Final Accounts of a Proprietary concern Contents 9.1 Meaning, Objectives and Importance of Final Accounts. 9.2 Preparation of Trading Account. 9.3 Preparation of Profit and Loss Account 9.4 Preparation of Balance Sheet 9.5 Effects of following adjustments. Closing stock Outstanding Expenses Prepaid Expenses Depreciation on assets Bad debts and R.D.D. Discount on Debtors and Creditors Income received in advance Accrued Income Goods distributed as free sample Goods withdrawn by proprietor for Personal use. Interest on capital Interest on Drawings Competency Statements Students are able to understand Meaning, Objective and Importance of Final Accounts. Students are able to Prepare Trading Alc, Profit and Loss A/e and Balance sheet with competency. Students are able to understand effects of adjustments. Introduction : Accounting is considered as a scientific approach in maintaining record of business transactions, It provides a systematic accounting record to all on the financial status of the enterprise. No sooner a business transaction takes place, the accounting process starts. The process is completed by the drafting the final accounts. SO9.1 A) Meaning of Final Accounts The primary aim of accounting is assessment of business performance for the benefit of all stakeholders (such as owners, employees, suppliers, customers, financiers ete.) which will also help them to form their opinions on the financial position of their business concerns. For this purpose, various accounting reports are prepared in the form of Final Accounts at the end of every financial year. In brief, Final Accounts are financial statements that valiadate and explain working results and financial status for a specific period of time on a particular date. It is a set of Trading Account, Profit and Loss Account and Balance Sheet. Balancing figure of Trading Account is Gross Profit or Gross Loss. In case of Profit and Loss Account the balancing figure is Net Profit or Net Loss. Whereas Balance Sheet shows financial position of assets and liabilities at a given period of time. The basic objectives of Final Accounts is to determine Gross Profit /Gross Loss and Net Profit or Net Loss of the business during the financial year. Final Accounts shows the true and correct financial position of business. It informs the operating results and exact financial position of the business to the stake holders to take financial decisions. HM Itenables to control financial activities of business effectively. ©) Importance of Final Accounts : 1) Final Accounts are the basis on which management or businessmen decides business policies and take financial decisions. 2) Final Accounts gives a true picture of the financial status of business for the financial year. 3) Final Accounts are useful for accurate accounting records. 4) Transparency in business dealings are possible due to financial statemetns. 5) Final Accounts help to get a clear break-up of amounts payable to government as various taxes, e.g, Income tax, GST ete 6) Itisamandatory requirement to maintain records of financial state of any business establishment. How to Prepare Final accounts ? - Every time a business transaction takes place, the details of it is made in Primary books. These entries are then posted to the ledger. At the end of a financial year the ledger accounts are balanced and closing balance of each ledger account is determined, There many be a debit or credit balance, With the help of all these balances, a Trial Balance is prepared. This in turn helps in preparing Trading Account, Profit and Loss Account and Balance Sheet, which is known as Final Accounts. This accounting process can be represented as followsBusiness Transactions Journal Entries Ledger Posting Balancing the ledger ‘Trial balance Final Accounts at the end of every year Final accounts include 1) Manufacturing Accounts 2) Trading Account 3) Profit and L 4) Profit & Loss Appropriation Account s Accounts 5) Balance sheet Note : Manufacturing Account and profit and Loss Appropriation account are not included in the syllabus of XI commerce. So for XI commerce Final Accounts consist only of ‘Trading Account, Profit and Loss Account and Balance Sheet. ‘Trading Account Trading Account is an account which gives the overall preview of all trading activities. The ‘expenses and losses relating to trading activities are debited to this account and all outward movements of goods and stock of goods at the end of the year are recorded to the credit side of this account. Debit side of Trading Account includes activities such as opening stock, purchases and all direct, expenses - e.g. Wages, Freight, Carriage Inward, Coal, Gas, Fuel, Water, Manufacturing or Direct expenses. Similarly credit side of trading includes Closing Stock, Sales, less returns (sales returns) any kind of goods that is used for promotions as Free Samples, goods withdrawn by proprietor for personal reasons etc. Therefore itis said Trading Account is prepared to ascertain gross profit or loss for a given period of time. When there is credit balance. It is referred to as Gross Profit and when there is debit balance it refered to a Gross Loss which is transferred to profit and loss account. Trading Account is a Nominal Account.Important terms of Trading Account : 1) Stock : Goods that are unsold are called Stock. Stocks are of two types () Opening stock : It refers to unsold goods at the beginning of the year. (ii) Closing Stock : The unsold goods on the last day of accounting period is referred to as Closing Stock. This is always valued at cost or market price, whichever is less. Closing Stock is credited to the Trading Account. It is also recorded on the asset side of Balance Sheet. 