CHAPTER 1: RECTIFICATION OF ERRORS

Introduction:

In the previous module, we have studied the basics of accounting, covering the meaning of Book
Keeping and Accountancy, along with the recording of the transactions in Journal and Subsidiary
books to the preparation of Trial Balance. Let us now move further to the advance of Accounting.
We prepare Trial Balance to check the arithmetical accuracy of the transactions recorded in the
Journal and Ledger. The Trial Balance is prepared with an objective to check the total of the Debit
Side and the Credit Side, which should tally. If this does not happen, it is implied that there is
some error while the transactions are recorded or posted.
Let us now understand what an Error is:
Any mistake committed unintentionally is error. It is rightly said “To err is human”, which
implies that human beings are tending to make errors. In terms of accounting, errors can be
caused due to omission or commission of amounts and accounts while recording the transactions.
These errors may happen at any stage, i.e. while collecting the financial data, recording the
transactions, totalling / balancing the ledger accounts, mathematical errors, mistakes in applying
accounting policies, etc.

These errors can be identified at different stages of Accounting. Let us understand the different
stages of Errors:
1. At the stage of Recording the Transactions in a Journal Book:
i. Errors of principle,
ii. Errors of omission,
iii. Errors of commission.
2. At the Stage of Posting the Entries in the Ledger:
i. Errors of omission:
a. Partial omission,
b. Complete omission.
ii. Errors of commission:
a. Posting to wrong account,
b. Posting on the wrong side,
c. Posting of wrong amount.
3. At the stage when the Ledger Accounts are balanced:
a. Wrong Totalling of accounts,
b. Wrong Balancing of accounts.
4. At the Stage of Preparation the Trial Balance:
a. Errors of omission,
b. Errors of commission:
i. Posting to wrong account,
ii. Posting wrong amount,
iii. Posting to the wrong side.

Based on the above, we can classify the Errors in the below four broad categories:
1. Errors of Principle,
2. Errors of Omission,
3. Errors of Commission,
4. Compensating Errors

Types of Errors:
1. Error of Principle: When any transaction is recorded in the books of accounts, the
accounting principles should be followed. If the transaction is recorded in violation of the basic
accounting principles, it is Error of Principle. These errors do not affect the Trial Balance,
because the amounts are placed in the correct side with wrong accounts.
For Example: On purchase of Machinery, Avinash booked the Journal Entry as follows:
Office Expenses A/c Dr.
To Bank A/c
In the above entry, instead of Office Expenses, Machinery A/c should be debited.
2. Error of Omission: This error occurs when a transaction is completely or partially omitted /
skipped from entering into the books of accounts. In case of complete omission, the trial balance
is not affected, however, in case of Partial omission, the Trial Balance is affected, as only one
account is debited or credited.
For Example: Nihal forgot to enter the stationery purchased in the books of account, Khan forgot
to debit the cash account while posting to the ledger, but entered the credit account.
3. Error of Commission: This error occurs when an amount is posted in the wrong account or
it is written on the wrong side or the totals are wrong or a wrong balance is struck. This error
affects the Trial Balance.
For Example: While balancing the Purchase A/c, the balance taken was Rs. 5,000, instead of Rs.
50,000.
4. Compensating Errors: These types of errors are mere coincidence, where if the error is
cancelled out, it is a compensating error.
For Example: Ganesh purchased goods on credit from Vishal for Rs. 15,000 and the entry is
omitted to enter. However, the total of cash book is short by Rs. 15,000. This is a type of
Compensating error.

Steps to locate the errors:

The errors in trial balance must be located and rectified irrespective of the amount of difference as
even a small difference can result to a number of errors.
The below given steps may be followed to locate the errors:
1. Recheck the total of the debit and credit side of the trial balance.
2. Check the amount against the head of account with the balance as calculated in the ledger.
3. Check if any account is omitted to enter in the trial balance.
4. Check if there are any additions in account by comparing the trial balance of current year
with that of the previous year.
5. Balance the ledger accounts again.
6. Recheck the posting to the ledger account from the journal entry and subsidiary books.
7. If the difference amount in the trial balance is divisible by 2, there is a possibility that one
entry may be omitted or entered twice.
8. If the difference is in multiple of 9 or divisible by 9, there must be a possibility that that
digits in the amount are interchanged. E.g., the amount is 285 but entered as 258, then the
difference in the trial balance will be of Rs. 27, which is divisible by 9.
9. If even after following all the above steps, the trial balance is showing difference, the
complete accounting should be checked.
Rectification of Errors:
For the purpose of rectification, the errors may be classified into the following categories:
 Errors which do not affect the trial balance: Usually, these errors are committed in two or
more accounts, hence, they are known as two-sided errors. It is easy to identify such errors as
these may occur only in case of error of omission, which is easy to trace. Some of the examples of
these errors are:
1. Omitting an entry altogether from the subsidiary book.
2. Making an entry with the wrong amount in the subsidiary book.
3. Posting an amount in a wrong account but on the correct side
Rectification process of these errors can be done by reversing the wrong debit or credit to cancel
the effect and restoring the effect of correct debit or credit.
To rectify these errors, we need to analyse the error in terms of its effect on the accounts involved
which may be:
i. Short debit or credit in an account; and/or
ii. Excess debit or credit in an account.
Therefore, rectification entry can be done by:
i. Debiting the account with short debit or with excess credit,
ii. Crediting the account with excess debit or with short credit.
The procedure for rectification for such errors is explained with the help of following example:
a. Credit purchase from Sohan Rs. 1,10,000 were not recorded in the purchase book. This is
an error of complete omission. Its affect is that Purchases account has not been debited and
Sohan’s account has not been credited. Accordingly, recording usual entry for credit sales will
rectify the error.

Date /
Particulars L. F. Debit Credit
Sr. No.

1 Purchase A/c Dr. 1,10,000

To Sohan’s A/c 1,10,000

b. Credit sales to Sohan Rs. 1,10,000 were recorded as Rs. 11,000 in the sales book. This is an
error of commission. Here we can see that Sohan’s account is debited less by Rs. 99,000 and sales
account is credited less by Rs. 99,000. Hence, the rectified entry shall be:

Date /
Particulars L. F. Debit Credit
Sr. No.

1 Sohan’s A/c Dr. 99,000

To Sales A/c 99,000

c. Credit sales to Sahil for Rs. 15,000 entered as Rs. 25,000. This is an error of commission,
where there is an excess debit of Rs. 10,000 in Sahil’s A/c and excess credit in sales A/c.
The rectification entry will be:

Date /
Particulars L. F. Debit Credit
Sr. No.

1 Sales A/c Dr. 10,000

To Sahil’s A/c 10,000
d. Credit sales to Sahil for Rs. 15,000 correctly recorded in the sales book but posted to
Shreya’s A/c. In this case the sales account has be credited correctly, but Shreya’s A/c is debited
wrongly instead of Sahil’s A/c. the rectified entry will be:

Date /
Particulars L. F. Debit Credit
Sr. No.

1 Sahil’s A/c Dr. 10,000

To Shreya’s A/c 10,000

 Errors which affect the trial balance: It is difficult to identify and rectify these errors. Only
one side of account is affected and to rectify the other side of account, suspense account is opened
and entries are posted to that account. Some of the examples of these errors are:
1. Wrong totalling of the subsidiary books.
2. Wrong balancing of an account.
3. Posting an amount on the wrong side.
4. Posting the wrong amount.
5. Omitting to post an amount or a total from a subsidiary book.
6. Omitting to write the balance of an account in the trial balance.
7. Writing a balance in wrong column of the trial balance.
8. Totalling the trial balance wrongly.

a. Credit purchase from Sohan Rs. 1,10,000 were not recorded in the purchase book. This is
an error of partial omission. Its effect is that Purchases account has not been debited but Sohan’s
account has been credited. Accordingly, recording usual entry for credit sales will rectify the
error.

Date /
Particulars L. F. Debit Credit
Sr. No.

1 Purchase A/c Dr. 1,10,000

To Suspense A/c 1,10,000

b. Credit sales to Sohan Rs. 1,10,000 were recorded as Rs. 11,000 in the sales book. This is an
error of commission. Here we can see that Sohan’s account is debited less by Rs. 99,000 and sales
account is credited less by Rs. 99,000. Hence, the rectified entry shall be:

Date /
Particulars L. F. Debit Credit
Sr. No.

1 Sohan’s A/c Dr. 99,000

To Suspense A/c 99,000

c. Credit sales to Sahil for Rs. 15,000 entered as Rs. 25,000. This is an error of commission,
where there is an excess debit of Rs. 10,000 in Sahil’s A/c and excess credit in sales A/c.
The rectification entry will be:
 Date /
Particulars L. F. Debit Credit
Sr. No.

1 Suspense A/c Dr. 10,000

To Sahil’s A/c 10,000

Illustrations:
Q 1. How would you rectify the following errors in the book of Rama & Co.?
1. The total to the Purchases Book has been under cast by Rs.100.
2. The Returns Inward Book has been under cast by Rs. 50.
3. A sum of Rs. 250 written off as depreciation on Machinery has not been debited to
Depreciation Account.
4. A payment of Rs. 75 for salaries (to Mohan) has been posted twice to Salaries Account.
5. The total of Bills Receivable Book Rs. 1,500 has been posted to the credit of Bills
Receivable Account.
6. An amount of Rs.151 for a credit sale to Hari, although correctly entered in the Sales Book,
has been posted as Rs. 115.
7. Discount allowed to Satish Rs. 25 has not been entered in the Discount Column of the Cash
Book. The amount has been posted correctly to the credit of his personal account.

Q 2. The following errors were found in the book of Ram Prasad & Sons. Give the necessary
entries to correct them.
1. Rs. 500 paid for furniture purchased has been charged to ordinary Purchases Account.
2. Repairs made were debited to Building Account for Rs. 50.
3. An amount of Rs.100 withdrawn by the proprietor for his personal use has been debited to
Trade Expenses Account.
4. Rs.100 paid for rent debited to Landlord’s Account.
5. Salary Rs.125 paid to a clerk due to him has been debited to his personal account.
6. Rs.100 received from Shah & Co. has been wrongly entered as from Shaw & Co.
7. Rs. 700 paid in cash for a typewriter was charged to Office Expenses Account.

Q 3. Give journal entries to rectify the following:

1. A purchase of goods from Ram amounting to Rs.150 has been wrongly entered through the
Sales Book.
2. A Credit sale of goods amounting Rs.120 to Ramesh has been wrongly passed through the
Purchase Book.
3. On 31st December, 2016 goods of the value of Rs.300 were returned by Hari Saran and
were taken inventory on the same date but no entry was passed in the books.
4. An amount of Rs. 200 due from Mahesh Chand, which had been written off as a Bad Debt
in a previous year, was unexpectedly recovered, and had been posted to the personal account of
Mahesh Chand.
5. A Cheque for Rs.100 received from Man Mohan was dishonoured and had been posted to
the debit of Sales Returns Account.
Q 4. Correct the following errors (i) without opening a Suspense Account and (ii) opening a
Suspense Account:
1. The Sales Book has been totalled Rs.100 short.
2. Goods worth Rs.150 returned by Green & Co. have not been recorded anywhere.
3. Goods purchased Rs.250 has been posted to the debit of the supplier Gupta & Co.
4. Furniture purchased from Gulab & Bros, Rs.1,000 has been entered in Purchases Day
Book.
5. Discount received from Red & Black Rs.15 has not been entered in the Discount Column
of the Cash Book.
6. Discount allowed to G. Mohan & Co. Rs.18 has not been entered in the Discount Column
of the Cash Book. The account of G. Mohan & Co. has, however, been correctly posted.

Q 5. Correct the following errors found in the books of Mr. Dutt. The Trial Balance was out by
Rs. 493 excess credit. The difference thus has been posted to a Suspense Account.
1. An amount of Rs.100 was received from D. Das on 31st December, 2015 but has been
omitted to enter in the Cash Book.
2. The total of Returns Inward Book for December has been cast Rs.100 short.
3. The purchase of an office table costing Rs. 300 has been passed through the Purchases Day
Book.
4. Rs. 375 paid for Wages to workmen for making show-cases had been charged to “Wages
Account”.
5. A purchase of Rs. 67 had been posted to the trade payables’ account as Rs. 60.
6. A cheque for Rs. 200 received from P. C. Joshi had been dishonoured and was passed to
the debit of “Allowances Account”.
7. Rs. 1,000 paid for the purchase of a motor cycle for Mr. Dutt had been charged to
“Miscellaneous Expenses Account”.
8. Goods amounting to Rs.100 had been returned by customer and were taken in to inventory,
but no entry in respect thereof, was made into the books.
9. A sale of Rs. 200 to Singh & Co. was wrongly credited to their account. Entry was made
correctly made in sales book.

Q 6. The following errors, affecting the account for the year 2015 were detected in the books of
Jain Brothers, Delhi:
1. Sale of old Furniture Rs.150 treated as sale of goods.
2. Receipt of Rs. 500 from Ram Mohan credited to Shyam Sunder.
3. Goods worth Rs.100 brought from Mohan Narain have remained unrecorded so far.
4. A return of Rs.120 from Mukesh posted to his debit.
5. A return of Rs. 90 to Shyam Sunder posted as Rs. 9 in his account.
6. Rent of proprietor’s residence, Rs. 600 debited to rent A/c.
7. A payment of Rs. 215 to Mohammad Sadiq posted to his credit as Rs.125.
8. Sales Book added Rs. 900 short.
9. The total of Bills Receivable Book Rs. 1,500 left unposted.
You are required to pass the necessary rectifying entries and show how the trial balance would be
affected by the errors.

Q 7. Write out the Journal Entries to rectify the following errors, using a Suspense Account.
1. Goods of the value of Rs.100 returned by Mr. Sharma were entered in the Sales Day Book
and posted there from to the credit of his account;
2. An amount of Rs.150 entered in the Sales Returns Book, has been posted to the debit of
Mr. Philip, who returned the goods;
3. A sale of Rs. 200 made to Mr. Ghanshyam was correctly entered in the Sales Day Book but
wrongly posted to the debit of Mr. Radheshyam as Rs. 20;
4. Bad Debts aggregating Rs.450 were written off during the year in the Sales ledger but were
not adjusted in the General Ledger; and
5. The total of “Discount Allowed” column in the Cash Book for the month of September,
2015 amounting to Rs. 250 was not posted.

