 3
From the following trial balance prepare the Trading and Profit & Loss Account for the year
ending 31st March 2024 and a balance sheet as on that date, after taking into considerations
the following adjustments
Trial balance as on 31st March 2024
Debit Balance Rs. Credit Balance Rs.
Opening Stock 20000 Bills Payable 10000
Sundry Debtors 28000 Returns Outwards 2500
Purchases 40000 Sundry Creditors 21500
Wages 8500 Sales 70000
Salaries 2700 R.D.D. 400
Office Expenses 2445 Capital A/c 90000
Insurance 1300 Loan 3000
Plant & Machinery 30000 Commission 1000
Rent 1800 Discount Received 500
Traveling Exps. 1400 Rent 700
Return inwards 3500
Land & Building 44800
Bills Receivable 4000
Bank Balance 6655
Fixed Deposits 2400
Sundry Exps. 800
Bad Debts 600
Advertisement 700
199600 199600
Adjustments
1) Closing stock valued at Rs.15000
2) Outstanding wages Rs.500
3) Prepaid insurance Rs.300.
4) Depreciation plant and machinery at 10%
5) Maintain reserve for bad and doubtful debts at 5%.
Problem – 4
From the following Trial Balance prepare the Trading and Profit & Loss Account for the year
ending 31st March 2024 and a Balance Sheet as on that date, after taking into consideration
adjustment.
Debit Balance Rs. Credit Balance Rs.
Bills Receivable 23000 Capital 100000
Drawings 6000 Sales 90000
Salaries 7500 Bills Payable 11200
Purchases 34500 Purchase Returns 2400
Furniture 45000 Sundry Creditors 26000
Sales Returns 2500 Loan 20000
Cash in Hand 14000 Commission Received 6800
Stock (1.4.2021) 25000
Postage & Telegrams 1250
Sundry Debtors 65000
Printing & Stationery 2500
Rates & Insurance 3600
Discount 2150
Wages 9600
Office Expenses 11200
Carriage 3600
256400 256400
Additional Information :
1) Closing stock at the end of the year was valued at Rs.65000. Market value is
Rs.67000.
2) Outstanding expenses were : Wages Rs.6000 and Salaries Rs.3000.
3) Prepaid Insurance Rs.600
4) Depreciate furniture at 10% p.a.
Problem – 5
The Trial balance of M/s. Sumit Traders as on 31st March 2024 is given below :
Trial Balance as on 31st March 2024
Particulars Amt. Particulars Amt.
Drawings 750 Capitals 25000
Land & Building 20000 Sales 75500
Plant & Machinery 6000 Purchase Returns 1000
Cash at Bank 550 Sundry Creditors 12600
Purchase 47500 Discount earned 50
Sales Return 1500 Commission Received 750
Carriage Inward 350 R.D.D. 100
Opening Stock 11000 Bank Loan 11000
Wages 6000
Sundry Debtors 17600
Salaries 2500
Postage & Telegram 200
Rent 400
Bad Debts 250
Discount 100
Trade Expenses 300
Furniture 5000
Commission 500
Insurance 300
Printing & Stationery 700
Cash in Hand 2000
Patents 2500
126000 126000
Adjustments :
1) Stock as on 31st March, 2022 was valued at cost price Rs.15000. Market value is
Rs.14000.
3) Outstanding wages Rs.600 and outstanding rent Rs.700.
4) Provide 10% depreciation on Plant & Machinery and 5% depreciation of Furniture.
5) Provide Rs.500 for further Bad Debts and Provide 5% R.D.D. on remaining Sundry
Debtors.
6) Prepaid Rent Rs.100
Prepare a Trading Account and Profit and Losses Account for the year ended 31st March
2024 and Balance Sheets as on that date.
Problem – 6
From the following trial balance prepare the Trading and Profit & Loss Account for the year
ending 31st March 2024 and a balance sheet as on that date, after taking into considerations
the following adjustments
Debit Balance Rs. Credit Balance Rs.
Wages 4000 Sales 28000
Drawings 4000 Capital Account 10000
Purchases 20000 Discount 34000
Sales Returns 500 Purchase returns 140
Advertisement 300 Provision for doubtful debts 660
Computer 4000 Sundry creditors 3800
Opening stock 5000 Bank overdraft 3300
Rent, rates and taxes 600 Interest on investment 450
Buildings 12000
Trade exps. 150
Commission 300
Bills Receivable 900
Office Exps. 600
Traveling Exps. 450
Bad debts 190
Sundry debtors 14000
Cash in hand 800
Postage 50
Investments 2000
Fuel & power (factory) 800
Octroi 210
70850 70850
Adjustment :
1. Depreciation to be provided on building @5% and furniture at 10%.
2. Rent outstanding was rs.400
3. Provision for doubtful debts to be maintained at 5%.
4. Prepaid advertisement expenses Rs.100
5. Closing stock was valued at Cost price Rs.10000 and Market Price Rs.12000.