2) Purchases : This includes the purchases of goods and not purchases of assets. Purchase of goods ‘may be on the basis of cash or credit. Purchase Returns are deducted from total purchases and thereafter net purchases are recorded on the debit side of Trading Account. 3) Sales : Sales includes the sales of goods and not sale of Assets. Sale of goods may be on the basis of cash or credit, Sales returns are deducted from total sales and thereafter net sales are recorded on the credit side of Trading Account, 4) Direct Expenses : Direct expenses are those expenses which are incurred for purchase of goods, production of goods and purchase expenses. All nominal accounts e.g. Wages, Manufacturing expenses, Factory lighting, Coal, Gas, Fuel, Water. Dock dues, Carriage inward etc. Specimen of Trading Account ‘Trading Account for the year ended Dr. Cr. . Amount | Amount . Amount | Amount Particulars Particulars ® ®@ ® ®@ To Opening Stock xxxx | By Sales XXXK To Purchases KK Less : Sales Return xxxx | xxxx Less : Purchase Return XXXX xxx | (Return Inward) (Retum outwards) By Goods distributed as XXXX ‘To Direct Expenses xxxx | free sample To Freight & Carriage By Goods taken by XXX Inward xxx | proprietor for personal To Custom Duty xxxx [Use To Wages xxxx | By Closing Stock 200 To Coal, Gas, Fuel ete. xxxx | By Gross Loss e/d XXX To Royalties XXXX To Factory expenses HX To Gross Profit e/d HX XXX 7XXXIlustration 1 From the following information prepare Trading Account of Sangita Traders for 31st March, 2019. Particulars ‘Amt @) Particulars ‘Amt Wages 16,000 Stock (1.04.2018) 22,000 Royalties, 11,000 Sales 3,80,000 Sales Returns 24,000 Purchases 1,90,000 Goods withdrawn by Sangita Purchases Returns 6,400 for Personal use 16,000 Manufacturing Expenses 8,400 Factory Rent 4,200 Motive Power 16,000 Stock (31.03.2019) 36,000 Freight 7,400 Solution : Trading Account of Sangita Traders for the year ended 31st March 2019 Dr. Cr. Particulars Amount | Amount Particulars Amount | Amount ®) @ @ ®@ To Opening stock 22,000 | By Sales 3,80,000 To Purchases 1,90,000 Less : Sales Return 24,000 | 3,56,000 Less : Purchase Return 6,400 | 1,83,600 To Wages 16,000 | By Drawings 16000 To Royalties 11,000 | By Closing stock 36,000 To Factory Rent 4,200 To Manufacturing 8,400 Expenses To Motive Power 16,000 To Freight 7,400 To Gross Profit e/d 1,39,400 (Balancing figure) 4,08,000 4,08,000 Journal Entries for preparing Trading Account All accounts of Direct expenses are closed and their balances are transferred to Trading A/c. For this "closing entries" are passed as under : A) Transferring of Opening Stock, Purchases, Direct expenses 1) Transfer of Purchase Returns Purchase Returns A/c Dr. poses To Purchases A/e XXXX (Being Purchase returns transferred to Purchases A/c) Si2) Sales A/c, To Sales Return A/e XXX Dr. XXAX (Being Sales retums transferred to Sales A/c) 3) Trading AV... Dr. XXXX To Opening stock Ale XXXX To Direct expenses A/e XXXX To Purchases A/e XXXX (Being Opening stock and Direct expenses and purchases transferred to Trading A/c) B) Transferring of Sales Sales Ale Dr. xX To Trading A/e XxX (Being sales transferred to Trading A/e) ©) Entry of Closing stock Closing stock A/c Dr. XXXx To Trading A/c XXXX (Being closing stock given in adjustment transferred to Trading A/c) D) For Gross Profit/Gross Loss 1) Trading Ale...onnnnnnnnsnnnn DE xxx To Profit & Loss Ale Xxxx (Being Gross Profit transferred to Profit & Loss A/c) 2) Profit & Loss Ale. To Trading Ale XXXX (Being Gross Loss transferred to Profit & Loss A/c) Dr. 20x 9.3 Profit and Loss Account This account is main Account of final Accounts which gives the final working results of business. It is prepared on the basis of indirect expenses and indirect incomes of the business concer. Profit and Loss Account is maintained to ascertain Net Profit or Net Loss. The debit side of Profit and Loss Account includes all indirect expenses such as office or administrative expenses, financial expenses, selling or distribution expenses etc. The credit side of profit and Loss Account includes indirect incomes like commission received, rent received, discount earned etc. When the credit side of this account is greater than debit side it is called Net Profit and when debit side of this account is greater than credit side it is called as Net Loss. Net Profit/Loss is transferred to Capital Account. Profit and Loss Account is a Nominal Account. eeSpecimen of Profit and Loss Account : Profit & Loss Account for the year ended ..... Dr Cr. Amount | Amount Amount | Amount Particulars Particulars @) @ @ @) To Gross Loss b/d (ifany) xxxx | By Gross Profit b/d (ifany) KK To Salaries & Wages xxxx | By Rent received XXXX To Rent Rates & Taxes xxxx | By Commission received XxX To Insurance xxxx | By Interest on Investment 000% To Bank Charges xxxx | By Interest on Deposits XXXX To Discount (allowed) xxxx | By Misc, Income 200% To Audit fees xxxx | By Discount received 2000 To Depreciation on By Net Loss es Land & Building XXX (transferred to Capital A/c) 7% Plant & Machinery XXXX Furniture etc. ‘XXXX