Q 8. Mr. Roy was unable to agree the Trial Balance last year and wrote off the difference to the
Profit and Loss Account of that year. Next Year, he appointed a Chartered Accountant who
examined the old books and found the following mistakes:
1. Purchase of a scooter was debited to conveyance account Rs.3,000.
2. Purchase account was over-cast by Rs.10,000.
3. A credit purchase of goods from Mr. P for Rs.2,000 entered as a sale.
4. Receipt of cash from Mr. A was posted to the account of Mr. B Rs.1,000.
5. Receipt of cash from Mr. C was posted to the debit of his account, Rs.500.
6. Rs. 500 due by Mr. Q was omitted to be taken to the trial balance.
7. Sale of goods to Mr. R for Rs.2,000 was omitted to be recorded.
8. Amount of Rs.2,395 of purchase was wrongly posted as Rs.2,593.
9. Mr. Roy used 10% depreciation on vehicles. Suggest the necessary rectification entries.
 CHAPTER 2: FINAL ACCOUNTS
Introduction

The next and the final step in accounting after the preparation of Trial Balance and Rectification
of the errors, if any, is the preparation of the Final Accounts. These accounts are prepared with the
objective to know the profit or loss earned during the financial year and also the Financial
Position of the business organisation. As these accounts are prepared at the final stage of
accounting, these are known as Final Accounts.
These accounts consist of the followings:
1. Trial Balance
2. Profit & Loss Account
3. Balance Sheet

Objectives of Preparation of Final Accounts

Knowing Profitability
of Business

Communicating with Knowing Solvency of

Different Parties Business

Objectives of
Forecasting and
Final Accounts Judging the Growth
Preparing Budgets of Business

Making Comparison
Judging Financial
and Selection of
Strength of Business
Appropriate Policy

The following are the objectives and importance of Final Accounts:

(i) Knowing Profitability of Business: The financial statements are prepared with the
objective to find out whether the business in earning profit or loss and also to know whether the
profit has increased or decreased as compared to the previous year.
(ii) Knowing the Solvency of the Business: The Financial Statements help to analyse the
credit worthiness of the business organisation and whether the organisation is in the capacity to
repay the debts, if any.
(iii) Judging the Growth of the Business: The Final accounts help to compare the data of two
definite periods to ascertain whether the organisation is growing or not.
(iv) Making Comparison and Selection of Appropriate Policy: The financial statements help
to make comparison with the competitors in the market and know the position of our business.
(v) Forecasting and Preparing Budgets: The final accounts help to prepare the budget for the
future period, based on the past experiences.
(vi) Communicating with Different Parties: The users of accounting information refer the
financial statements to know the profitability and credit worthiness of the entity.

Limitations of Preparation of Final Accounts

Limitations of Financial Statements:

(i) Manipulation or Window Dressing: Many business organisations manipulate the
financial statements as per the requirements either to evade tax or to acquire loans. This implies
that the financial statements cannot be treated as the final statements.
(ii) Use of Diverse Procedures: Each business organisation follows different accounting
policies for treatment of particular items, because of which there is no formal standard to make a
comparative study of financial statements with that of the competitors.
(iii) Qualitative Aspect Ignored: The financial statements only deal with the information
which can be expressed in monetary terms. Thus, they ignore the non-monetary aspects that can
be converted into monetary aspects.
(iv) Historical: Financial statements deal with the past events only, ignoring the current aspects
and changes. Hence, it is historical and ignores the current effects on the financial matters.
(v) Price Level Changes: The figures showed in the Financial Statements ignore the effects of
changes in the Price Level due to inflation, due to which a misleading picture may be obtained.
(vi) Lack of Regular Data/Information: Analysis of financial statements of a single year has
limited uses. The analysis assumes importance only when compared with financial statements,
relating to different years or different firm.

Contents of Final Accounts

The Final Accounts of the Business Organisations contains the below accounts / Statements:
1. Trading Account: The trading account is the account prepared by manufacturers and
retailers who deal in Goods. This account is prepared to calculate the Gross Profit or Gross Loss
of a business. However, the gross profit / gross loss of a company is not the fair result of the
company’s performance. This is the profit earned by the manufacturer or the retailer just based on
the purchase and sale of goods and any expenses directly related to the purchase and sales of
goods. This is also known as Cost of Goods Sold.
The trading accounting has the following features:
a. It is the first stage of final accounts of a trading concern.
b. It is prepared on the last day of an accounting period, i.e., 31st of March.
c. Only direct incomes and direct expenses are considered in it.
d. Direct expenses are recorded on its debit side and direct revenue on its credit side.
e. Only current items of direct income and direct expenses are taken into account.
f. If its credit side exceeds it represents gross profit and if debit side exceeds it shows gross
loss.

2. Profit & Loss Account: A businessman incurs many other expenses such as stationery,
Electricity bill, refreshment expenses, salaries to the office staff, etc. other than the direct expenses
as recorded in the Trading Account. To arrive at the correct profit of the organisation, these expenses
have to be deducted from the Income. To deduct these expenses, the Profit and Loss Account is
prepared. This account opens with the Gross Profit on credit side and Gross Loss on the Debit side.

The format of Trading and Profit & Loss Account is as given below:

Trading and Profit & Loss Account for the year ended on 31st March, 20XX
Dr.
Cr.
Particulars Amount Amount Particulars Amount Amount
To Opening Stock xxx By Sales xxx
To Purchases xxx Less: Returns (xxx) xxx
Less: Returns (xxx) xxx By Closing Stock xxx
To Carriage Inward xxx
By Gross Loss c/d (In
xxx xxx
To Wages case of Loss)
To Gross Profit c/d xxx

xxx xxx

To Gross Loss c/d (In

xxx xxx
case of Loss) By Gross Profit b/d
To Salaries xxx By Interest Earned xxx
To Carriage Outward xxx By Dividend Earned xxx
To Rates & Taxes xxx By Rent Earned xxx
To Insurance xxx By Discount Received xxx
By Profit on Sale of
xxx xxx
To Depreciation Fixed Assets
By Profit on Sale of
xxx xxx
To Bad Debts Investments
To Advertising xxx
To Interest Paid xxx
To Travelling Expenses xxx
To Discount Allowed xxx
To Loss on Sale of
xxx
Fixed Assets
To Loss on Sale of xxx By Net Loss xxx
Investments Transferred to B/S (In
 case of Loss)
To Loss by Fire xxx
To Net Profit
xxx
Transferred to B/S

xxx xxx

3. Balance Sheet: The financial position of a business organisation is arrived at by preparation

of the Balance Sheet. It is a statement showing the assets and liabilities of the business on a
particular date, usually 31st March. The excess of liabilities over the assets shows that the business is
sinking and excess of assets over the liabilities shows the growth of the business.

The format of Balance Sheet is as given below:

BALANCE SHEET AS ON 31ST MARCH, 20XX

Liabilities Amount Amount Assets Amount Amount
Capital Account xxx Fixed Assets xxx
Capital A/c xxx
Drawings (xxx) Investments xxx
Life Insurance (xxx)
Profit for the xxx
Year
Current Assets xxx
Loans (Liability) xxx Closing Stock xxx
Unsecured Loans xxx Loans & Advances xxx
(Asset)
Sundry Debtors xxx
Current Liabilities xxx Cash-in-hand xxx
Duties & Taxes xxx Bank Accounts xxx
Provisions xxx Deposits xxx
Sundry Creditors xxx

Total xxx Total xxx

4. Summary of Adjustments: The final accounts are finalised and arrived at the correct
figures after the year-end adjustments, which are most important while following the accrual basis
of accounting. The adjustments have both the debit and the credit effect of equal amount, which
tallies the final accounts.
 Adjustments 1st Effect 2nd Effect
1 Closing Stock Balance Sheet Asset Side Trading Account Credit Side
2 Outstanding Expenses Add to that particular expenses on Balance Sheet Liability Side
the debit side of Trading/Profit and
Loss A/c
3 Prepaid Expenses Balance Sheet Asset side Deduct from that particular
expenses on the debit side of
Trading/profit and loss A/c
4 Income received in advance Deduct from that particular income Balance Sheet Liability Side
(Pre-received Income) on the credit side of Profit and Loss
A/c
5 Income receivable Balance Sheet Asset Side Add on that particular
(Outstanding Income) Income on the credit side of
profit and loss A/c
6 Bad Debts (Additional or New Show to the Debit side of profit and Deduct from Sundry debtors
Bad debts) loss A/c (Add to old Bad Debts) in Balance Sheet Asset Side
7 Provisions for Doubtful Debts Show to the debit side of profit and Deduct from Sundry Debtors
(Reserve for Doubtful Debts, loss A/c (Add to old bad debts) in Balance Sheet Asset Side
New R.D.D.)
8 a. Reserve For Discount on Show to the debit Side of Profit and Deduct from Sundry Debtors
Debtors loss A/c (Add to discount received) in Balance Sheet Asset Side
8 b. Reserve for Discount on Show to the credit Side of Profit Deduct from Sundry
Creditors and loss A/c (Add to discount Creditors in Balance Sheet
received) Asset Side
9 Depreciation Show on the debit side of the profit Deduct from that particular
and loss A/c asset in Balance Sheet Asset
side
10 a. Interest on Capital Show to the debit side of profit and Partner’s capital/ current A/c/
loss A/c credit side or add to capitals
10 b. Interest on Drawing Show to the debit side of partner’s Show to the credit side of
capital/current A/c or Less from profit and loss A/c
capital
10 c. Interest on loan taken Show to the debit side of profit and Add to loan taken in the
loss A/c Balance Sheet liability side
11 Interest on Investment and Balance sheet asset side Show to the credit side of
loan given profit and loss A/c
12 a. Insured Goods destroyed by i. Balance sheet asset side (claim Trading A/c – credit side
Fire/accident amount) ii. Profit and loss A/c (loss (gross amount)
amount)
12 b. Uninsured Goods destroyed Profit and loss A/c debit side Show to the credit side of
by Fire/ accident, Goods Stolen Trading A/c
13 Goods distributed as free Profit and loss A/c debit side (Add Show to the credit side of
samples in advertisements) trading A/c
14 Goods withdrawn by Partners Partners’ capital/ current A/c debit Show to the credit side of
for personal use side trading A/c or Deduct from
purchase A/c
15 a. Unrecorded Purchases Add to purchase on the debit side of Add to creditors on the
Trading A/c Liability Side of Balance
 Sheet
15 b. Unrecorded Sales Add to debtors on the asset side of Add to Sales on the credit
the Balance Sheet side of Trading A/c
16. a. Capital Expenditure Add to that particular asset in Deduct from that particular
included in revenue expenditure Balance Sheet Asset side revenue expenses on the
debit side of Trading or
profit and loss A/c
16 b. Revenue expenditure Add to that particular revenue Deducted from that particular
included in capital expenditure expenditure Asset in Balance Sheet
17. Bills Receivable Add the amount of bill dishonoured Deduct the Amount of bill
Dishonoured to sundry debtors in the Balance dishonoured from Bills
Sheet asset side Receivable
18. Bills Payable Dishonoured Deduct the amount of bill Add the Amount of bill
dishonoured from Bills payable dishonoured to sundry
creditors in the Balance
Sheet liability side
19. Deferred expenses of Advertisement related to current Remaining Amount of
Advertisement paid for 5 years year debited to profit and loss A/c advertisement is shown on
asset side of the Balance
Sheet as Prepaid
Advertisement
20. Revenue receipts included in Add to furniture on the asset side of Add to Sales on the credit
capital receipts e.g. sales of the Balance Sheet side of Trading A/c
goods included in sale of
furniture
21. Commission to partners as Show to the debit side of profit and Show to the credit side of
percentage of gross profit/sales loss A/c Partner’s capital /currents
A/c or add to partner’s
capital A/c

The above format and contents of Final Accounts remain the same for Sole Proprietor and
Partnership Firm.
Example:
From the given balances of Shri Gandhi as on 31st March, 2020, prepare Trading and Profit and
Loss Account and Balance Sheet as on 31st March, 2020.

Credit
Particulars Debit (Rs.) (Rs.)
Capital - 1,00,000
Drawings 17,600 -
Purchases 80,000 -
Sales - 1,40,370
Purchase Return - 2,820
Stock as on 1st April, 2019 11,460 -
Bad Debts 1,400 -
Reserve for Doubtful Debts as on 1st April, 2019 - 3,240
Rates and Insurance 1,300 -
Discount (Cr.) - 190
 Bills Receivable 1,240 -
Sales Returns 4,240 -
Wages 6,280 -
Buildings 25,000 -
Rent Received - 2,100
Railway Freight on Sales 16,940 -
Carriage Inwards 2,310 -
Office Expenses 1,340 -
Printing and Stationery 660 -
Postage and Telegram 820 -
Sundry Debtors 62,070 -
Sundry Creditors - 18,920
Cash in Hand 12,400 -
Cash at Bank 2,210 -
Office Furniture 3,500 -
Salaries and Commission 9,870 -
Addition to Buildings 7,000 -
Total 2,67,640 2,67,640

Adjustments:
1. Depreciate the building by Rs. 625 and addition to building at 2% and office furniture by
5%.
2. Write of further bad debts Rs. 570.
3. Increase the bad debts reserve to 6% of debtors.
4. Outstanding Salary is Rs. 570.
5. Rent receivable is Rs. 200.
6. Interest on Capital is 5%.
7. Prepaid Insurance is Rs. 240
8. Closing Stock is Rs. 14290.

Solution:

In the books of Shri Gandhi

Trading and Profit and Loss Account for the year ended on 31st March, 2020

Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
T B
Opening Stock 11,460 Sales 1,40,370
o y
T Less: Sales
Purchases 80,000 -4,240 1,36,130
o Return
B
Less: Purchase Return -2,820 77,180 Closing Stock 14,290
y
T
Carriage Inwards 2,310
o
T Wages 6,280
o
T
Gross Profit c/d 53,190
o

1,50,420 1,50,420

T Railway Freight on B
16940 Gross Profit b/d 53,190
o Sales y
T B
Office Expenses 1340 Rent 2100
o y
T Add: Accrues
Printing and Stationery 660 200 2300
o Rent
T B
Postage and Telegram 820 Discount 190
o y
T Salaries and
9870
o Commission
Add: Outstanding 570 10440
T
Rates and Insurance 1300
o
Less: Prepaid -240 1060
T
Bad Debts 1400
o
Add: Further Bad
570
Bebts
Add: New Bad Debts 3690
Less: Provision for bad
-3240 2420
debts
T
Interest on Capital 5000
o
T Depreciation on
765
o Building
T Depreciation on Office
175
o Furniture
T
Net Profit 16,060
o

55,680 55,680

Balance Sheet as on 31St March, 2020

Liabilities Amount Amount Assets Amount Amount
Capital 1,00,000 Buildings 25,000
Add: Net Profit 16,060 Less: Depreciation -625
1,16,060 24,375
Add: Interest on Add: Addition to
Capital 5,000 Building 7,000
 1,21,060 Less: Depreciation -140 31,235
-
Less: Drawings 17,600 1,03,460 Office Furniture 3,500
Less: Depreciation -175 3,325
Sundry Creditors 18,920 Cash at Bank 12,400
Outstanding Salaries 570 Cash in Hand 2,210
Bills Receivable 1,240
Debtors 62,070
Less: Further Bad Debts -570
61,500
Less: New Provision for
Doubtful Debts -3,690 57,810
Accrued Rent 200
Prepaid Insurance 240
Closing Stock 14,290

Total 1,22,950 Total 1,22,950

Questions for Self-Practice

Q. 1: From the following trial balance and additional information, prepare a trading and
profit and loss account for the year ended 31 March 2020 and a balance sheet as at the same
date.

Trial balance as at 31 March 2020:

Particulars Dr (Rs.) Cr (Rs.)

Tax payable 90,000
Net sales 930,000
Net purchases 320,000
Stock 30,000
Salaries & wages 180,000
Rent & rates 140,000
Water & electricity 21,000
Trade creditors 119,600
Trade debtors 321,000
Insurance 51,000
Cash in hand 20,000
Cash at bank 134,000
Plant & machinery 420,000
Furniture & fittings 97,600
Capital 700,000
Drawings 15,000
Fixed deposits with bank 300,000
Bank loan 170,000
Provision for depreciation – plant & machinery 30,000
Provision for depreciation – furniture & fittings 10,000
Total 2,049,600 2,049,600

Additional information:
(a) Closing stock amounted to Rs. 70,000.
(b) Provision for depreciation is to be made for the current year:
Plant & machinery @ 10% on book value.
Furniture & fittings @ 8% on book value
(c) Accrued expenses: Wages Rs. 8,000.
Water & electricity Rs. 3,000.

(d) Prepaid expenses: Rent & rates Rs. 14,000

Insurance Rs. 25,000.

(e) Accrued income: Accrued interest up to and including 31 March 2020: Rs. 13,000.
(f) Provide for doubtful debts: 4% of total debtors.

Q. 2: The following are the closing balances as on 31st March, 2020 extracted from the books
of Mehta. Prepare Trading and Profit and Loss account for the year ended 31st March, 2020
and the balance sheet as on the same date. Show the necessary entries.

Particulars Dr. Cr.

Mr. Mehta’s Capital 1,65,000
Stock on 1st April, 2019 70,200
Sales 4,22,400
Purchases 3,64,650
Carriage inwards 27,900
Rent and taxes 8,550
Sales returns 12,900
Salaries 13,950
Purchases returns 8,700
Sundry debtors 36,000
Sundry creditors 22,200
Bank loan at 6% (1st April, 2019) 30,000
Interest paid on above 1,350
Printing and advertisements 21,900
Drawing A/c 15,000
Interest Received from A.N. Sen 400
Discount received 6,300
Investments 7,500
Furniture and fittings 2,700
Discount allowed 11,310
General expenses 6,000
Audit fees 1,050
Insurance 900
Traveling expenses 3,500
Postage and telegrams 4,070
Cash in hand 570
Deposit with Mr. A.N. Sen (1st April, 2019) interest at 9%) 45,000

Adjustments:

1. Stock as on 31st March, 2020 was Rs. 1,20,000.

2. Sundry Debtors included a sum of Rs. 3,000 due from Mr. Nair and Sundry Creditors
included a sum of R. 4,000 due to Mr. Nair.
3. 25% of the Printing and Advertisements was to be carried forward in the next year.
4. Provide 5% for bad debts and 2% for discount for prompt payment.
5. Write off depreciation at 10% off furniture and Fittings Depreciation in respect of items
sold off during the year need not be provided.
6. As on 31st March, 2020 salaries and carriage inwards that remained unpaid were Rs. 1,200
and Rs. 150 respectively.
7. Insurance paid in advance as on 31st March, 2020 was Rs. 120.
8. Furniture of the book value of Rs. 900 as on 1st April, 2019 had been disposed off for Rs.
500 on 30th September, 2019. The sale proceeds had been credited to furniture account, but the
loss on sale of furniture had not been written off in books.
9. Furniture purchased for Rs. 1,000 on 1st April, 2019 had been debited to Purchases A/c.
10. Purchases to the value of Rs. 1800 had been omitted to be entered in the books.
11. Personal purchases of Rs. 700 made by Mr. Mehta had been included in the purchases.
12. Provide for interest on the deposit with Mr. A.N. Sen, and bank loan.

Q. 3: Following is the Trial Balance of Shri Nalawae, as on 31st March, 2020. You are
required to prepare Trading and Profit and loss account and Balance sheet as on that date.

PARTICULARS Amount (Dr.) Amount (Cr.)

Capital 91,000
Drawings 12,000
Opening stock 32,000
Sales less returns 12,000 1,70,000
Purchases 82,000
Wages 6,000
Carriage 5,000
Salaries 16,500
Insurance (to expire on 30-06-2019) 1,200
Interest on loan 400
6% Loan 12,000
Plant and Machinery 25,000
Land and Building 40,000
Lease 10,000
Rent, Rates and Taxes 1,200
Bad debts 700
Bills receivable 3,000
Bank balance 12,800
10% investment 10,000
Debtors and Creditors 32,000 30,000

2,91,000 2,91,000

Additional Information:

1. 95% of the debtors are considered good.

2. Opening stock includes stock of stationery of Rs. 2000
3. Purchase includes purchase of stationery Rs. 5000
4. Stock on 31st March, 2020 was Rs. 25,000.
5. Stock of Stationery amounted to Rs. 500/- on 31st March,2001.
6. Salary represents amount paid up to February 2020.
7. Depreciation on machinery is 20% and on Land and Building is 5%.

Q. 4: Trial balance of Anuradha agencies as on 31-03-2020.

Debit balances Amount Rs. Credit balances Amount Rs.

Drawings 1,800 Capital 80,000
Buildings 15,000 General reserve 20,000
Furniture & Fittings 7,500 Loan from Hari @ 6% 15,000
Computer 25,000 Sales 1,00,000
Interest on loan 900 Commission received 7,500
Loose tools 6,100 Sundry creditors 10,000
Purchases 75,000
Stock on 1-4-2011 25,000
General expenses 15,000
Freight inward 2,000
Freight outward 1,000
Sundry debtors 28,000
Bank 20,200
Goodwill 10,000
2,32,500 2,32,500
Adjustments:
(i) Closing stock is Rs.32,000
(ii) Depreciate computer @ 10%; buildings @5%; furniture and fittings @ 10%
(iii) Provide for bad and doubtful debts @ 5% and for-discount on debtors @ 2%
(iv) Provide interest on drawings @ 6% and on capital @ 8%.
Prepare final accounts for the said period after giving effect to the adjustments.

Q. 5: Ashok and Tanaji are Partners sharing Profit and Losses in the ratio 2:3 respectively.
Their Trial Balance as on 31st March, 2017 is given below. You are required to prepare
Trading and Profit and Loss Account for the year ended 31st March, 2017 and Balance Sheet
as on that date after taking into account the given adjustments.

Trial Balance as on 31st March, 2017

Amount. Amount.
Particulars Particulars
(Rs.) (Rs.)
Purchases 98,000 Capital:
Patents Right 4,000 Ashok 30,000
Building 1,00,000 Tanaji 40,000
Stock (1.04.2016) 15,000 Provident Fund 7,000
Printing and Stationery 1,750 Creditors 45,000
10% Bank Loan taken on 1stApril,
Sundry Debtors 35,000 12,000
2016
Wages and Salaries 11,000 Sales 1,58,000
Audit Fees 700 Reserve for Doubtful Debts 250
Sundry Expenses 3,500 Purchase Returns 3,500
Furniture 8,000
Investment 10,000
Cash 4,000
Provident Fund Contribution 800
Carriage Inwards 1,300
Travelling Expenses 2,700
2,95,750 2,95,750

Adjustments:
1. Closing stock is valued at the cost of Rs. 15,000 while its market price is Rs.18,000.
(2) On 31st March, 2017 the stock of stationery was Rs. 500.
(3) Provide reserve for bad and doubtful debts at 5% on debtors.
(4) Depreciate building at 5% and patent rights at 10%.
(5) Interest on capitals is to be provided at 5% p.a.
Q. 6: Raja and Rani are partners of ‘Maharaja Traders’. They decided to share profits and
losses in the ratio of 3:2. From the following Trial Balance and additional information, you
are required to prepare Trading and Profit Loss Account for the year ended 31st March,
2018 and Balance Sheet as on that date.
Dr. Cr.

Particulars Amount Particulars Amount

Purchases 90,500 Sales 1,20,300

Sundry Debtors 34,000 Creditors 45,500

Bills Receivable 35,000 Bills Payable 32,000

Opening Stock 34,600 Capital A/c - Raja 1,50,000

Land and Building 1,20,000 Capital A/c - Rani 1,00,000

Works' Manager Salary 4,700 Raja's Loan Account 11,000

Motive Power 5,500 Commission Received 2,500

Plant and Machinery 80,000

Audit Fees 3,400

Salaries and Wages 14,500

Trade Expenses 2,100

General Expenses 1,800

Wages and Salaries 20,700

Loose Tools 10,000

Prepaid Rent 4,500

Total (Rs.) 4,61,300 Total (Rs.) 4,61,300

Adjustments:
a. Stock on hand on 31st March, 2018 was cost Rs. 42,000 and its market price was Rs. 45,000.
b. Audit fees paid in advance of Rs. 1,500.
c. Motive power includes Rs. 3,000 paid for deposit of power meter.
d. Goods worth Rs. 2,500 taken by Raja for his personal use are not entered in the books of
account. e. Bills payable dishonoured of Rs. 2,500.
f. Depreciate plant and machinery at 5% p.a. and loose tools at 10% p.a.
g. Commission includes, pre-received amount of Rs. 1,000.

Q. 7: Ramdeo and Mahadeo are partners sharing profits and losses in the ratio of 2:1. From
the following Trial Balance and adjustments, prepare Trading and Profit and Loss Account
for the year ended 31st March, 2011 and Balance Sheet as on 31st March, 2020.

Trial Balance as on 31st March, 2020

Debit Balances Amount Credit Balances Amount
Opening Stock 20,250 Sales 1,47,500
Furniture & Fixtures 15,000 Sundry Creditors 33,500
Cash in Hand 1,802 Dividend Received 4,000
Bad Debts 1,250 Provident Fund 17,500
Interest on P.F.
Salaries & Wages 9,750 1,250
Investment
Purchases 87,500 Capital A/c - Ramdeo 80,000
Sundry Debtors 41,500 Capital A/c - Mahadeo 40,000
General Expenses 1,900
Land & Building 75,000
Carriage Inward 1,748
Goodwill 30,000
Provident Fund
1,250
Contribution
Advertisement (for 3 years
4,800
w.e.f. 1st October, 2019
Provident Fund Investment 19,000
Shares in B Ltd. 13,000

Total 3,23,750 Total 3,23,750

Adjustments:
1) Stock on hand on 31st March, 2011 was valued at Rs. 25,000.
2) Rs. 2,000 paid during the year as Building repairs wrongly debited to Building account.
3) Depreciate Land and Building at 10% p.a.
4) Maintain R.D.D. at 5% on Sundry Debtors.
5) Reserve for discount on Debtors and Creditors are to be made at 3% and 4% respectively.
6) Uninsured goods worth Rs. 2,000 were destroyed by fire.

Q. 8: Mr. Ajit and Mr. Sujit are partners of the firm sharing profits and losses in the ratio
of 3:2. Their Trial Balance as on 31st March, 2012 was given below. Prepare Trading and
Profit and Loss Account for the year ended 31st March, 2012 and Balance Sheet as on that
date.
Trial Balance as on 31st March, 2020
Particulars Debit (Rs.) Credit (Rs.)
Capital: Ajit - 50,000
Capital: Sujit - 40,000
Purchases & Sales 62,750 1,22,000
Sundry Debtors & Creditors 24,000 47,000
Interest 2,900 2,000
Opening Stock 21,500 -
 Wages 8,500 -
Land & Building 75,000 -
Loose Tools 15,000 -
Power, Fuel & Oil 2,750 -
Export Duty 1,200 -
Salaries 10,800 -
Electricity Charges 1,400 -
Investments 24,000 -
Reserve Fund - 8,000
Ajit's Loan A/c - 10,000
Bank Overdraft - 11,000
Patents 32,000 -
Administration Expenses 4,300 -
Cash in Hand 2,000 -
Heating & Lighting 1,900 -

Total 2,90,000 2,90,000

Adjustments:
1) Stock on hand on 31.3.2012 was valued at Rs. 17,000.
2) 1/8th of the patents are to be written off.
3) Goods of Rs. 7,000 destroyed by fire and insurance company admitted a claim of Rs. 6,100.
4) Rs. 1,000 received on account is commission wrongly included in Ajay’s loan account.
5) Provide 8% Depreciation on Land and building and 5% on Loose Tools.
6) Outstanding expenses were: Salaries Rs. 1,200 Electricity charges Rs. 1,800.
7) Our customer, Mr. Rakesh failed to pay his due of Rs. 1,000.

Final Accounts of a Company

Preparation and Presentation of Financial Statements

Every Company registered under the Companies Act, 2013 has to prepare their Financial
Statements in the formats as specified in the Schedule III of the Act. The Financial Statements of
a Company includes the following items:
a) Balance Sheet as on 31st March.
b) Statement of Profit or Loss for the Year Ended on 31st
March.
c) Cash Flow Statement for the year Ended on 31st March.
d) Notes to Accounts.

Schedule III of Companies Act, 2013:

PART I-BALANCE SHEET

Name of the Company…………………….
Balance Sheet as at………………………
 Particulars Note No. Figures as at Figures as at
the end of the end of
current previous
reporting reporting
period period
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-Current Liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long term provisions
(4) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
II. Assets
1. Non-current assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets
(2) Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Total

PART-II – PROFIT & LOSS STATEMENT

Name of the Company……………………..
Profit and Loss statement for the year ended………….
 Particulars Note No. Figures as at the Figures as at the
end of current end of the
reporting period previous
reporting period
CONTINUING
OPERATIONS1.
I Revenue from operations
(gross)
II Other income
III Total revenue (1+2)
VI Expenses(a) Cost of
materials consumed
(b) Purchases of stock-in-
trade
(c) Changes in inventories
of finished goods, work-in
progress and stock-in-trade
(d) Employee benefits
expense
(e) Finance costs
(f) Depreciation and
amortisation expense
(g) Other expenses
Total expenses
V Profit before exceptional
and extraordinary items
and tax (III-IV)
VI Extraordinary items
VII Profit / (Loss) before
extraordinary items and
tax (V+VI)
VIII Extraordinary items
IX Profit before tax (Vl (-
/+)VIII)
X Tax expense:(I) Current tax
expense for current year
(II) Deferred tax
XI Profit / (Loss) from
continuing operations
(IX+X)
XII Profit V(loss) from
discontinuing operations
XIII Tax expense of
discontinuing operations
XIV Profit/(loss) from
Discontinuing operations
(after tax) (XII-XIII)
XV Profit (Loss) for the
period (XI + XIV)
XVI Earnings per equity share:
1. Basic
(2) Diluted

PART-III – CASH FLOW STATEMENT

Name of the Company……………………..
Cash Flow Statement for the year ended………….