XXXX ‘To Travelling expenses xx To Advertisement XxX To Printing & Stationery XXX To Interest (paid) XXX To Loss by fire XxX To Loss by theft x0 To Packing expenses ood To Commission xxxx To Bad Debis (old) xxXx Add : New bad debts XXXX Add : New RDD ‘XXXX 7K Less ; Old RDD ‘XXXX XXXX To Net Profit xx (Transferred to Capital A/e) 30K 700KKIllustration 1 From the following Trial balance of Raju & Sons, you are required to prepare Trading Account and Profit & Loss A/c for the year ended 31st March, 2018. Debit balance Amt @) Credit balance Amt @), Wages 9,200 Purchases Retums 6,520 Purchases 66,800 Sales 1,52,900 Carriage Inward 3,350 Commission received 18,000 Sales returns 4,800 Rent Received 9,000 Opening Stock 31300 Discount Received 4,600 Salary 17,400 Royalty 4,800 Rent, Rates & Taxes 12,680 Bad debts 500 Carriage Outward 3,720 Printing & Stationery 2,400 Advertisement 18,000 Discount Allowed 1,520 Insurance 5,750 Factory Rent 7,000 Commission paid 1,800 1,91,020 1,91,020 Adjustment : 1) Closing stock Rs. 56,850 Solution : In the Books of Raju & Sons ‘Trading Account for the year ended 31st March, 2018 Dr. cr Particulars Amount | Amount Particulars Amount | Amount ®@ ®@) ®@) ®) To Opening stock 31,300 | By Sales 1,52,900 To Purchases 66,800 Less : Sales Return 4,800 | 1,48,100 Less : Purchase Retum | 6,520 | 60,280 | (Return Inward) (Return outwards) By Closing stock 56,850 To Wages 9,200 To Carriage Inward 3,350 To Royalty 4,800 To Factory Rent 7,000 To Gross Profit o/d 89,020 Balancing figure) 2,04,950 2,04,950 eeProfit & Loss Account for the year ended 31st March, 2018 Dr. cr. Particulars Amount | Amount Particulars Amount) Amount ® ®) ®) @) To Salary 17,400 | By Gross Profit b/d 89,020 ‘To Advertisement 18,000 | By Commission received 18,000 To Discount 1,520 | By Rent Received 9,000 ‘To Rent, Rates and Taxes 12,680 | By Discount Received 4,600 To Insurance 5,750 To Bad Debts 500 Te Carriage Outward 3,720 Te Commission 1,800 To Printing & Stationery 2,400 To Net Profit 56,850 (Transfer to Capital A/e) 1,20,620 1,20,620 Journal Entries relating to Profit & Loss A/c A) For transfer of Expenses and Losses Profit & Loss A/c.. so Dr To All Indirect expenses A/c (c.g. To Salaries Ae To Rent A/c To Advertisement A/c To Insurance A/c Cle. csssceeeeee) (Being Indirect expenses transferred to Profit & Loss A/c) B) For transfer of Incomes and Gains All Indirect incomes A/e Dr (e.g, Discount, Dividend, Interest etc.) To Profit & Loss Ale (Being Indirect incomes transferred to Profit & Loss A/c) ©) For Transferring Net Profit/Net Loss to Capital A/e a) For transferring Net Profit 1) Profit & Loss Alc.... ‘To Capital A/e (Being Net Profit transferred to Capital A/e) so Dr eea) For transferring Net Loss Capital Ale... - To Profit & Loss Ale XXXX (Being Net Loss transferred to Capital A/e) Dr. XXX 9.4 Balance Sheet Balance Sheet is a statement showing financial position of a business concern, Balance Sheet has no debit or credit side as it is a statement and not an account. Left hand side of Balance sheet is "Liability side"and Right hand side "Asset side”, Both sides of Balance Sheet should be of equal amount, A Balance sheet shows assets & liabilities of the business. All Debit balances of Personal and Real Accounts are shown on the Asset Side and All Credit Balances of Personal Accounts are shown on Liability side. No Nominal Account will appear in the Balance Sheet In the books of Mis Balance Sheet as on 31st March..... Liabilities Amt Amt Assets Amt Amt @) ® @) @). Capital (opening) x Cash in hand x Add : Net Profit xx Cash at Bank xx ‘Add : Interest on capital x Bills Receivable xx XXX Sundry Debtors xx Less : Drawings x Goodwill xx Less : Interest on Drawings | xx Fumiture x Less : Net Loss xx xx _ | Plant & Machinery xx Bank Loan xx | Land & Building xx Bank Overdraft xx _ | Prepaid expenses Xx Sundry Creditors xx | Outstanding Income x Bills Payable xx _| Closing Stock x Outstanding Expenses xx Pre-received Income xx Total XXX Total XXX Journal Entries of Some important adjustments : 1) Closing Stock : Closing Stock A/c Dr, To Trading A/c (Being Closing stock transferred to Trading A/c) 2) Depreciation on assets : Depreciation means gradual and continuous decrease or reduction in the value of assets. This amount of depreciation is charged on fixed assets, It is treated as loss 80 it to debited to Profit & Loss account and to be deducted from respective asset. Entry will be as follows : eei) Depreciation Ale Dr. To Respecitve Asset A/c (Being Depreciation charged on assets) ii) Profit & Loss Ale women Dt. To Depreciation A/e (Being Depreciation transferred to Profit & Loss A/c) 3) Outstanding expenses : The expenses which have been incurred but not paid during the year. are unpaid expenses. Following journal entry is to be passed. Expenses Ale Dr. To Outstanding expenses Ale (Being amount of outstanding expenses A/c transferred to expenses A/c) For Example : Rent, salary ete. Outstanding expenses are included in respective expenses A/c on Trading account/Profit & Loss account and to be shown on Liability side of Balance sheet) 4) Prepaid expenses (Unexpired expenses) : The expenses paid in advance of the current year during is known as prepaid expenses and entry is as follows Prepaid expenses: Ale.sennneDT To Expenses A/e (Being amount of Prepaid expenses is debited to expenses A/c) 5) Accrued Income (Outstanding