A CASH FLOW FROM OPERATING

ACTIVITIES

Net Profit Before Tax -

Adjustments for:
Depreciation -
Preliminary Expenses w/off -
Deferred Revenue Expenditure -
(Profit)/loss on sale of Assets -
Interest & Finance Charges -
Interest on FD -
Dividend Income - -
Operating Profit before Working Capital -
Changes
Adjustments for:
Decrease/(Increase) in Receivables -
Decrease/(Increase) in Inventories -
Increase/(Decrease) in Payables - -
Cash generated from operations -
Income Tax paid -
Net Cash flow from Operating activities -

B CASH FLOW FROM INVESTING

ACTIVITIES
Purchase of Fixed Assets -
Mutual Fund -
Sale of Fixed Assets -
Increase in Advances & others -
Interest on FD -
Dividend Income -
Net Cash used in Investing activities -

C CASH FLOW FROM FINANCING

ACTIVITIES
Proceeds from Long term Borrowings -
 Interest paid -
Net Cash used in financing activities -
Net increase in cash & Cash Equivalents -
Cash and Cash equivalents as at 01.04….. -
Cash and Cash equivalents as at 31.03…… -

Cash & Cash Equivalents As on

Cash in Hand
Cash at Bank
Cash & Cash equivalents as stated - -

A. Share Capital
For each class of share capital (different classes of preference shares to be treated separately):
(a) the number and amount of shares authorised;
(b) the number of shares issued, subscribed and fully paid, and subscribed but not fully paid;
(c) par value per share;
(d) a reconciliation of the number of shares outstanding at the beginning and at the end of the
reporting period;
(e) the rights, preferences and restrictions attaching to each class of shares including restrictions
on the distribution of dividends and the repayment of capital;
(f) shares in respect of each class in the company held by its holding company or its ultimate
holding company including shares held by or by subsidiaries or associates of the holding
company or the ultimate holding company in aggregate;
(g) shares in the company held by each shareholder holding more than 5 per cent. shares
specifying the number of shares held;
(h) shares reserved for issue under options and contracts/commitments for the sale of
shares/disinvestment, including the terms and amounts;
(i) for the period of five years immediately preceding the date as at which the Balance Sheet is
prepared:
(A) Aggregate number and class of shares allotted as fully paid-up pursuant to contract(s) without
payment being received in cash.
(B) Aggregate number and class of shares allotted as fully paid-up by way of bonus shares.
(C) Aggregate number and class of shares bought back.
(j) terms of any securities convertible into equity/preference shares issued along with the earliest
date of conversion in descending order starting from the farthest such date;
(k) calls unpaid (showing aggregate value of calls unpaid by directors and officers);
(l) forfeited shares (amount originally paid-up).
B. Reserves and Surplus
(i) Reserves and Surplus shall be classified as:
(a) Capital Reserves;
(b) Capital Redemption Reserve;
(c) Securities Premium Reserve;
(d) Debenture Redemption Reserve;
(e) Revaluation Reserve;
(f) Share Options Outstanding Account;
(g) Other Reserves–(specify the nature and purpose of each reserve and the amount in respect
thereof);
(h) Surplus i.e., balance in Statement of Profit and Loss disclosing allocations and appropriations
such as dividend, bonus shares and transfer to/ from reserves, etc.; (Additions and deductions
since last balance sheet to be shown under each of the specified heads);
(ii) A reserve specifically represented by earmarked investments shall be termed as a “fund”.
(iii) Debit balance of statement of profit and loss shall be shown as a negative figure under the
head “Surplus”. Similarly, the balance of “Reserves and Surplus”, after adjusting negative balance
of surplus, if any, shall be shown under the head “Reserves and Surplus” even if the resulting
figure is in the negative.
C. Long-Term Borrowings
(i) Long-term borrowings shall be classified as:
(a) Bonds/debentures;
(b) Term loans:
(A) from banks.
(B) from other parties.
(c) Deferred payment liabilities;
(d) Deposits;
(e) Loans and advances from related parties;
(f) Long term maturities of finance lease obligations;
(g) Other loans and advances (specify nature).
(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall
be specified separately in each case.
(iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans
under each head shall be disclosed.
(iv) Bonds/debentures (along with the rate of interest and particulars of redemption or conversion,
as the case may be) shall be stated in descending order of maturity or conversion, starting from
farthest redemption or conversion date, as the case may be. Where bonds/debentures are
redeemable by instalments, the date of maturity for this purpose must be reckoned as the date on
which the first instalment becomes due.
(v) Particulars of any redeemed bonds/debentures which the company has power to reissue shall
be disclosed.
(vi) Terms of repayment of term loans and other loans shall be stated.
(vii) Period and amount of continuing default as on the balance sheet date in repayment of loans
and interest, shall be specified separately in each case.
D. Other Long-term Liabilities
Other Long-term Liabilities shall be classified as:
(a) Trade payables;
(b) Others.
E. Long-term provisions
The amounts shall be classified as:
(a) Provision for employee benefits;
(b) Others (specify nature).
F. Short-term borrowings
(i) Short-term borrowings shall be classified as:
(a) Loans repayable on demand;
(A) from banks.
(B) from other parties.
(b) Loans and advances from related parties;
(c) Deposits;
(d) Other loans and advances (specify nature).
(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall
be specified separately in each case.
(iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans
under each head shall be disclosed.
(iv) Period and amount of default as on the balance sheet date in repayment of loans and interest,
shall be specified separately in each case.
G. Other current liabilities
The amounts shall be classified as:
(a) Current maturities of long-term debt;
(b) Current maturities of finance lease obligations;
(c) Interest accrued but not due on borrowings;
(d) Interest accrued and due on borrowings;
(e) Income received in advance;
(f) Unpaid dividends;
(g) Application money received for allotment of securities and due for refund and interest accrued
thereon. Share application money includes advances towards allotment of share capital. The terms
and conditions including the number of shares proposed to be issued, the amount of premium, if
any, and the period before which shares shall be allotted shall be disclosed. It shall also be
disclosed whether the company has sufficient authorised capital to cover the share capital amount
resulting from allotment of shares out of such share application money.
Further, the period for which the share application money has been pending beyond the period for
allotment as mentioned in the document inviting application for shares along with the reason for
such share application money being pending shall be disclosed. Share application money not
exceeding the issued capital and to the extent not refundable shall be shown under the head Equity
and share application money to the extent refundable, i.e., the amount in excess of subscription or
in case the requirements of minimum subscription are not met,
shall be separately shown under “Óther current liabilities”;
(h) Unpaid matured deposits and interest accrued thereon;
(i) Unpaid matured debentures and interest accrued thereon;
(j) Other payables (specify nature).
H. Short-term provisions
The amounts shall be classified as:
(a) Provision for employee benefits.
(b) Others (specify nature).
I. Tangible assets
(i) Classification shall be given as:
(a) Land;
(b) Buildings;
(c) Plant and Equipment;
(d) Furniture and Fixtures;
(e) Vehicles;
(f) Office equipment;
(g) Others (specify nature).
(ii) Assets under lease shall be separately specified under each class of asset.
(iii) A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the related
depreciation and impairment losses/reversals shall be disclosed separately.
(iv) Where sums have been written-off on a reduction of capital or revaluation of
assets or where sums have been added on revaluation of assets, every balance sheet
subsequent to date of such write-off, or addition shall show the reduced or increased
figures as applicable and shall by way of a note also show the amount of the reduction
or increase as applicable together with the date thereof for the first five years subsequent
to the date of such reduction or increase.
J. Intangible assets
(i) Classification shall be given as:
(a) Goodwill;
(b) Brands /trademarks;
(c) Computer software;
(d) Mastheads and publishing titles;
(e) Mining rights;
(f) Copyrights, and patents and other intellectual property rights, services
and operating rights;
(g) Recipes, formulae, models, designs and prototypes;
(h) Licences and franchise;
(i) Others (specify nature).
(ii) A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the related
amortization and impairment losses/reversals shall be disclosed separately.
(iii) Where sums have been written-off on a reduction of capital or revaluation
of assets or where sums have been added on revaluation of assets, every balance
sheet subsequent to date of such write-off, or addition shall show the reduced or
increased figures as applicable and shall by way of a note also show the amount of the
reduction or increase as applicable together with the date thereof for the first five years
subsequent to the date of such reduction or increase.
K. Non-current investments
(i) Non-current investments shall be classified as trade investments and other
investments and further classified as:
(a) Investment property;
(b) Investments in Equity Instruments;
(c) Investments in preference shares;
(d) Investments in Government or trust securities;
(e) Investments in debentures or bonds;
(f) Investments in Mutual Funds;
(g) Investments in partnership firms;
(h) Other non-current investments (specify nature).
Under each classification, details shall be given of names of the bodies corporate
indicating separately whether such bodies are (i) subsidiaries, (ii) associates,
(iii) joint ventures, or (iv) controlled special purpose entities in whom investments
have been made and the nature and extent of the investment so made in each such
body corporate (showing separately investments which are partly-paid). In regard to
investments in the capital of partnership firms, the names of the firms (with the names
of all their partners, total capital and the shares of each partner) shall be given.
(ii) Investments carried at other than at cost should be separately stated specifying
the basis for valuation thereof;
(iii) The following shall also be disclosed:
(a) Aggregate amount of quoted investments and market value thereof;
(b) Aggregate amount of unquoted investments;
(c) Aggregate provision for diminution in value of investments.
L. Long-term loans and advances
(i) Long-term loans and advances shall be classified as:
(a) Capital Advances;
(b) Security Deposits;
(c) Loans and advances to related parties (giving details thereof);
(d) Other loans and advances (specify nature).
(ii) The above shall also be separately sub-classified as:
(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.
(iii) Allowance for bad and doubtful loans and advances shall be disclosed
under the relevant heads separately.
(iv) Loans and advances due by directors or other officers of the company or
any of them either severally or jointly with any other persons or amounts due by firms
or private companies respectively in which any director is a partner or a director or a
member should be separately stated.
M. Other non-current assets
Other non-current assets shall be classified as:
(i) Long-term Trade Receivables (including trade receivables on deferred
credit terms);
(ii) Others (specify nature);
(iii) Long term Trade Receivables, shall be sub-classified as:
(A) (a) Secured, considered good;
(B) Unsecured, considered good;
(C) Doubtful.
(b) Allowance for bad and doubtful debts shall be disclosed under
the relevant heads separately.
(c) Debts due by directors or other officers of the company or any of
them either severally or jointly with any other person or debts due by firms
or private companies respectively in which any director is a partner or a
director or a member should be separately stated.
N. Current Investments
(i) Current investments shall be classified as:
(a) Investments in Equity Instruments;
(b) Investment in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms;
(g) Other investments (specify nature).
Under each classification, details shall be given of names of the bodies corporate
[indicating separately whether such bodies are: (i) subsidiaries, (ii) associates,
(iii) joint ventures, or (iv) controlled special purpose entities] in whom investments
have been made and the nature and extent of the investment so made in each such
body corporate (showing separately investments which are partly paid). In regard to
investments in the capital of partnership firms, the names of the firms (with the names
of all their partners, total capital and the shares of each partner) shall be given.
(ii) The following shall also be disclosed:
(a) The basis of valuation of individual investments;
(b) Aggregate amount of quoted investments and market value thereof;
(c) Aggregate amount of unquoted investments;
(d) Aggregate provision made for diminution in value of investments.
O. Inventories
(i) Inventories shall be classified as:
(a) Raw materials;
(b) Work-in-progress;
(c) Finished goods;
(d) Stock-in-trade (in respect of goods acquired for trading);
(e) Stores and spares;
(f) Loose tools;
(g) Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
(iii) Mode of valuation shall be stated.
P. Trade Receivables
(i) Aggregate amount of Trade Receivables outstanding for a period exceeding
six months from the date they are due for payment should be separately stated.
(ii) Trade receivables shall be sub-classified as:
(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.
(iii) Allowance for bad and doubtful debts shall be disclosed under the relevant
heads separately.
(iv) Debts due by directors or other officers of the company or any of them
either severally or jointly with any other person or debts due by firms or private
companies respectively in which any director is a partner or a director or a member
should be separately stated.
Q. Cash and cash equivalents
(i) Cash and cash equivalents shall be classified as:
(a) Balances with banks;
(b) Cheques, drafts on hand;
(c) Cash on hand;
(d) Others (specify nature).
(ii) Earmarked balances with banks (for example, for unpaid dividend) shall be
separately stated.
(iii) Balances with banks to the extent held as margin money or security against
the borrowings, guarantees, other commitments shall be disclosed separately.
(iv) Repatriation restrictions, if any, in respect of cash and bank balances shall
be separately stated.
(v) Bank deposits with more than twelve months maturity shall be disclosed
separately.
R. Short-term loans and advances
(i) Short-term loans and advances shall be classified as:
(a) Loans and advances to related parties (giving details thereof);
(b) Others (specify nature).
(ii) The above shall also be sub-classified as:
(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.
(iii) Allowance for bad and doubtful loans and advances shall be disclosed
under the relevant heads separately.
(iv) Loans and advances due by directors or other officers of the company or
any of them either severally or jointly with any other person or amounts due by firms
or private companies respectively in which any director is a partner or a director or a
member shall be separately stated.
S. Other current assets (specify nature)
This is an all-inclusive heading, which incorporates current assets that do not fit
into any other asset categories.
T. Contingent liabilities and commitments (to the extent not provided for)
(i) Contingent liabilities shall be classified as:
(a) Claims against the company not acknowledged as debt;
(b) Guarantees;
(c) Other money for which the company is contingently liable.
(ii) Commitments shall be classified as:
(a) Estimated amount of contracts remaining to be executed on capital
account and not provided for;
(b) Uncalled liability on shares and other investments partly paid;
(c) Other commitments (specify nature).
U. The amount of dividends proposed to be distributed to equity and preference
shareholders for the period and the related amount per share shall be disclosed
separately. Arrears of fixed cumulative dividends on preference shares shall also be
disclosed separately.
V. Where in respect of an issue of securities made for a specific purpose, the
whole or part of the amount has not been used for the specific purpose at the balance
sheet date, there shall be indicated by way of note how such unutilised amounts have
been used or invested.
W. If, in the opinion of the Board, any of the assets other than fixed assets and
non-current investments do not have a value on realisation in the ordinary course of
business at least equal to the amount at which they are stated, the fact that the Board
is of that opinion, shall be stated.

GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF

PROFIT AND LOSS
1. The provisions of this Part shall apply to the income and expenditure account
referred to in sub-clause (ii) of clause (40) of section 2 in like manner as they apply to a
statement of profit and loss.
2. (A) In respect of a company other than a finance company revenue from operations
shall disclose separately in the notes revenue from—
(a) Sale of products;
(b) Sale of services;
(c) Other operating revenues;
Less:
(d) Excise duty.
(B) In respect of a finance company, revenue from operations shall include revenue
from—
(a) Interest; and
(b) Other financial services.
Revenue under each of the above heads shall be disclosed separately by way of notes
to accounts to the extent applicable.
3. Finance Costs
Finance costs shall be classified as:
(a) Interest expense;
(b) Other borrowing costs;
(c) Applicable net gain/loss on foreign currency transactions and translation.
4. Other income
Other income shall be classified as:
(a) Interest Income (in case of a company other than a finance company);
(b) Dividend Income;
(c) Net gain/loss on sale of investments;
(d) Other non-operating income (net of expenses directly attributable
to such income).
5. Additional Information
A Company shall disclose by way of notes additional information regarding aggregate
expenditure and income on the following items:—
(i) (a) Employee Benefits Expense [showing separately (i) salaries and wages,
(ii) contribution to provident and other funds, (iii) expense on Employee Stock Option
Scheme (ESOP) and Employee Stock Purchase Plan (ESPP), (iv) staff welfare expenses].
(b) Depreciation and amortisation expense;
(c) Any item of income or expenditure which exceeds one per cent. of the revenue
from operations or Rs.1,00,000, whichever is higher;
(d) Interest Income;
(e) Interest expense;
(f) Dividend income;
(g) Net gain/loss on sale of investments;
(h) Adjustments to the carrying amount of investments;
(i) Net gain or loss on foreign currency transaction and translation (other than
considered as finance cost);
(j) Payments to the auditor as (a) auditor; (b) for taxation matters; (c) for company
law matters; (d) for management services; (e) for other services; and (f) for
reimbursement of expenses;
(k) In case of Companies covered under section 135, amount of expenditure
incurred on corporate social responsibility activities;
(l) Details of items of exceptional and extraordinary nature;
(m) Prior period items;
(ii) (a) In the case of manufacturing companies,—
1. Raw materials under broad heads.
(2) goods purchased under broad heads.
(b) In the case of trading companies, purchases in respect of goods traded in by
the company under broad heads.
(c) In the case of companies rendering or supplying services, gross income
derived from services rendered or supplied under broad heads.
(d) In the case of a company, which falls under more than one of the categories mentioned in (a),
(b) and (c) above, it shall be sufficient compliance with the requirements herein if purchases, sales
and consumption of raw material and the gross income from services rendered is shown under
broad heads.
(e) In the case of other companies, gross income derived under broad heads.
(iii) In the case of all concerns having works in progress, works-in-progress under broad heads.
(iv) (a) The aggregate, if material, of any amounts set aside or proposed to be set aside, to reserve,
but not including provisions made to meet any specific liability, contingency or commitment
known to exist at the date as to which the balance sheet is made up.
(b) The aggregate, if material, of any amounts withdrawn from such reserves.
(v) (a) The aggregate, if material, of the amounts set aside to provisions made for meeting specific
liabilities, contingencies or commitments.
(b) The aggregate, if material, of the amounts withdrawn from such provisions, as no longer
required.
(vi) Expenditure incurred on each of the following items, separately for each item:—
(a) Consumption of stores and spare parts;
(b) Power and fuel;
(c) Rent;
(d) Repairs to buildings;
(e) Repairs to machinery;
(f) Insurance;
(g) Rates and taxes, excluding, taxes on income;
(h) Miscellaneous expenses,
(vii) (a) Dividends from subsidiary companies.
(b) Provisions for losses of subsidiary companies.
(viii) The profit and loss account shall also contain by way of a note the following information,
namely:—
(a) Value of imports calculated on C.I.F basis by the company during the financial year in respect
of—
I. Raw materials;
II. Components and spare parts;
III. Capital goods;
(b) Expenditure in foreign currency during the financial year on account of
royalty, know-how, professional and consultation fees, interest, and other matters;
(c) Total value if all imported raw materials, spare parts and components
consumed during the financial year and the total value of all indigenous raw
materials, spare parts and components similarly consumed and the percentage
of each to the total consumption;
(d) The amount remitted during the year in foreign currencies on account
of dividends with a specific mention of the total number of non-resident
shareholders, the total number of shares held by them on which the dividends
were due and the year to which the dividends related;
(e) Earnings in foreign exchange classified under the following heads,
namely:—
I. Export of goods calculated on F.O.B. basis;
II. Royalty, know-how, professional and consultation fees;
III. Interest and dividend;
IV. Other income, indicating the nature thereof.
Note:- Broad heads shall be decided taking into account the concept of materiality and
presentation of true and fair view of financial statements.