Income): The income which have been earned but not received during the year are outstanding income. Outstanding Income A/c. Dr. To Income Ale (Being Income Outstanding) 6) Income received in advance @ The income related to next accounting year but received in current year is known as income received in advance. Dr. To Income received in advance A/c Income Af (Being income received in advance) 7) Bad Debts : The Debts which are irrecoverable is called Bad-debts. The amount of Bad debts is loss to business, So Bad debts is debited to Profit & Loss A/c and is to be deducted from Sundry Debtors, for which following Journal entries is to be passed - 1) Bad debts Ale.sosnnnnnnnneDt To Sundry Debtors A/c (Being Bad debts written off) eSii) Profit & Loss A/c Dr. To Bad debts A/c (Being Bad debts transferred to Profit & Loss A/c) 8) Reserve or Provision for Doubtful Debts : There are some debtors, of which recovery is doubtful. It may not be realised. For this purpose such provision is created which is known as Reserve for doubtful debts. This provision is created on the experiences of previous year. It is an anticipated loss therefore provision for doubtful debts is necessary. i) Profit & Loss A/c Dr. To Reserve for doubtful debts (R.D.D.) Ale (Being Provision of doubtful debts created) 9) Provision/Reserve for Discount on Debtors : It is an incentive to debtors for early payment. Such discount is also treated as loss. This discount is calculated on the amount of debtors (After deducting New Bad debts & New R.D.D.) Profit & Loss A/c... Dr. To Provision for discount on Debtors A/c (Being Provision for discount on Debtors created) 10) Provision/Reserve for Discount on Creditors : It is an incentive to make payment of creditors at the earliest. So discount received from creditors is treated as Profit or gain. So it is (0 be credited to Profit & Loss A/c and to be deducted from creditors from Balance Sheet, It is the only exception to the convention of conservatism. Provision for discount on Creditors Ale... To Profit & Loss Ale Dr. (Being Provision for discount on Creditors created) Note: 1) When only Bad debis are given in Trial Balance it is debited to Profit & Loss A/c as it is loss. 2) When R.D.D. is given in Trial Balance, it is known as old R.D.D. [Existing R.D.D.] 3)_When R.D.D. is given in adjustment, itis called New R.D.D. 11) Goods withdrawn by proprietor for Personal use : Itrefers to total amount of goods withdrawn by proprietor for personal use. i) Drawings Alc... To Trading/Purchases A/c (Being goods withdrawn for personal use) Dr. ii) Proprietor’s Capital A/c .....Dr. To Drawings A/e (Being balance of Drawings A/c transferred to Capital A/c) Oe12) Goods distributed as Free sample : Distribution of goods as a free sample is an advertisement. So amount of goods distributed as a free sample is to be debited to Profit and Loss account under the head of Advertisement (if any). i) Goods distributed as free sample A/c........Dr. To Trading/Purchases A/c (Being amount of goods distributed as free sample transfered to trading A/c) ii) Advertisement Ale .....0eDt. To Goods distributed as a free sample A/c (Being amount of goods distributed as a free sample transferred to Advertisement A/c) 13) Inerest on Capital : i) Interest on Capital A/c Dr. To Capital Ale (Being interest on capital provided) ii) Profit and Loss A/c. Dr. To Interest on Capital A/e (Being interest on capital transferred to capital A/c) 14) Interest on Drawings : i) Capital Ale Dr. To Interest on Drawings A/e (Being interest on Drawings charged) ii) Interest on Drawing Alc......Dt, To Profit and Loss A/c (Being interest on Drawings transferred to Capital A/c) Name of Adjustment Journal Entries Two Effects 1) Closing Stock Closing Stock A/e.........Dr | 1) Credit side of Trading Ale To Trading A/c 2) Shown on Assets side of Balance Sheet 2) Depreciation 1) Depreciation Ale.......Dr_ | 1) Debit side of Profit & Loss A/e To Asset Ale 2) Profit & Loss A/c......Dr _|2) Deducted from particular Assets on To Depreciation A/c assets side of Balance sheet 3) Outstanding or | Expenses Ale...........Dr | 1) Add to particular expenses on Unpaid Expenses | To Outstanding expenses A/e| Trading ot Profit and Loss A/c 2) Shown on Liability side of Balance Sheet. 4) Prepaid Expenses | Prepaid Expenses A/c......Dr_|1) Less from that particular expenses To Expenses A/c on Trading or Profit & Loss A/c 2) Shown on Assets side of Balance sheet Oe5) Acenied Income? | Accrued Income A/c......Dr | 1) Add to particular income on credit Outstanding Income | To Income A/c side of Profit & Loss A/c 2) Shown on Assets side of Balance sheet. 6) Pre-received Income AVE .snssnnnDE | 1) Less fom particular income on Income To Presreceived Income je | _ ctedit side of Profit & Loss A/c 2) Shown on Liabilities side of Balance sheet 7) Bad debts 1) Bad debts Ave Dr |1) Debit side of Profit & Loss A/e To Debtors Ale (New R.D.D + Bad debts) 2) Profit & Loss A/e.....Dr |2) Deducted from Sundry debtors on To Bad debts A/c assets side. 8) R.D.D (Reserve for | Profit & Loss A/c Dr |1) Debit side of Profit & Loss A/c doubtful debts) To R.D.D. Ale 2) Deducted from Sundry debtors on. assets side, 9) Provision for Profit & Loss AVe. ......Dr | 1) Debit side of Profit & Loss A/e Discount on Debtors} To Provision for discount _|2) Deducted from Sundry debtors on on debtors Ale Assets Side of Balance Sheet. 