Schedule II Of the Companies Act, 2013

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
The depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less
its residual value. The useful life of an asset is the period over which an asset is expected to be
available for use by an entity, or the number of production or similar units expected to be obtained
from the asset by the entity. For the purpose of this Schedule, the term depreciation includes
amortisation.
Without prejudice to the foregoing provisions of paragraph 1,—
(i) In case of such class of companies, as may be prescribed and whose financial statements
comply with the accounting standards prescribed for such class of companies under section 133
the useful life of an asset shall not normally be different from the useful life and the residual value
shall not be different from that as indicated in Part C, provided that if such a company uses a
useful life or residual value which is different from the useful life or residual value indicated
therein, it shall disclose the justification for the same.
(ii) In respect of other companies the useful life of an asset shall not be longer than the useful life
and the residual value shall not be higher than that prescribed in Part C.
(iii) For intangible assets, the provisions of the Accounting Standards mentioned under sub-para
(i) or (ii), as applicable, shall apply.

Example: Given below is the Trial Balance of ABC Pvt. Ltd. Prepare the final accounts of the
company as per the Companies Act, 2013.
Particulars Dr. Cr.
 Share Capital 2,00,000
Stock on 1st April, 2019 70,200
Sales 3,22,400
Purchases 2,64,650
Carriage inwards 27,900
Rent and taxes 8,550
Sales returns 12,900
Salaries 13,950
Purchases returns 8,700
Sundry debtors 36,000
Sundry creditors 22,200
Bank loan at 6% (1st April, 2019) 30,000
Interest paid on above 1,350
Printing and advertisements 21,900
Discount received 6,300
Investments 7,500
Furniture and fittings 2,700
Discount allowed 11,310
General expenses 6,000
Audit fees 1,050
Director's Remuneration 94,600
Insurance 900
Traveling expenses 3,500
Postage and telegrams 4,070
Cash in hand 570
Total 5,89,600 5,89,600

Other Information:
1. The Closing stock is Rs. 1,20,000.
2. The furniture is to be depreciated by 10%.

Solution:
In the books of ABC Pvt. Ltd.
Balance Sheet as on 31st March, 2020
Figures as at the
Note
Particulars end of current
No.
reporting period
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital 1 2,00,000
(b) Reserves and Surplus 2 -85,700
(2) Current Liabilities
(a) Short-term borrowings 3 30,000
 (b) Trade payables 4 22,200
Total 1,66,500

II. ASSETS
1. Non-current assets
(a) Fixed assets
(i) Tangible assets 5 2,430
(2) Current assets
(a) Current investments 6 7,500
(b) Inventories 7 1,20,000
(c) Trade receivables 8 36,000
(d) Cash and cash equivalents 9 570
Total 1,66,500

Statement of Profit and Loss for the year ended on 31st March, 2020

Figures as at
Not the end of
Particulars e current
No. reporting
period
CONTINUING OPERATIONS (1)
I Revenue from operations (gross) 3,09,500
II Other income 6,300
III Total revenue (1+2) 3,15,800
VI Direct Expenses 2,34,050
Employee benefits expense 1,08,550
Finance costs 1,350
Depreciation and amortisation 270
expense
Other expenses 57,280
Total expenses 4,01,500
Profit before exceptional and -85,700
V extraordinary items and tax (III-
IV)
VI Exceptional items -
Profit / (Loss) before -85,700
VII extraordinary items and tax
(V+VI)
VIII Extraordinary items -
IX Profit before tax (Vl (-/+)VIII) -85,700
X Tax expense:
(I) Current tax expense for current
year
 (II) Deferred tax
Profit / (Loss) from continuing -85,700
XI
operations (IX+X)
Profit V(loss) from discontinuing -
XII
operations
Tax expense of discontinuing -
XIII
operations
Profit/(loss) from Discontinuing -85,700
XIV
operations (after tax) (XII-XIII)
Profit (Loss) for the period (XI + -85,700
XV
XIV)
XVI Earnings per equity share:
(1) Basic -0.43
(2) Diluted -0

Notes to Accounts

Note No.: 1 - Share Capital

As on 31-03-
Particulars 2020
1. Authorised Share Capital 9,00,000
(90,000 Equity Shares for Rs. 10 each)

2. Issued, Subscribed and Paid-up Share Capital 5,50,000

(20,000 Equity Shares for Rs. 10 each)

Total 5,50,000

Note No.: 2 - Reserves & Surplus

As on 31-03-
Particulars 2020
Surplus in Profit
Opening Balance -
-
Add: Profit during the year 1,85,700
-
Total Profit 1,85,700

Note No.: 3 - Short Term Loans

As on 31-03-
Particulars 2020
Loan from Bank 30,000
Total 30,000
 Note No.: 5 - Fixed Assets
As on 31-03-
Particulars 2020
Furniture and Fixtures 2,700
Less: Depreciation 270
Total 2,430

Note No.: 4 - Trade Payables

As on 31-03-
Particulars 2020
Sundry Creditors 22,200
Total 22,200

Note No.: 6 - Short Term Investments

As on 31-03-
Particulars 2020
Investment 7,500
Total 7,500

Note No.: 7 - Inventories

As on 31-03-
Particulars 2020
Closing Inventory 20,000
Total 20,000

Note No.: 8 - Trade Receivables

As on 31-03-
Particulars 2020
Debtors 36,000
Total 36,000

Note No.: 7 - Cash & Cash Equivalents

As on 31-03-
Particulars 2020
Balances with Banks -
Cash in Hand 570
Total 570

Note No.: 10 - Revenue from Operations

Particulars As on 31-03-2020
Revenue from Operations 3,09,500
Total 3,09,500

Note No.: 11 - Other Income

 Particulars As on 31-03-2020
Discount Received 6,300
Total 6,300

Note No.: 12 - Direct Expenses and Purchases

Particulars As on 31-03-2020
Purchases 2,55,950
Opening Stock 70,200
Less: Closing Stock -20,000
Carriage Inwards 27,900
Total 3,34,050

Note No.: 13 - Employee Benefit Expenses

Particulars As on 31-03-2020
Salaries and Wages 13,950
Remuneration to Director 94,600
Total 1,08,550

Note No.: 14 - Finance Cost

Particulars As on 31-03-2020
Interest on Bank Loan 1,350
Total 1,350

Note No.: 15 - Other Expenses

Particulars As on 31-03-2020
Rent and taxes 8,550
Printing and advertisements 21,900
Discount allowed 11,310
General expenses 6,000
Audit fees 1,050
Insurance 900
Traveling expenses 3,500
Postage and telegrams 4,070
Total 57,280

Example 2: From the Trial Balance given below of XYZ Pvt. Ltd., prepare the Final Accounts of
the Company.

Particulars Dr. Cr.

Share Capital 5,50,000
Stock on 1st April, 2019 69,700
Sales 6,76,900
Purchases 3,39,150
Carriage inwards 27,400
 Rent and taxes 83,050
Sales returns 13,538
Salaries 88,450
Purchases returns 5,087
Sundry debtors 1,10,500
Sundry creditors 96,700
Bank loan at 6% (1st April, 2019) 1,04,500
Interest paid on above 6,270
Printing and advertisements 36,400
Discount received 45,800
Investments 2,21,400
Furniture and fittings 77,200
Discount allowed 10,810
General expenses 38,429
Audit fees 35,550
Director's Remuneration 89,100
Insurance 75,400
Traveling expenses 58,000
Postage and telegrams 58,570
Cash in hand 40,070
Total 14,78,987 14,78,987

Other Information:
1. The Closing stock is Rs. 20,000.
2. The furniture is to be depreciated by 10%.

Solution:
In the books of XYZ Pvt. Ltd.
Balance Sheet as on 31st March, 2020
Figures as at the
Note
Particulars end of current
No.
reporting period
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital 1 5,50,000
(b) Reserves and Surplus 2 -2,89,750
(2) Current Liabilities
(a) Short-term borrowings 3 1,04,500
(b) Trade payables 4 96,700
Total 4,61,450

II. ASSETS
1. Non-current assets
(a) Fixed assets
 (i) Tangible assets 5 69,480
(2) Current assets
(a) Current investments 6 2,21,400
(b) Inventories 7 20,000
(c) Trade receivables 8 1,10,500
(d) Cash and cash equivalents 9 40,070
Total 4,61,450

Statement of Profit and Loss for the year ended on 31st March, 2020
Figures as at
Not the end of
Particulars e current
No. reporting
period
CONTINUING OPERATIONS (1)
I Revenue from operations (gross) 6,63,362
II Other income 45,800
III Total revenue (1+2) 7,09,162
VI Direct Expenses 4,11,163
Employee benefits expense 1,77,550
Finance costs 6,270
Depreciation and amortisation 7,720
expense
Other expenses 3,96,209
Total expenses 9,98,912
Profit before exceptional and -2,89,750
V extraordinary items and tax (III-
IV)
VI Exceptional items -
Profit / (Loss) before -2,89,750
VII extraordinary items and tax
(V+VI)
VIII Extraordinary items -
IX Profit before tax (Vl (-/+)VIII) -2,89,750
X Tax expense:
(I) Current tax expense for current
year
(II) Deferred tax
Profit / (Loss) from continuing -2,89,750
XI
operations (IX+X)
Profit V(loss) from discontinuing -
XII
operations
Tax expense of discontinuing -
XIII
operations
XIV Profit/(loss) from Discontinuing -2,89,750
operations (after tax) (XII-XIII)
Profit (Loss) for the period (XI + -2,89,750
XV
XIV)
XVI Earnings per equity share:
(1) Basic -1.45
(2) Diluted -1

Notes to Accounts

Note No.: 1 - Share Capital

As on 31-03-
Particulars 2020
1. Authorised Share Capital 9,00,000
(90,000 Equity Shares for Rs. 10 each)

2. Issued, Subscribed and Paid-up Share Capital 5,50,000

(20,000 Equity Shares for Rs. 10 each)

Total 5,50,000

Note No.: 2 - Reserves & Surplus

As on 31-03-
Particulars 2020
Surplus in Profit
Opening Balance -
-
Add: Profit during the year 2,89,750
-
Total Profit 2,89,750

Note No.: 3 - Short Term Loans

As on 31-03-
Particulars 2020
Loan from Bank 1,04,500
Total 1,04,500

Note No.: 5 - Fixed Assets

As on 31-03-
Particulars 2020
Furniture and Fixtures 77,200
Less: Depreciation 7,720
Total 69,480
 Note No.: 4 - Trade Payables
As on 31-03-
Particulars 2020
Sundry Creditors 96,700
Total 96,700

Note No.: 6 - Short Term Investments

As on 31-03-
Particulars 2020
Investment 2,21,400
Total 2,21,400

Note No.: 7 - Inventories

As on 31-03-
Particulars 2020
Closing Inventory 20,000
Total 20,000

Note No.: 8 - Trade Receivables

As on 31-03-
Particulars 2020
Debtors 1,10,500
Total 1,10,500

Note No.: 7 - Cash & Cash Equivalents

As on 31-03-
Particulars 2020
Balances with Banks -
Cash in Hand 40,070
Total 40,070

Note No.: 10 - Revenue from Operations

Particulars As on 31-03-2020
Revenue from Operations 6,63,362
Total 6,63,362

Note No.: 11 - Other Income

Particulars As on 31-03-2020
Discount Received 45,800
Total 45,800

Note No.: 12 - Direct Expenses and Purchases

Particulars As on 31-03-2020
Purchases 3,34,063
Opening Stock 69,700
Less: Closing Stock -20,000
Carriage Inwards 27,400
Total 4,11,163

Note No.: 13 - Employee Benefit Expenses

Particulars As on 31-03-2020
Salaries and Wages 88,450
Remuneration to Director 89,100
Total 1,77,550

Note No.: 14 - Finance Cost

Particulars As on 31-03-2020
Interest on Bank Loan 6,270
Total 6,270

Note No.: 15 - Other Expenses

Particulars As on 31-03-2020
Rent and taxes 83,050
Printing and advertisements 36,400
Discount allowed 10,810
General expenses 38,429
Audit fees 35,550
Insurance 75,400
Traveling expenses 58,000
Postage and telegrams 58,570
Total 3,96,209
 CHAPTER 2: SINGLE ENTRY SYSTEM

Introduction to Single Entry System

Single Entry System is the accounting system

where only one aspect of the transaction is
recorded. The aspect may either be the debit
aspect or the credit aspect. However, this aspect
does not follow any systematic rule of
accounting. Apart from recording one aspect of
the transaction, at times the transactions are
recorded as the double entry system and at times
transactions are not recorded at all.
According to Arthur Fieldhouse, "single entry is
faulty, incomplete, inaccurate, unscientific and unsystematic style of account keeping". Due to
this the single entry system is called as accounting from incomplete records. In other words, we
can say that this system is a mixture of double entry, single entry and no entry.
It is a method which is used by small size business organisations where the maintenance of books
of accounts is difficult and costly at the same time. This term is used to describe the problems
associated with the accounts from an incomplete transaction and is popularly called as
‘Preparation of accounts from incomplete records’. It emphasizes on preparation of the Cash
Book with cash receipts and cash payments only.
Features:

1) It is suitable for sole traders or partnership firms.

2) Only personal and cash accounts are maintained.
3) Incomplete system as no pre-set rules exists.
4) All transactions are not recorded.
5) It varies in application, hence, not uniform
6) Estimated profit is ascertained.

Advantages:

1. Useful for people who have literacy of accounting.

2. Easy to arrive at Financial Statements.
3. Easy to calculate Tax Liability.
4. Gives correct picture of growth.

Disadvantages:

1. People not having accounting knowledge can’t operate.

2. Costly method of accounting
3. More time consuming
4. Not useful for small companies having lack of staff
 Reasons for Incomplete Recording of Transactions
There are various reasons for incomplete recording of the Transactions, some of which are
highlighted below:
1. This system is usually adopted by organisations who do not have proper knowledge of the
accounting terminologies and principles.
2. It is a less costly method of Book Keeping.
3. Less time is consumed to maintain the books of accounts as compared to the Double
Entry.
4. It is convenient mode of maintaining the financial statements, as only important
transactions as per the requirements of the business may be booked.
Ascertainment of Profit or Loss

Businesses run with an objective to earn profit and wishes to ascertain the profit / loss earned
during the year. To ascertain the same, financial statements are to be prepared. Also the financial
statements show the financial position of the business entity.

To prepare the financial statements, all the financial data is required and this is the challenge
faced with the single entry system. To overcome this challenge in Accounting, there are two
methods of arriving at the Profit or Loss of an entity:
1. Preparing the Statement of Affairs at the beginning and at the end of the accounting period,
called statement of affairs also known as the net worth method.
2. Preparing Trading and Profit and Loss Account and the Balance Sheet by putting the
accounting records in proper order also known as the conversion method.
1. Preparing the Statement of Affairs as at the beginning and as at the end of the
accounting period, called statement of affairs or net worth method: Statement of
Affairs is the format of Balance Sheet prepared under this system. The Statement of affairs
at the beginning of the financial year is prepared based on the figures available for the
assets and liabilities to create a base for the changes in the financial position of the entity
during the year. The capital at the beginning of the year is arrived at by taking the
difference between the two sides of the statement. The statement of affairs at the end of the
year is also prepared to arrive at the Capital at the end of the Financial Year.

Statement of Affairs as at …………………

Liabilities Amount Assets Amount

Bills Payable Xxx Land and Building Xxx
Creditors Xxx Machinery Xxx
Outstanding Expenses Xxx Furniture Xxx
Capital (Balancing Figure) Xxx Stock Xxx
Debtors Xxx
Bills Receivable Xxx
Cash and Bank Xxx
Prepaid Expenses Xxx
Xxx
Total Xxx Total Xxx
Once the opening and the closing capital is computed, a statement of profit or loss is prepared. It
starts with the capital at the end of the year and other adjustments related to capital are done.
After making these adjustments, the estimated Profit or Loss is computed. The statement of profit
and loss is prepared as shown below:
Statement of Profit or Loss for the year ended on ……………………………………..

Particulars Amount
Capital as at the end of year (computed from statement of affairs ..... Xxx
as at the end of year)
Add: Drawings Xxx
Less: Additional Capital introduced during the year Xxx
Adjusted Capital at the end of the year Xxx
Less: Capital at the beginning of the year (Computed from the Xxx
statement of affairs as at the beginning of the year)

Profit / Loss made during the year Xxx

The above table can be explained with the equation given here:

Profit or Loss = Capital at end – Capital at beginning + Drawings during the year –
Capital introduced during the year.

Let us understand the concept through the following example:

Mr. Mehta started his readymade garments business on April 1, 2019 with a capital of Rs.
50,000. He did not maintain his books according to double entry system. During the year he
introduced fresh capital of Rs. 15,000. He withdrew Rs. 10,000 for personal use. On March 31,
2020, his assets and liabilities were as follows : Total creditors Rs. 90,000 ; Total debtors Rs.
1,25,600 ; Stock Rs. 24,750 ; Cash at bank Rs. 24,980.
Calculate profit or loss made by Mr. Mehta during the first year of his business using the
statement of affairs method.

Solution:
In the Books of Mr. Mehta
Statement of Affairs as on 31st March, 2020
Liabilities Amount Assets Amount
Creditors 90,000 Cash at Bank 24,980
Capital (Balancing Figure) 85,330 Debtors 1,25,600
Stock 24,750

Total 1,75,330 Total 1,75,330

 Statement of Profit or Loss as on 31st March, 2020
Particulars Amount
Capital as on 31st March, 2020 85,330
Add: Drawings during the year 10,000
95,330
Less: Additional Capital introduced during the year -15,000
Adjusted Capital as on 31st March, 2020 80,330
Less: Capital as on 31st March, 2019 -50,000
Profit made during the Year 30,330

2. Preparing Trading and Profit and Loss Account and the Balance Sheet by putting the
accounting records in proper order, called conversion method: For preparation of the
complete Final Accounts, all the detailed financial information is required regarding the
incomes, expenses, assets and liabilities. In case of Single Entry System, some transactions
are easily available and their balances can be ascertained. However, in case of certain
transactions, details and balances have to be arrived by using some logics of Double Entry.
The most common items that are missing and have to be worked out as such are:
 Opening capital
 Credit purchases
 Credit sales
 Bills payable accepted
 Bills receivable received
 Payments to creditors
 Payments to debtors
 Any other cash/bank related items.
The components of the trial balance and their sources of information are summarised below:

Sr. No. Particulars Method of Ascertainment

1 Closing assets except stock Closing list
and liabilities
2 Opening assets including Opening list
opening stock and liabilities
3 Purchases Credit purchases from total creditors account
and cash purchases from summary of cash
4 Sales Credit sales from total debtors account and
cash sales from summary of cash
5 Opening Capital Opening statement of affairs
6 Expenses and Revenues As per cash summary of cash plus subsidiary
information
7 Losses and Gains From all the accounts and scattered
information
8 Bills Receivable received Total bills receivable account
9 Bills Payable accepted Total bills payable account
10 Cash / Bank Balance Summary of Cash
Let us understand this method by the below example:

Mr. Om Prakash did not keep his books of accounts under double entry system. From the
following information available from his records, prepare profit and loss account for the year
ending on March 31, 2020 and a balance sheet as at that date, depreciating the washing
equipment @ 10%.

Dr. Cr.
Receipts Amount Payments Amount
Balance b/d 8,000 Cash Purchases 14,000
Cash Sales 40,000 Paid to Creditors 20,000
Received from Debtors 30,000 Sundry Expenses 6,000
Cartage 2,000
Drawings 8,000
Balance c/d 28,000

Total 78,000 Total 78,000

Other Information:

Particulars 31st March, 2019 31st March, 2020

Debtors 9,000 12,000
Creditors 14,400 6,800
Stock of Materials 10,000 16,000
Washing Equipment 40,000 40,000
Furniture 3,000 3,000
Discount allowed during the year - 1,400
Discount received during the year - 1,700

Solution:
In the books of Om Prakash
Trading and Profit & Loss A/c for the year ended on 31st March, 2020

Particulars Amount Particulars Amount

Opening Stock 10,000 Sales 74,400
Purchases 28,100 Closing Stock 16,000
Cartage 2,000
Gross Profit c/d 50,300

90,400 90,400

Sundry Expenses 6,000 Gross Profit b/d 50,300

Discount allowed 1,400 Discount Received 1,700
Depreciation 4,000
Net Profit 40,600

52,000 52,000

Balance Sheet as on 31st March, 2020

Liabilities Amount Amount Assets Amount Amount

Capital 55,600 Washing Equipment 40,000
Add: Profit 40,600 Less: Depreciation -4,000 36,000
96,200 Furniture 3,000
Less: Drawings -8,000 88,200 Stock of Materials 16,000
Creditors 6,800 Debtors 12,000
Cash 28,000

Total 95,000 Total 95,000

Working Notes:

Total Debtors A/c

Dr. Cr.
J.F J.F
Date Particulars . Amount Date Particulars . Amount
Balance b/d 9,000 Cash 30,000
Sales (Credit) 34,400 Discount Allowed 1,400
Balance c/d 12,000

43,400 43,400

Total Creditors A/c

Dr. Cr.
J.F J.F
Date Particulars . Amount Date Particulars . Amount
Cash 20,000 Balance b/d 14,400
Discount Allowed 1,700 Purchases (Credit) 14,100
Balance c/d 6,800

28,500 28,500

Statement of Affairs as on 31st March, 2019

Liabilities Amount Assets Amount

Capital (Balancing 55,600 Washing Equipment 40,000
Figure)
Creditors 14,400 Furniture 3,000
Stock of Materials 10,000
Debtors 9,000
Cash 8,000

Total 70,000 Total 70,000

Questions for Self Practice

Q.1) Mr. Mehta started his readymade garments business on April 1, 2019 with a capital of Rs.
50,000. He did not maintain his books according to double entry system. During the year he
introduced fresh capital of Rs. 15,000. He withdrew Rs. 10,000 for personal use. On March 31,
2020, his assets and liabilities were as follows: Total creditors Rs. 90,000; Total debtors Rs.
1,25,600; Stock Rs. 24,750; Cash at bank Rs. 24,980. Calculate profit or loss made by Mr. Mehta
during the first year of his business using the statement of affairs method.

Q. 2) Mrs. Vandana runs a small printing firm. She was maintaining only some records, which
she thought, were sufficient to run the business. On April 01, 2019, available information from
her records indicated that she had the following assets and liabilities: Printing Press Rs. 5,00,000,
Buildings Rs. 2,00,000, Stock Rs. 50,000, Cash at bank Rs. 65,600, Cash in hand Rs. 7,980, Dues
from customers Rs. 20,350, Dues to creditors Rs. 75,340 and Outstanding wages Rs. 5,000. She
withdrew Rs. 8,000 every month for meeting her personal expenses. She had also introduced Rs.
15,000 during the year as additional capital. On March 31, 2020 her position was as follows:
Press Rs. 5, 25,000, Buildings Rs. 2,00,000, Stock Rs. 55,000, Cash at bank Rs. 40,380, Cash in
hand Rs. 15,340, Dues from customers Rs. 17,210, Dues to creditors Rs. 65,680. Calculate the
profit made by Mrs. Vandana during the year using statement of affairs method.

Q. 3) Mr. Om Prakash did not keep his books of accounts under double entry system. From the
following information available from his records, prepare profit and loss account for the year
ending on March 31, 2014 and a balance sheet as at that date, depreciating the washing equipment
@ 10%.

Summary of Cash

Receipts Amount Payments Amount

Balance b/d 8,000 Cash Purchases 14,000
Cash Sales 40,000 Paid to Creditors 20,000
Received from 30,000 Sundry Expenses 6,000
Debtors
Cartage 2,000
Drawings 8,000
Balance c/d 28,000
Total 78,000 Total 78,000
Other Information:

31st March, 31st March,

Particulars
2017 2018

Debtors 9,000 12,000

Creditors 14,400 6,800
Stock of Materials 10,000 16,000
Washing Equipment 40,000 40,000
Furniture 3,000 3,000
Discount allowed during the year - 1,400
Discount received during the year - 1,700

Q. 4) Mrs. Surabhi started business on January 01, 2013 with cash of Rs. 50,000, furniture of Rs.
10,000, goods of 2,000 and machinery worth 20,000. During the year she further introduced Rs.
20,000 in her business by opening a bank account. From the following information extracted from
her books, you are required to prepare final accounts for the ended December 31, 2013.

Particulars Amount
Receipts from Debtors 57,500
Cash Sales 45,000
Cash Purchases 25,000
Wages Paid 5,000
Salaries to Staff 17,500
Trade Expenses 6,500
Electricity Bill 7,500
Drawings of Surabhi 3,000
Cash paid to Creditors 42,000
Discount Allowed 1,200
Discount Received 3,000
Bad Debts written-off 1,300
Cash Balance at the end of the year 20,000

Mrs. Surabhi used goods worth 2,500 for private purposes, which is not recorded in the books.
Charge depreciation on furniture 10% and machinery 20% p.a. on December 31, 2013 her debtors
were worth 70,000 and creditors Rs. 35,000, stock in trade was valued on that date at Rs. 25,000.

Q. 5) Mr. Bahadur does not know how to keep books of account. From his various records, the
following particulars have been made available prepare the final Accounts, after providing for
doubtful debts 5 per cent of debtors outstanding and depreciating the motor car @ 20 per cent.

i) Balance Sheet as on 1st April, 2013

Liabilities Amount Assets Amount

Capital 92,500 Motor Car 71,700
 Bills Payable 32,800 Stock 51,500
Creditors 84,200 Debtors 49,500
Bills Receivable 24,400
Cash in Hand 12,400

Total 2,09,500 Total 2,09,500

ii) Cash Transactions during the year:

Receipts Amount Payments Amount

Balance b/d 12,400 Furniture 30,000
Receipt from Debtors 1,15,000 Wages 9,400
Bills Receivable 14,200 Purchases 40,500
Sales 1,03,000 Drawings 24,000
Bills Payable 30,700
General Expenses 20,700
Payment to Creditors 80,800
Balance c/d 8,500

Total 2,44,600 Total 2,44,600

i) Other Information:

Particulars Amount
Bills Receivable Drawn (Received) 6,300
Discount to Customers 2,300
Discount from Suppliers 700
Credit Purchases 29,600
Closing Stock 41,700
Closing Balance of Debtors 55,000
Closing Balance of Bills Payable 10,200

Q. 6) Manveer started his business on January 01, 2013 with a capital of Rs. 4,50,000. On
December 31, 2013 his position was as under:

Particulars Amount
Cash 99,000
Bills Receivable 75,000
Plant 48,000
Land and Building 1,80,000
Furniture 50,000
He owned Rs. 45,000 from his friend Susheel on that date. He withdrew Rs. 8,000 per month for
his household purposes. Ascertain his profit or loss for this year ended December 31, 2013.

Q. 7) Mr. Akshat keeps his books on incomplete records following information is given below:

1st April, 1st April,

Particulars
2017 2018
Cash in Hand 1,000 1,500
Cash at Bank 15,000 10,000
Stock 1,00,000 95,000
Debtors 42,500 70,000
Business Premises 75,000 1,35,000
Furniture 9,000 7,500
Creditors 66,000 87,000
Bills Payable 44,000 58,000

During the year he withdrew Rs. 45,000 and introduced Rs. 25,000 as further capital in the
business compute the profit or loss of the business.
 CHAPTER 3: ACCOUNTING FOR A NOT FOR PROFIT CONCERN

Contents…

 Introduction to Not for Profit Concern

 Objectives and Features of a Not for Profit Concern
 Advantages and Disadvantages of a Not for Profit Concern
 Final Accounts of Not for Profit Concerns
 Questions for Self Practice

Introduction to Not for Profit Concern

A non-profit organisation is an organisation that is
formed with the objective to spread social cause
and provide social service to the society. In other
words, we can say that these organisations use
their surplus for social benefit rather than
distributing the income to the stakeholders.
They operate for welfare in religious, scientific,
research, or educational sectors. The key aspects
of non-profits are accountability, trustworthiness,
honesty, and transparency to every person who
has invested time, money, and faith into the
organization. Non-profit organizations are
accountable to the donors, funders, volunteers,
program recipients, and the public community.
The organisations gain public confidence only by focussing on their core objective and this
ultimately leads to more income for the organisations.
They are formed for some idealistic purposes and provide service to its members and the
public in general. Their objective is to provide educational, religious, charitable or social
welfare of the people at large. These organisations work in small forms as Resident
Welfare Associations (RWAs) and large forms as Schools, Colleges, Hospitals, etc.
Their main source of income is the subscriptions received from members, donations from
the outside parties, incomes earned on investments made, government grants / subsidies.