10)Provision for Provision for discount on 1) Credit side of Profit & Loss Ale Discount on creditors A/c, Dt |2) Deducted from Sundry creditors on Creditors To Profit & Loss Av liabilities side of Balance sheet 11) Goods taken by 1) Drawings A/c. Dr |1) Credit side of Trading or deducted proprietor for To Trading A/e or from purchases A/e personallwse Purchases Ale 2) Proprietor’s Capital A/c. Dr, | 2) Deducted from capital on ...... To Drawing A/c Liability side 12) Goods distributed as | 1) Goods distributed as free | 1) Credit side of Trading or deducted free sample sample Ale. Dr | — from purchases Ale To Trading A/e or Purchases A/c 2) Debited to Profit & Loss Ale 2) Advertisement A/c...Dr. To Goods distributed as free sample A/c (To Purchases A/e) 13)Interest on Capital Profit & Loss Avc. Dr | 1) Debit side of Profit & Loss A/c To Capital Ale 2) Add to Capital, Liability side of Balance sheet. 14) Interest on Capital Ae Dr _|1) Credit side of Profit & Loss A/c Drawings To Profit & Loss A/c |2) Add to Drawings/Less from Capital. eeAlustration 1 From the following Trial Balance of Bharadwaj & Sons prepare Trading and Profit & Loss Account for the year ended and Balance Sheet as on 31st March, 2019, Trial Balance As on 31.3.2019 Debit balance Amt @) Credit balance Amt (%) Royalties 4,000 Sundry Creditors 56,000 Drawings 10,000 Sales 81,000 Wages 6,000 Purchase Retums 3,000 Purchases 71,000 Capital 2,50,000 Cash 10,000 Bills payable 20,000 Sales Retums 5,000 Bank Overdraft 40,000 Bank 40,000 Insurance 1,000 Furniture 34,000 Buildings 1,20,000 Sundry Debtors 1,00,000 Bad debts 1,000 Sundry Expenses 3,000 Travelling Expenses 2,000 Opening Stock 24,000 Carriage Outwards 1,600 Rent 1,000 Carriage Inward 400 Salaries 16,000 4,50,000 4,50,000 Additional Information Closing Stock - % 54,000Solution : In the Books of Bhardwaj & Sons ‘Trading Account and Profit and loss Account for the year ended 31st March 2019 Dr. Cr. Particulars Amount | Amount Particulars Amount | Amount i] ®) @) @) To Opening Stock 24,000 | By Sales 81,000 To Purchases 71,000 Less : Sales Return 5,000 | 76,000 Less : Purchase Return 3,000 | 68,000 To Royalties 4,000 To Wages 6,000 | By Closing Stock 54,000 To Carriage Inward 400 To Gross Profit e/d 27,600 1,30,000 1,30,000 To Salaries 16,000 | By Gross Profit b/d 27,600 To Rent 1,000 To Sundry Expenses 3,000 To Insurance 1,000 To Bad debts 1,000 To Travelling Expenses 2,000 To Carriage Outwards 1,600 To Net Profit 2,000 (Transferred to Capital A/e) 27,600 27,600 Balance Sheet as on 31st March, 2019 ‘Amount | Amount Amount | Amount Liabilities Assets, ® ®@ ®@) ®@ Capital 2,50,000 Buildings 1,20,000 Add : Net Profit, 2,000 Furniture 34,000 252,000 Sundry Debtors 1,00,000 Less : Drawings 10,000 | 2,42,000 Sundry Creditors 56,000 | Bank 40,000 Bills Payable 20,000 | Cash 10,000 Bank Overdraft 40,000 | Closing stock 54,000 3,58,000 3,58,000 EeIllustration 2 From the following Trial Balance of Mangesh Traders you are required to prepare Final Accounts. Trial Balance as on 31st Mareh, 2018 Particulars Debit @) Credit (%) Opening stock 32,750 Purchases 55,000 Sales 89,500 Purchases Retums 2,630, Sales Returns 4,480 Royalties 4,000 Wages & Salaries 8,000 Office Salaries 11,000 Bills Receivable 19,250 Bills Payable 12,500 Office Equipments 20,000 Motor Van 30,400 Plant and Machinery 25,000 Bad Debts 2,500 Advertisement 6,000 Cash in Hand 5,000 Sundry Debtors 31,250 Reserve for Bad debts 1,000 Sundry Creditors 24,000 Capital 1,25,000 2,54,630 2,54,630 Adjustments : 1) Closing Stock on 31st March, 2018 was valued at cost price € 19,000, Market price € 20,000 2) Office Salaries outstanding € 1,000 3) Prepaid Wages 71,000 4) Provide depreciation @ 5%, 10% and 15% on Office Equipments, Motor Van and Plant and Machinery respectively. SOSolution : In the Books of Mangesh Traders ‘Trading Account and Profit and loss Account for the year ended 31st March 2018 Dr. cr. Particulars Amount | Amount Particulars Amount | Amount ®) @) @) ®) To Opening Stock 32,750 | By Sales 89,500 To Purchases 55,000 Less : Sales Return 4,480 | 85,020 Less ; Purchase Return 2,630 52,370 ‘To Wages and Salaries 8,000 By Closing Stock 19,000 Less : Prepaid Wages 1,000} 7,000 To Royalties 4,000 To Gross Profit c/d 7,900 1,04,020 1,04,020 To Office Salaries 11,000 By Gross Profit b/d 7,900 ‘Add : Outstanding Salary 1,000} 12,000 | By Reserve for Bad 1,000 To Bad debts 2,500 | Debts. To Depreciation on By Net Loss 19,390 -Oiiws aga 1,000 (Transferred to Capital = Motor Van 3,040 oc) - Plant & Machinery 3,750 | 7,790 To Advertisement 6,000 28,290 28,290Balance Sheet as on 31st March, 2018 nen ‘Amount | Amount “Assets ‘Amount | Amount @) @) @) @) Capital 1,25,000 Office Equipments 20,000 Less : Net Loss 19,390 | 1,05610 | Less : Depreciation 5% 1,000 | 19,000 Outstanding Salaries 1,000 | Motor Van 30,400 Bills Payable 12,500 | Less: 10% Depreciation | 3,040 | 27,360 ‘Sundry Creditors 24,000 | Bills Receivable 19,250 Plant & Machinery 25,000 Less: 10% Depreciation | 3,750 | 21,250 Debtors 31,250 Closing Stock 19,000 Prepaid Wages 1,000 Cash in hand 5,000 1,43,110 1,43,110 Depreciation : 1) 5% on & 20,000 (Office Equipments) 20,000 x 5/100, So Depreciation on Office Equipments is € 1,000 2) 10% on & 30,400 (Motor Van 30,400 x 10/100, So Depreciation on Motor van is € 3,040 3) 15% on % 25,000 (Plant and Machinery) 25,000 x 15/100, So Depreciation on Plant and Machinery is € 3,750Mlustration 03 From the following Tiall Balance of Reena Enterprises you are require to prepare Trading Account, Profit & Loss Account for the year ending on 31st March, 2018 and Balance Sheet as on that date Trial Balance as on 31st March, 2018 Particulars Debit @) Credit @) Opening Stock 45,200 Capital 3,00,000 Drawings 20,000 Furniture 60,000 Prepaid Insurance 1,770 Debtors & Creditors 70,000 1,29.250 Purchases & Sales 57,000 1,20,000 Plant & Machinery 50,000 Investment 68,000 Factory Insurance 26,000 Audit Fees 21,000 Carriage Inward 1,800 Land & Building 1,40,000 Rent 7,120 Reserve for Bad debts 6,000 Carriage Outward 8,360 Returns 2,000 9,000 Discount 1,000 7,000 Commission Received 8,000 5,79,250 5,79,250 Adjustments : v 2) 3) 4) 5) Write off Bad debts % 2,000 and Provide 2.5% reserve for bad debts on debtors. Closing stock valued at Cost Price % 46,000 and Market price % 40,000 Provide Depreciation @ 5% on Building and 10% on Machinery. Rent prepaid @ 3,560 Outstanding Carriage Inward is & 1,200Solution : In the Books of Reena Enterprises Dr. _ Trading Account and Profit and loss Account for the year ended 31st March 2018 Cr. Particulars Amount | Amount Particulars Amount | Amount @ @) ®@ ® To Opening Stock 45,200 | By Sales 1,20,000 ‘To Purchases 57,000 Less : Sales Return 2,000 | 1,18,000 Less : Purchase Return 9,000 | 48,000 To Factory Insurance 26,000 To Carriage Inward 1,800 By Closing Stock 40,000 Add : Outstanding 1,200 | 3,000 To Gross Profit o/d 35,800 1,58,000 1,58,000 To Audit fees 21,000 | By Gross Profit b/d 35,800 To Rent 7,120 By Discount 7,000 Less : Prepaid Rent 3,560, 3,560 | By R.D.D. (Old) 6,000 To Depreciation Less : R.D.D. (New) 1,700 - Land & Building 7,000 4,300 ~- Plant & Machinery, 5,000, 12,000 | Less : Bad Debts (New) 2,000 2,300 To Carriage Outward 8,360 | By Commission 8,000 To Discount 1,000 | Received To Net Profit 7,180 (Transfered to Capital A/c) 53,100 53,100 Balance Sheet as on 31st March, 2018 opie Amount | Amount Amount | Amount Liabilities @) @) Assets @) @) Capital 3,00,000 Sundry Debtors 70,000 Add: Net Profit 7,180 Less : Bad Debts 2,000 3,07,180 68,000 Less : Drawings 20,000 | 2,87,180 | Less : 2.5% R.D.D. 1,700 | 66,300 Creditors 1,29,250 | Land & Building 1,40,000 Outstanding Carriage 1,200 | Less : 5% Depreciation 7,000 000 Inward Plant & Machinery 50,000 Less: 10% Depreciation |__5,000 | 45,000 Prepaid Rent 3,560 Prepaid Insurance 1,770 Furniture 60,000 Investment 68,000 Closing Stock 40,000 4,17,630 4,17,630 eeHustration 4 From the following Trial Balance of Khandwala Enterprises prepare Final Accounts, Trial Balance as on 31st March, 2018 Particulars Debit (®) Credit (2) Capital 55,000 Drawings 3,000 Opening stock 16,400 Purchases 31,100 Direct Expenses 2,500 Sales 50,000 Returns 1,980 Rent & taxes 6,000 Bad Debts 400 Reserve for bad debts 1,500 Discount 2,375 Commission received 255 Debtors and Creditors 20,250 18,500 Furniture 6,000 Machinery 12,000 Goodwill 7,500 Wages & Salaries 7,000 Salaries (for 10 months) 5,000 Advertisement 9,000 Investment in Debentures 8,500 Loans and Advances 13,750 1,39,005 1,39,005 Adjustments : 1) Closing Stock 17,250 2) Rent of & 4,000 has been prepaid 3) Provide 2% reserve for Bad Debts on Debtors. It was realised that our Debtor worth © 1,000 proved to be bad and has to be written off. 4) Write off Depreciation @ 7.5% on Machinery and 15% on Furniture. 5) Create discount on Creditors @ 3% ——Solution : In the Books of Khandwala Enterprises Dr. _ Trading Account and Profit and loss Account for the year ended 31st March 2018 Cr. . Amount | Amount a Amount | Amount Particulars ® ® Particulars ® ®) To Opening Stock 16,400 | By Sales 50,000 To Purchases 31,100 | Less : Sales Return 1,980 | 48,020 To Direct Expenses 2,500 ‘To Wages & Salaries 7,000 To Gross Profit e/d 8,270 | By Closing Stock 17,250 65.270 65,270 To Salaries 5,000 By Gross Profit b/d 8,270 Add : Outstanding salaries |__1,000| 6,000 | By Discount on 555 To Rent & Taxes 6,000 Creditors Less ; Prepaid Rent 4,000 2,000 | By Commission 255 To Depreciation on received - Machinery 900 By Net Loss 12,380 - Fumiture 900 | 1,800 | (Irunsferred to Capital To Discount 2,375 | A/c) To Advertisement 9,000 To Bad Debts (Old) 400 Add : Bad Debts (New) 1,000 Add : RD.D. (New) 385 1,785 Less : R.D.D. (Old) 1,500 285 21,460 21,460 Balance Sheet as on 31st March, 2018 Linbies | Aragunt | Amount Assets oe ares Capital 35,000 Machinery 12,000 Less: Net Loss 12,380 Less : Depreciation 7.5% 900 | 11,100 42,620 Fumiture 6,000 Less : Drawings 3,000 | 39,620 | Less : Depreciation 15% 900] 5,100 Creditors 18,500 Debtors 20,250 Less : Reserve for 555 | 17,945 | Less : Bad Debts 1,000 Discount on creditors 19,250 (WA) Less : R.D.D. 2% (WN) 385] 18,865 Closing Stock 17,250 Ear 1,000 | Prepaid Rent 4,000 Ce 13,750 | Goodwill 7,500 Investment in Debentures 8,500 72.315Working note : 1) In Trial Balance Salaries are given % 5,000 for 10 months and 2 months are outstanding. Therefore 2 months outstanding amount will be & 1,000 Salaries = 5,000 Add: outstanding —_@ 1,000 % 6,000 2) R.D.D. = 2% on 19,250 =% 385 3) 3% Reserve for discount on creditors - 3% on 18,500 =% 555 Mlustration 5 From the following Trial Balance of Omkar you are required to prepare Trading Account and Profit, and Loss Account for the year ending on 31st March 2018 and Balance Sheet as on that date. Trial Balance as on 31st March, 2018 Credit Balances 2,46,150 246,150Adjustments : 1) Closing Stock valued at ®. 