Objectives and Features of a Not for Profit Concern

 Objectives of Accounting for Not-For-Profit Organisations:
Following are some objectives for accounting in not-for-profit organizations:
a. To perform for the objective for which they are created.
b. To utilise the funds economically, effectively and efficiently.
c. To comply with the rules, regulations, bye-laws in the organizations.
d. To obtain grants from government departments.
e. To submit annual accounts to the Registrar with whom they are registered.
 Features of a Not for Profit Concern:
The following are the features of a Not for Profit Concern:
 1. Main Aim is Service: Not for profit organisations are formed with the objective to
provide social service. They work for the benefit of the society as a whole.
2. Profit is not the Criterion: Since, these organisations are formed with the objective
of social service, their main aim cannot be profit.
3. Surplus is not distributed among its Members: Though earning the profits is not
their main aim, but optimum utilisation of resources can generate profit. However,
the profits are not distributed among the members, instead utilised for the benefit of
the society.
4. Separate Entity: These organisations are treated as separate entity different from its
members.
5. Unique Names Connoting their Working: The names of non-profit organizations
denote the nature and area of their functioning. For example, Rotary Club,
6. Management by Elected Persons: These organizations are run and managed by
members elected by the board.
7. Major Funds from Contributions and Donations etc.: Usually, non-profit
organizations are not self-sufficient to run their activities with the revenue generated
from their own sources, so they depend upon the subscriptions, donations and grants
received from various government departments.

Advantages and Disadvantages of a Not for Profit Concern

Advantages of starting a non-profit organization:

1. Most of the income of a non-profit is exempt from income taxes.
2. The contribution from a donor is also tax exempt in most of the cases.
3. A non-profit organization can receive grants or aid in contrast to business entities that have
to use loans as a means of raising funds.
4. The satisfaction at being able to contribute to social development is immense.
Disadvantages of starting a non-profit organization:
1. Non-profit organizations are subject to stricter reporting requirements.
2. Benefits arising out of the non-profit organization cannot be inured for the personal benefit
of its members, directors, officers beyond a permissible limit.
3. Getting grants is a tedious job.
4. In case, the incorporators decide to move onto some other pursuits in life, they cannot take
along the assets accumulated by the non-profit organization.

Final Accounts of Not for Profit Concerns

The financial statements that are generally prepared by Not-for Profit Organisations (NPOs) are:
1. Receipts and Payments Account,
2. Income and Expenditure Account
3. Balance Sheet
The receipts and payments account is the summary of all cash and bank transactions. This acts as
a base for preparation of The Income & Expenditure Account. Income and Expenditure Account
is like Profit and Loss Account only.
1. Receipts and Payments Account: Just like any other organisation, Not for profit
organisations also maintain cash book to record cash and bank transactions on a daily basis,
which is then summarised into Receipts and Payments Account. All receipts and payments,
whether of revenue nature or capital nature are recorded in this account. As it is an account so it
has the debit side, recording all the receipts and the credit side recording all the payments. This
account begins with opening cash or/and bank balance and closing balance of this account is cash
in hand and or cash at bank/overdraft. Items in this account are recorded under their respective
heads. Following are the main features of Receipts and Payments Account:
a. It is prepared at the end of the year based on the items in the cash book.
b. It is the summary of all cash transactions (receipts and payments) of a year
put under their respective heads.
c. It records all cash transactions which occur during the year concerned
irrespective of the period they relate to i.e. previous/current/next year.
d. It records cash transactions of revenue as well as capital nature.
e. Like any other account it begins with opening cash and bank balance and ends
with closing cash and bank balance.
It has a definite format which is given below:
Format of Receipts and Payments Account
Receipts and Payments Account
For the Year ended on 31st March, 20__

Dr Cr
Amount Amount
Particulars Particulars
Rs. Rs.
Balance b/d : Purchase of Assets
Cash Printing and stationary
Bank Repairs and Renewal
Donations Newspapers/Magazines
Legacies Rent and taxes
Membership fees Postage
Entrance fees Investments
Subscriptions Conveyance
Donations Honorarium
Lockers Rent Charity
Sale of fixed assets Insurance Premium
Interest on investments Upkeep of Ground
Miscellaneous Receipts Telephone Charges
Sale of old periodicals Balance c/d :
Cash
Bank

Total (Rs.) Total (Rs.)

Specific Items of Receipts and Payments Account:

1. Subscription: It is a payment made by the members of the organisation for a fixed

period, generally annually. It is one of the main sources of income for Not for Profit
Organisations. It includes amount pertaining to the previous year and the future
years.
2. Entrance fees or Admission fees: Whenever any new person joins as the member
of the organisation, he has to pay admission fee apart from the Subscription fees,
which is an income to the organisation.
3. Life membership fees: If any person wishes to be a member for life time, this
special fee is charged called as life membership fees. It is charged once in the life
time of a member. It is a capital receipt for the organisation.
4. Endowment fund: Any fund which provides permanent means of support to the
organisation is Endowment Fund and is an item of capital receipt.
5. Donation: Any amount received by way of gift from any person or organisation
voluntarily is Donation. It can be of two types:
a. Specific donation: It is a donation received for a specific purpose,
such as donation for library, donation for building, etc.
b. General donation: It is a donation which is received generally for
overall use of the organisation.
6. Legacy: In case any person writes a will mentioning to pay any amount after death
to an organisation, it is known as legacy.
7. Sale of old newspapers/periodicals and sports material: Old newspapers, used
sport material, etc. are sold to earn some money, which generates some revenue for
the organisation.
8. Purchase of fixed assets: Any asset such as machinery, furniture, etc. purchased for
the organisation is recorded on the credit side of the receipts and payments account.
9. Payment of honorarium: Any remuneration paid to a person who is not an
employee of the organisation, but takes part in the activities of the organisation is
honorarium.
10.Purchase of consumable items: Daily use items such as stationery, soprts
materials, medicines and drugs, etc. are purchased and recorded on the credit side of
the Receipts and Payments Account.

Steps in Preparation of Receipts and Payments Account:

1. Start with the opening balance of cash and Bank on the debit side. In case of overdraft,
mention the balance on the credit side.
2. Write the total amount of the receipts of the similar groups on the debit side, irrespective of
their period of income.
3. Write the total amount of the payments of the similar groups on the credit side, irrespective
of their period of expense.
4. Any item that does not involve the inflow or outflow of cash shall be excluded.
 5. Calculate the difference between both the sides and write the same as balance of cash /
bank on the credit side.

2. Income and Expenditure Account: It is a nominal account in the form of Profit and
Loss Account that records the transactions of revenue nature pertaining to the
concerned accounting period. The Incomes are recorded on the credit side and the
expenses on the debit side. All non-cash items such as Depreciation, Bad Debts and
Provision for Doubtful Debts etc. are taken into account. The difference between the debit
side and the credit side is either surplus (profit) or deficit (loss) for the year concerned and
the difference will be transferred to the Capital Fund which is also called as General Fund
or Accumulated Fund and appears in Balance Sheet.

Features of Income and Expenditure Account:

1. It is nominal account prepared instead of Profit and Loss Account.
2. There is no opening balance.
3. It ends with Surplus (profit) or Deficit (loss).
4. It includes only revenue expenses and incomes.
5. It follows accrual system of accounting.
Steps in preparing Income and Expenditure Account:
Given below are the steps for preparing an income and expenditure account from a receipt and
payment account:
1. Obtain the receipt and payment account of non-trading concern for which you want to
prepare an income and expenditure account.
2. Ignore the beginning and ending balances of receipt and payment account.
3. Remove all the payments relating to previous years’ expenditures, future years’
expenditures and capital payments for the current year.
4. Remove all the receipts relating to previous years’ income, future years’ income and capital
revenue for the current year.
5. Include current year’s incomes and revenue expenditures including depreciation on all
fixed assets of the entity.
6. Find the balance of the account which may be a surplus or a deficit balance.

3. Balance Sheet: Balance sheet is a statement that shows the financial position of an
organisation at a specific period of time. It shows all amounts that the company invested on
certain project, the amount of money it owns and it owes. The excess of assets over
liabilities is termed Capital Fund or General Fund, which is further increased by surplus or
decreased by deficit.

Some Important Adjustments:

(A) Subscription: Subscription received from members for the particular accounting period is
treated as revenue income. The below table shows the adjustments made for the
subscription.

Subscription received during the year xxx

Add: Subscription received (in advance) during previous year for
xxx
current year
Add: Subscription Outstanding at the end of the year xxx
xxx
 Less: Subscription received in advance for the next year (xxx)
Less: Subscription outstanding for the previous year (xxx)
Subscription shown in Income & Expenditure Account xxx

Let us understand the above calculations with the help of the example given below:

Example: As per the Cash book, the subscriptions received were Rs. 2,50,000. Additional
Information given is as follows:
1. Subscriptions Outstanding on 1.4.2019 Rs. 50,000
2. Subscriptions Outstanding on 31.3.2020 Rs.35,000
3. Subscriptions Received in Advance as on 1.4.2019 Rs.25,000
4. Subscriptions Received in Advance as on 31.3.2020 Rs.30,000
Ascertain the amount of income from subscriptions for the year 2019–20 and show how relevant
items of subscriptions appear in opening and closing balance sheets.

Subscription received during the year 2,50,000

Add: Subscription received (in advance) during previous year for current
25,000
year (A)
Add: Subscription Outstanding at the end of the year (B) 35,000 60,000
3,10,000
Less: Subscription received in advance for the next year (C) -30,000
Less: Subscription outstanding for the previous year (D) -50,000 -80,000
Subscription shown in Income & Expenditure Account (E) 2,30,000

Let us now understand the second effect in the Balance Sheet of the above adjustments:

A. Subscription received (in advance) during previous year for current year – This
amount will be reflected on the liabilities side of the Balance Sheet of the previous
year. Now, in the current year, this amount will be deducted from the opening liability.
B. Subscription Outstanding at the end of the year – This amount will be shown on the
assets side as Outstanding Subscription.
C. Subscription received in advance for the next year – This amount will be shown on
the liabilities side of the Balance Sheet.
D. Subscription outstanding for the previous year – This amount will be on the assets
side of the Balance Sheet in the previous year. Now, in the current year, it will be
deducted from the opening assets.
E. Subscription shown in Income & Expenditure Account – This amount will be
reflected and considered for calculation of Surplus / Deficit in the Income &
Expenditure Account.
(B) Expenses: Total expenses paid during the year are shown in Receipts and Payments
Account and expenses pertaining to the particular accounting period are shown in the
Income and Expenditure Account.
(C) Consumable Items: The value of goods consumed such as medicines, stationery, etc. is
shown in Income and Expenditure Account and the amount paid to creditors is shown in
Receipts and Payments Account.
Solved Example:

Following is the Receipts & Payments A/c of an Entertainment Club for the period from 1st April,
2019 to 31st March, 2020.

Receipts Amount Amount Payments Amount Amount

Balance b/d: Salaries 24,000
Cash 27,500 Electric Bill 21,000
Food Stuff for
Bank 60,000 87,500 restaurant 60,000
Member's Subscription Telephone bill 35,000
Subscription for
2018-2019 12,500 periodicals 14,500
2019-2020 1,00,000 Printing & Stationery 13,000
2020-2021 10,000 1,22,500 Sports Expenses 50,000
Sale of Furniture Secretary's honorarium 30,000
(Book Value: Rs. 8% Investments
8,000) 10,000 (31/03/2020) 1,00,000
Sale of Food Stuffs 1,00,000 Balance c/d:
Sale of Old Periodicals
and Newspapers 3,200 Cash 21,500
Hire of ground used
for Marriage 48,750 Bank 45,000 66,500
Donation for Sports
Fund 25,000
Locker Rent 17,050

4,14,000 4,14,000

Additional Information:
1. The club had 225 members, each paying an annual subscription of Rs. 500. Subscription
outstanding as on 31 March, 2019 Rs. 15,000.
2. Telephone bill outstanding for the year 2016-2017 is Rs. 2,000.
3. Locker Rent Rs. 3,050 outstanding for the year 2015-16 and Rs. 1,500 for 2016-17.
4. Salary outstanding for the year 2016-17 Rs. 4,000.
5. Opening Stock of Printing and stationery Rs. 2,000 and closing stock of printing
and stationery is Rs. 3,000 for the year 2016-17.
6. On 1st April 2016 other balances were as under:
Furniture 1,00,000
Building 6,50,000
Sports fund 15,000
7. Depreciation Furniture and Building @ 12.5% and 5% respectively assuming that it is on
reducing balance for the year ending March 31,2020.
Prepare Income and Expenditure account and Balance Sheet as on that date.
Solution:
In the books of Entertainment Club
Income and Expenditure Account for the year ended on 31st March, 2020
Expenditure Amount Amount Income Amount Amount

Salary 24,000 Subscriptions 1,00,000

Add: Outstanding 4,000 28,000 Add: Outstanding 12,500 1,12,500
Sale of Old
Electricity Bill 21,000 Periodicals 3,200
Profit on Sale of
Telephone Bill 35,000 Furniture 2,000
Hire of Ground for
Add: Outstanding 2,000 37,000 Marriage 48,750
Subscription for
periodicals 14,500 Locker Rent 17,050
Less: Opening
Printing & Stationery 13,000 Outstanding 3,050
Add: Opening Stock 2,000 14,000
Add: Closing
15,000 Outstanding 1,500 15,500
Less: Closing Stock 3,000 12,000 Sale of Food Stuff 1,00,000
Secretary's Less: Cost of Food
Honorarium 30,000 Consumed 60,000 40,000
Sports Expenses 50,000
LessL Opening
Balanvce of Sports
Fund 15,000
35,000
Less: Donation for
Sports 25,000 10,000
Depreciation:
Furniture 11,500
Building 32,500 44,000
Surplus 25,450

2,21,950 2,21,950

Balance Sheet as on 31st March, 2019

Liabilities Amount Assets Amount
Sports Fund 15,000 Cash in Hand 27,500
Capital / General Fund 8,42,550 Cash at Bank 60,000
Outstanding Subscription 15,000
Outstanding Locker Rent 3,050
Printing & Stationery 2,000
Furniture 1,00,000
 Buildings 6,50,000

Total 8,57,550 Total 8,57,550

Balance Sheet as on 31st March, 2020

Liabilities Amount Amount Assets Amount Amount
Subscriptions received in
10,000 Cash in Hand 21,500
Advance
Outstanding Telephone
2,000 Cash at Bank 45,000
Bill
Outstanding Salary 4,000 Outstanding Subscription 15,000
Outstanding Locker Rent 1,500
Capital / General Fund 842550 Printing & Stationery 3,000
Add: Surplus 25450 8,68,000 Furniture 100000
Less: Sales 8000
92000
Less: Depreciation 11500 80,500
Buildings 650000
Less: Depreciation 32500 6,17,500
Investment 1,00,000

Total 8,84,000 Total 8,84,000

Questions for Self Practice

Q. 1) From the following Receipt and Payment Account and additional information relating to
Excellent Cricket Club, prepare Income and Expenditure Account for the year ended March 31,
2020 and Balance Sheet as on date.