42,000. 2) Write off 1,200 Bad Debts and create a provision for bad & doubtful debts at 2% on debtors. 3) Outstanding expenses - Legal Expenses % 750 and Wages % 225 4) Charge depreciation on Office Huipments 2.5% and Machinery 5%. 5) Prepaid - Insurance € 900 Solution : In the Books of Omkar ‘Trading Account and Profit and loss Account for the year ended 31st March 2018 Dr. crBalance Sheet as on 31st March, 2018 Liabilities ce a Assets acl ac Capital 120,000 Office Equipments 42,900 Add: Net Profit 20,356 Less : Depreciation 2.5% | 1,073 | 41,827 1,40,356 Machinery 12,000 Less : Drawings 3,000 | 1,37,356 | Less : 5% Depreciation 600 | 11,400 Creditors 37,500 | Fumiture & Fixtures 28,500 Outstanding Exp. Debtors 45,000 Legal Expenses 750 Less : Bad Debts (New) | 1,200 Wages 225 975 43,800 Bank Overdraft 24,000 | Less : 2% R.D.D. (New) 876 | 42,924 Prepaid Insurance 900 Cash at Bank 32,280 Closing Stock 42,000 1,99,831 1,99,831 Mlustration 6 From the following Trial Balance and information given to you, prepare Trading Account, Profit & Loss Account & Balance Sheet as on 31st March, 2018 in the books of M/s Abhay. ‘Trial Balance as on 31st March, 2018 Debit Balances Amt Amt @) Capital 2,28,000 Furniture 40,000 Insurance 10,000 Salaries 17,000 Carriage Inward 1,000 Rent, Rates and Taxes 7,000 Machinery 50,000 Wages 8,000 Drawings 14,000 Carriage Outward 5,600 Purchases & Sales 62,000 1,71,000 Stock (1/4/2017) 31,000 Returns 5,000 6,300 Rent received 6,000 Discount Received 1700 eeRDD. 5,000 Bad debts 2,000 Advertisements 10,900 Debtors and Creditors 90,000 54,000 Bills Receivable 36,000 Cash at Bank 8,500 6% Bank Loan (taken on 1/10/2017) 50,000 Brokerage 4,000 Loose Tools 36,000 Bills Payable 16,000 Goodwill 1,00,000 5,38,000 5,38,000 Adjustments : 1) Closing Stock cost price € 37,000 and Market price € 40,000 2) Provide for R.D.D. @ 5% on Sundry Debtors. 3) Outstanding expenses - Wages - & 3,000, Salary - € 3,600 4) Provide depreciation on Machinery @ 10% and Furniture 5%. 5) Allowed Interest on Capital 5% p.a 6) Prepaid Insurance ® 2,000 Solution : In the Books of M/s Abhay ‘Trading Account and Profit and loss Account for the year ended 31st March 2018 Dr. Cr. i Amount | Amount . Amount | Amount Particulars © © Particulars © © To Opening Stock 31,000 | By Sales 1,71,000 To Purchases 62,000 Less : Sales Return 5,000 | 1,66,000 Less : Purchase Return 6,300 55,700 To Wages 8,000 By Closing Stock 37,000 ‘Add : Outstanding 3,000 | 11,000 To Carriage Inward 1,000 To Gross Profit o/d 1,04,300 2,03,000 2,03,000To Salaries 17,000 By Gross Profit b/d 1,04,300 Add : Outstanding Salaries 3,600 20,600 | By Discount Received 1,700 To Int, on Capital 11,400 | By Rent Received 6,000 To Bad debts (Old) 2,000 Add : R.D.D. (New) 4,500 6,500 Less: R.D.D. (old) 5,000} 1,500 ‘To Depreciation on Machinery 5,000 Furniture 2,000 7,000, To Insurance 10,000 Less : Prepaid Insurance 2,000 | 8,000 ‘To Rent, Rates and Taxes 7,000 To Carriage Outward 5,600 ‘To Advertisement 10,900 To Int. on Bank Loan 1,500 To Brokerage 4,000 ‘To Net Profit 34,500 (Transfered to Capital A/c) 1,12,000 1,12,000 Balance Sheet as on 31st March, 2018 Amount | Amount Amount | Amount Assets ® ® ®) ® Capital 2,28,000 Machinery 50,000 Add : Int on Capital 11,400 Less 10% : Depreciation 5,000 | 45,000 2,39,400 Furniture 40,000 Add: Net Profit 34,500 Less 5% : Depreciation 2,000 | 38,000 2,73,900 Bills Receivable 36,000 Less : Drawings 14,000 2,59,900 | Closing Stock 37,000 6% Bank Loan 50,000 Sundry Debtors 90,000 Add :Outstanding Int. 1,500 51,500 | Less 5% : R.D.D. 4,500 | 85,500 Creditors 54,000 | Cash at Bank 8,500 Outstanding Exp : Loose Tools 36,000 Salaries 3,600 Goodwill 1,00,000 Wages: 3,000 6,600 | Prepaid Insurance 2,000 Bills Payable 16,000 3,88,000, 3,88,000 ——Working Note : 1) Interest on Capital 5% p.a, on % 2,28,000 = % 11,400 2) Hidden Adjustment in Trial Balance 6% Bank Loan, taken on Ist Oct, 2017 - 50,000 Interest should be charged for 6 months only. 6% on & 50,000 for 6 months = = 1,500 Mlustration 7 From the following Trial Balance and additional information given of M/s Laxmi Enterprises you are required to prepare Trading Account. Profit & Loss Account for the year ending 31st March, 2019 and Balance Sheet as on that date. In the books of M/s Laxmi Enterprises Trial Balance as on 31st March, 2019 Debit Balances Amt @) Credit Balances Amt @) Machinery 1,00,000 Discount 2,000 Sundry Debtors 1,20,800 Sales 71,500 Furniture 36,000 Purchases Returns 4,800 Stock (Ist April, 2018) 20,000 Creditors 52,000 Wages: 1,800 10% Bank Loan (taken 76,000 Electricity Charges 4,600 on Ist Oct, 2018) Insurance 5,000 RDD. 1,600 Factory Rent 4,600 Bank Overdraft 53,300 Travelling Expenses 3,600 Capital 1,00,000 Advertisement 2,500 Office Rent 3,000 Purchases 49,300 Sales Returns 2,800 Bad Debts 1,200 Drawings 12,000 3,67,200 3,67,200 Adjustments : 1) Stock as on 31st March 2019, amounted to % 57,000 2) Depreciate Machinery and Furniture @ 5% 3) Unexpired Insurance & 1,000. 4) % 800 are written off as bad debts and create a Provision for Reserve for Doubtful Debts 5% on Sundry Debtors and Reserve for Discount on Debtors 2% and discount on Creditors 3%, 5) Outstanding Expenses - Wages € 2,200 and Office Rent & 1,400. 6) Goods withdrawn worth % 2,000 by owner for personal use. ———Solution : In the Books of M/s Laxmi Enterprises ‘Trading Account and Profit and loss Account for the year ended 31st March 2019 Dr. Cr Particulars aol ce Particulars ce cr To Opening Stock 20,000 | By Sales 77,500 To Purchases 49,300 Less : Sales Return 2,800, 74,700 Less : Purchase Return 4,800 | 44,500 To Wages 1,800 By Goods withdrawn 2,000 Add : Outstanding Wages 2,200 4,000 | for personal use To Factory Rent 4,600 | By Closing Stock 57,000 To Gross Profit e/d 60.600 1,33,700 1,33,700 To Office Rent 3,000 By Gross Profit b/d 60,600 Add : Outstanding Rent 1,400 | 4,400 | By Discount received 2,000 To Electricity Charges 4,600 | By Provision for 1,560 omens 5,000 Discount on Creditors Less : Prepaid Insurance 1,000} 4,000 To Travelling Expenses 3,600 ‘To Depreciation on Machinery 5,000 Furniture 1,800 | 6,800 To Bad debts (Old) 1,200 Add: Bad debts (New) 800 Add: R.D.D. (New) 6,000 8,000 Less: R.D.D. (Old) 1,600 | 6,400 To Provision for Discount 2,280 on Debtors: To Advertisement 2,500 To Interest on Bank Loan 3,800 To Net Profit, 25,780 (Transferred to Capital A/e) 64,160 64,160Balance Sheet as on 31st March, 2019 onan ‘Amount | Amount ‘Amount | Amount Liabilities ® @ Assets @) @) Capital 100,000 Machinery 1,00,000 Add : Net Profit 25,780 Less 5% : Depreciation 5,000 | 95.000 1,25,780 Furniture 36,000 Less : Drawings 14,000 | 1,11,780 | Less : 5% Depreciation 1,800 | 34,200 (12,000 + 2,000) Prepaid Insurance 1,000 Outstanding Exp : Sundry Debtors 1,20,800 Wages 2,200 Less : Bad debts 800 Office Rent 1,400 | 3,600 1,20,000 Creditors 52,000 Less 5% : RDD. 6,000 less 3% : Discount on 1,560 | 50,440 1,14,000 Creditors Less 2% Provision for 2,280 | 1,11,720 10% Bank Loan 76,000 discount Add : Interest 3,800 | 79,800 | Closing Stock 57,000 Outstanding Bank Overdraft 53,300 2,98,920 2,98,920 Tilustration 8 Shreyas requested you, to prepare Trading Account, Profit & Loss Account for the year ended on 3st, March 2018. and Balance Sheet as on that date, ‘Trial Balance as on 31st March, 2018 Debit Balances Amt (%) Credit Balances Amt (%) Opening Stock 14,400 Creditors 19,300 Debtors 30,000 Retums outward 750 Retums Inward 1,650 Sales 20,000 Rent, Rates & Insurance 2,250 Discount 365 Productive Wages 2,525 Capital 75,000 Discount 390 Outstanding Interest 650 Interest 475 Loan 7,500 Loss by fire 1,650 Salaries 1,850 Purchases 24,350 Drawings 2,500 Carriage Outward 1,275 Loose Tools 17,500 Plant & Machinery 14,000 Cash in hand 1,250 Cash at Bank 7,500 1,23,565 1,23,565 OeAdjustments : » Stock as on 31st March 2018, amounted to %48,500 2) Charge depreciation on Loose Tools @ 10% and on Plant & Machinery @ 15% 3) Prepaid Insurance amounted to % 500 and outstanding Rent 400. 4) Charge Interest on Capital @ 5% and on Drawings 7% 5) Outstanding Salary % 650 Solution In the Books of Shreyas Trading Account and Profit and loss Account for the year ended 31st March 2018 Dr. Cr . Amount | Amount . Amount | Amount Particulars @) @) Particulars @) @) To Opening Stock 14,400 | By Sales 20,000 To Purchases 24,350 Less : Sales Return 1,650 | 18,350 Less : Purchase Return 750 | 23,600 To Productive Wages 2,525 | By Closing Stock To Gross Profit o/d 26,325 e500 66,850 66,850 To Rent, Rates & Insurance | 2,250 By Gross Profit e/d 26,325 Add : Outstanding Rent 400 By Discount Received 365 2,650 By Interest on 88 Less : Prepaid Insurance 500} 2,150 Drawings To Discount 390 To Interest on Capital 3,750 To Depreciation on : Loose Tools 1,750 Plant & Machinery 2,100 | 3,850 To Interest 415 To Salaries 1,850 Add : Outstanding Salary 650 | 2,500 To Loss by Fire 1,650 ‘To Carriage Outwards 1,275 To Net Profit 10,738 (Transferred to Capital A/e) 26,778 26,778Balance Sheet as on 31st March, 2018 tabiliti, Amount | Amount Amount | Amount Liabilities @) @) Assets ®@ ® Capital 75,000, Loose Tools 17,500 Add : Net Profit 10,738 Less 10% : Depreciation |__1,750 | 15,750 Add : Interest 5% on 3,750 Plant & Machinery 14,000 Capital 89,488 Less 15% : Depreciation | 2,100 | 11,900 Less : Drawings 2,500 Cash at Bank 7,500 86988 Closing Stock 48.500 Less : Int on Drawings 88 | 86,900 | Prepaid Insurance 500 Creditors 19,300 | Debtors 30,000 Loan 7,800 | Cash in hand 1,250 Outstanding Interest 650 Outstanding Rent 400 Outstanding Salary 650 1,15,400 1,15,400 Note : Interest on Drawing is charged for 6 months only as date of Drawing is not given. Amount of Drawing given in Trial Balance is € 2,500, So 7% on 2500 = 175 Interest on Drawing is charged for 6 months only; Therefore 175/2 = 88. I means, Drawings € 2,500 + 88 = 2,588 Illustration 9 From the following Trial Balance of Kisan Traders prepare Trading Account, Profit & Loss Account for the year ended on 31st, March 2019. and Balance Sheet as on that date Trial Balance as on 31st March, 2019 Debit Balances Amt @) Credit Balances Amt @) Stock (1.4.2018) 1,50,000 Sundry Creditors 2,00,000 Purchases 8,50,000 Bank Overdraft 1,80,000 Wages 1,20,000 Interest Received 60,000 Indirect Expenses 80,000 Reserve for doubtful debts | 10,000 Return Inward 20,000 Sales 13,95,300 Power & Fuel 95,000 Returns Outward 30,000 Advertisement 70,000 Capital 6,00,000 Travelling Expenses 30,000 Sundry Debtors 2,20,000 Plant & Machinery 1,80,000 Printing & Stationery 18,000 Computers & Printers $,20,000 Insurance Premium 20,000 Cash in hand 42,300 Bad Debts 11,000 Drawings 49,000 24,758,300 24,75,300 ee