Dr. Cr.
Receipts Amount Payments Amount
Balance b/d (Cash in Hand) 18,000 Balance b/d (Bank Overdraft) 16,000
Member’s subscriptions 2,50,000 Upkeep of Field and Pavilion 1,15,000
Member’s Admission Fee 15,000 Tournament Expenses 40,000
Sale of Old Sports Materials 2,500 Rates and Insurance 10,000
Hire of Ground 28,000 Telephone 3,500
Subscription for Tournament 60,000 Postage & Courier Charges 4,000
Life Membership Fee 20,000 Printing and Stationery 26,000
Donations 6,00,000 Miscellaneous Expenses 4,400
Secretary's Honorarium 30,000
Grass Seeds 2,600
Investments 6,00,000
Purchase of Sports Materials 68,000
Balance c/d 74,000
 Total (Rs.) 9,93,500 Total (Rs.) 9,93,500

Assets at the beginning of the year were:

Play ground 5,00,000
Cash in Hand 18,000
Stock of Sports Materials 85,000
Printing and Stationery 11,000
Subscription Receivable 28,000

Donations and Surplus on account of tournament are to be kept in Reserve for a permanent
pavilion. Subscriptions due on March 31, 2020 were Rs. 42,000. Write-off fifty per cent of sports
materials and thirty per cent of printing and stationery.
Q. 2) Following is the Receipt and Payment Account of an Entertainment Club for the period
April 1, 2018 to March 31, 2019.
Dr Cr
Receipts Amount Payments Amount
Balance b/d: Salaries 24,000
Cash 27,500 Electricity Bill 21,000
Bank 60,000 Food Stuff for Restaurant 60,000
Member’s subscriptions Telephone Bill 35,000
2017-18 12,500 Subscription for Periodicals 14,500
2018-19 1,00,000 Printing and Stationery 13,000
2019-20 10,000 Sports Expenses 50,000
Sale of Furniture (Book Value -
10,000 Secretary's Honorarium 30,000
Rs. 8,000)
8% Investments
Sale of Food Stuffs 1,00,000 1,00,000
(31.03.2017)
Sale of Old Periodicals and
3,200 Balance c/d:
Newspapers
Hire of Ground used for Marriage 48,750 Cash 21,500
Locker Rent 17,050 Bank 45,000
Donations for Sports Fund 25,000

Total (Rs.) 4,14,000 Total (Rs.) 4,14,000

Additional Information:
1. The club had 225 members, each paying an annual subscription of Rs. 500. Subscription
outstanding as on 31 March 2017 Rs. 15,000.
2. Telephone bill outstanding for the year is Rs. 2,000.
3. Locker Rent Rs. 3,050 outstanding for the year 2014-15 and Rs. 1,500 for 2015-16.
4. Salary outstanding for the year is Rs. 4,000.
5. Opening Stock of Printing and stationery Rs. 2,000 and closing stock of printing and
stationery is Rs. 3,000 for the year.
6. On 1st April 2015 other balances were as under: Furniture Rs. 1,00,000 Rs. Building
6,50,000 Sports fund Rs. 15,000.
7. Depreciation Furniture and Building @ 12.5% and 5% respectively assuming that it is on
reducing balance for the year ending March 31, 2018
Prepare Income and Expenditure account and Balance Sheet as on that date.
Q. 3) Prepare Income and Expenditure Account and Balance Sheet for the year ended
March 31, 2015 from the following information.

Dr Cr
Receipts Amount Payments Amount
Balance b/d 41,000 Salaries and Wages:
Member’s subscriptions 2017-18 4,800
2017-18 7,200 2018-19 83,200
2018-19 3,37,600 Sundry Expenses 37,000
2019-20 12,000 Freehold Land 60,000
Entrance Fees 16,000 Stationery 16,000
Revenue from Refreshment 48,000 Rates 24,000
Income from Investments 56,000 Refreshment Expenses 37,500
Locker Rent 58,000 Telephone Charges 4,000
Audit fee 6,000
Investments 2,50,000
Balance c/d 53,300
Total (Rs.) 5,75,800 Total (Rs.) 5,75,800

The following additional information is provided to you:

6. There are 1800 members each paying an annual subscription of Rs. 200, Rs. 8,000 were in
arrears for 2017-18 as on April 1, 2018.
7. On March 31, 2019 the rates were prepaid to June 2015; the charge paid every year being
Rs. 24,000.
8. There was an outstanding telephone bill for Rs. 1,400 on March 31, 2019.
9. Outstanding sundry expenses as on March 31, 2018 totalled Rs. 2,800.
10. Stock of stationery as on March 31, 2018 was Rs. 2000; on March 31, 2019, it was Rs.
3,600.
11. On March 31, 2018 Building stood at Rs. 4,00,000 and it was subject to depreciation @
2.5% p. a.
12. Investment on March 31, 2018 stood at Rs. 8,00,000.
13. On March 31, 2019, income accrued on investments purchased during the year amounted
to Rs. 1,500.
Q. 4) Following is the Receipt and Payment Account of Friendship Club in respect of the Year on
31.3.2019.
Dr Cr
Receipts Amount Payments Amount
Balance b/d 10,000 Salaries and Wages: 20,000
Member’s subscriptions Sundry Expenses 500
2017-18 15,000 Courier Charges 300
2018-19 20,000 Stationery 4,500
2019-20 5,000 Rates and Taxes 1,500
Profit from Sports 17,800 Telephone Charges 7,500
Interest on 8% Government 8% Government Securities at
5,000 25,000
Securities par
Balance c/d 13,500
Total (Rs.) 72,800 Total (Rs.) 72,800

Additional Information:
1. There are 500 members, each paying an annual subscription of Rs. 50, Rs. 17,500 being in
arrears for 2017-18 at the beginning of 2018-19. During 2017-18, subscriptions were paid in
advance by 40 members for 2018-19.
2. Stock of stationery at March 31, 2018, was Rs. 1,500 and at March 31, 2019, Rs. 2,000.
3. At March 31, 2018, the rates and taxes were prepaid to the following January 31, the
annual charge being Rs. 1,500.
4. A quarter’s charge for telephone is outstanding, the amount accrued being Rs. 1,500. There
is no change in quarterly charge.
5. Sundry expenses accruing at 31.3.2018 were Rs. 250 and at March 31, 2019 Rs. 300.
6. At March 31, 2018 Building stood in the books at Rs. 2,00,000 and it is required to write
off depreciation @ 10% p.a.
7. Value of 8% Government Securities at March 31, 2018 was Rs. 75,000 which were
purchased at that date at Par. Additional Government Securities worth Rs. 25,000 are purchased
on March 31, 2018.
You are required to prepare:
a) An Income and Expenditure Account for the year ended on 31.3.2015
b) A Balance Sheet on that date.
 Accounts Reconciliation

Meaning of Accounts Reconciliation

Accounts reconciliation is the procedure of
comparing the ledger balances appearing in our
books of accounts with that of the party
concerned. Accounts reconciliation is an
important practice in accounting, since it helps
to evaluate the financial stability and accuracy
of any company. Various businesses have failed
due to bad accounting process, and the main
reason was the lack of accounts reconciliation.
Effective performance of Accounts Reconciliation is very important by any entity.
Accounts reconciliation helps your business with reconciling and monitoring your account
activity. Accounts reconciliation is a time consuming process as well as often prone to errors.
Hence, the process should be performed with efficiency and proper concentration.

Benefits of Accounts Reconciliation

 Builds in confidence amongst the parties.
 Reduces the future errors.
 Improves accuracy of the accounting.
 Improves management information and brings control through timely and detailed reports
of account transactions.

Types of Reconciliation

1. Reconcile accounts receivable:

Accounts receivable are the parties who have purchased goods from us on credit. In other
words, we can say that the accounts receivable are the customers to whom the goods are sold
on credit. The reconciliation of accounts receivable is done by matching each amount of sale
to a particular party with the amount received against the said invoice after the tax
implications if applicable. The two information sources for this reconciliation are as follows:

 General ledger. There is usually an account in the general ledger that is specifically
designated for the sole compilation of all receivables related to customers (known
as trade receivables). After all transactions have been recorded for a reporting period
and all subsidiary ledger balances have been posted to the general ledger, the resulting
ending balance in the receivables account is the summary total to be verified through a
reconciliation in case of General Ledger.
 Receivables detail. This contains the detailed listing of the customer billings that are
unpaid based on their period of delay in payment (also known as ageing analysis). The
total of the details are matched with the total of general ledger.
When the reconciliation is conducted, there may be differences between the two amounts for
the following reasons:

b) Goods in Transit
c) Cheque issued, but not received
d) Cheque received and deposited in bank but not yet cleared
e) Interest for delayed payment charged by seller, but not acknowledged by buyer
f) Discount not considered
g) Mistakes in GST calculation of entry
h) TDS deducted, but not entered in books
i) Wrong entry
j) Wrong amount entered.

This reconciliation process is conducted at specific intervals, generally monthly. If the

reconciliation is not conducted and there turns out to be an error in the general ledger, this
means there could be a material inaccuracy in the financial statements.

2. Reconcile Accounts Payable:

Accounts payable / Creditors’ Reconciliation is the process of verifying the accounts of

Creditors with the statement of accounts maintained by the respective creditors to ensure
books of the creditors. In case of differences, the same should be highlighted and
communicated to the respective creditor(s) to make necessary corrections for the missing
entries in the books of the company or the creditor. The process of reconciliation is similar to
the process of Accounts Receivable or Debtors Reconciliation.

3. Branch Reconciliation:

In a decentralised organisation system, branch can operate as a separate entity. So it can make
purchase and sell goods and does all functions on its own behalf. Sometimes it has to deal
with Head Office and / or other branches for its requirement. So in order to tally and record
all the transactions with each other, branch reconciliation statement is prepared.

Certain reasons for differences between Head Office and Branch Office Balances are as listed
below:
a. Cheque issued by branch, but not yet received by Head Office
b. Goods in transit from Branch to Head Office or vice versa.
c. Goods returned by Branch Debtors to Head Office directly
d. Expenses at Branch met by Head Office
e. Any error for recording of amount by Branch or Head Office.
 Role of an Accountant

Introduction

Accounting is a systematic method of recording

and presenting the financial information of the
entity. It is a continuous job which requires
expertise knowledge and core competency. This is
where the profession of Accountant comes into
picture. Accountants’ job is one of the most
respected and dignified job in any organisation.
An organisation can’t function efficiently without
an efficient and capable accountant. Accountants
analyse the finances of the entity to help the
owner of the organisation make better decisions.
This information is organised into reports that
show the financial health of a business.
Accounting helps business owners meet their compliance obligations. It also helps them make
smart decisions with their money.

Characteristics of a Good Accountant:

1. A strong sense of Ethics: An accountant has to act ethically. He is the person who is
trusted with the financial data of the entity.
2. Constantly Learning: Today, technology has made its place in all the sectors of the
industry. No organisation can function without the technology. Moreover, the
government amends their rules and regulations on a timely basis, making it very
important for an accountant to be updated on a regular basis.
3. Emphasizing Accuracy: It is essential for accountants to be accurate in their work. One
silly mistake can cause a huge loss to the organisation. Accountants must double check
their work and be sure about the figures.
4. Organisation Skills: Accountants have to deal with the paperwork and other data on daily
basis. They need to be very particular about the data organisation and management. This
requires organisation skills.
5. Sense of Accountability: Accountants’ job is a job of responsibility and accountability.
He is responsible for any mistakes occurred in accounting and answerable for the same.
6. Ability to work in a Team: An accountant has to coordinate with all the departments of
the organisation. This highlights the necessity of Team Work.
7. Knowledge of the Field: Accountant shall have sound knowledge in the field of
accountancy and taxation.
8. Trustworthiness and Reliability: The trustworthiness is a valuable asset for an
accountant.
9. Creativity: These days, accountants need to be creative when crunching numbers. They
must be capable of developing new and simple ideas and strategies to solve complex and
unique issues.

Duties and Responsibilities of an Accountant

The general responsibilities of an accountant are as designed below:
 a) Full charge bookkeeping including all month and year end journal entries.
b) Compilation and preparation of monthly, quarterly and yearly financial statements for
in house use and CA firm for year-end tax purposes and decision making.
c) Maintain employee records including but not limited to hours, salary, mileage and personal
time off, etc.
d) Process payroll semi monthly; file all payroll taxes and forms monthly, quarterly and
yearly as required by Federal and State laws. Maintain payroll files and reports.
e) Maintain all client accounts of time, billings and payments, collection of accounts
receivable when necessary.
f) Prepare all monthly client invoicing and vendor payments for management team approval
and mailing.
g) Reconcile credit card receipts and statements monthly. Track credit card receipts for client
invoicing and pay the balances on time to avoid interest and charges.
h) Keeping records and tracking of all company assets purchased and in use. Keep the records
up to date when the assets are not in use.
i) Prepare weekly, monthly, quarterly reports and financial analysis reports including but not
limited to financial statements, client budget reports, employee time challenge reports,
part time employee hours report, employee financial profit share report, accounts
receivable reports, etc.
j) Responsible for follow up phone calls/emails and letters to track billing records, payment
requests, bank statements, anything financial that needs follow up, etc.
k) Prepare and maintain government client reporting and estimating.
l) Provide advice and assistance in making decisions in the areas of finances, analysis,
financial software and accounting as requested by management.
m) Working cooperatively with the company’s certified public accounting and insurance
firms.
Accounting Job Functions

1. Treasury management: Accounting and finance department sets up treasury

management policy to be adopted by all who come in contact with cash or
cash equivalent. The idea behind the Treasury Management is to assess the
risk of liquidity handling.
5. Cost control: The objective of accounting is to analyse the expenses incurred to earn
the income and to control the costs wherever high and irrelevant.
6. Billing and Credit control: Accounting and finance department has the responsibility
to ensure that customers pay their correct bill on time.
7. Ensuring compliance with relevant laws: The laws pertaining to business, taxation,
etc. are changing continuously. An accountant shall be continuously updated with
the amended laws and shall ensure the compliance of the same to avoid penalties
from the Government.
8. Handling tax issues: The accounting and finance department of small businesses
takes care of its tax matters also that include the payments to the authorities.
9. Preparation of financial statements: The accountant is responsible to prepare the
Financial Statements after due compliance with all the accounting principles and
policies.
10.Safeguarding assets through internal control: Accountants play vital role in helping
to protect the assets of the company from damage, theft, etc. This they do by
designing and implementing viable internal controls and management controls.
 11.Inventory management and control: In a small business organisation, inventory
control and management is a job of the accounting and finance department.
12.Business advisory function: The accounts department provides business advisory
services to the small and medium sized businesses.
13.Information system assurance: An accountant has to make sure that the information
system used for accounting is secured from other threats.
14.Payroll system: Payroll system management is very important in the management of
small businesses. Get it wrong and the whole business can crumble.
15.Customer service function: This department deals with both internal and external
customers. Accountants also have to perform the duty of customer care.
16.Budgeting and budgetary control: The accountant has to prepare the budgets and
make sure that the expenses and incomes are as per the budgets only.
17.Providing information for management: Managers rely mostly on MIS for decision
making. This information comes in various forms and formats.
18.Managing cash flow and liquidity issues: The accountant has to manage the cash
flows and liquidity issues of the entity.
19.Working capital management: The working capital of any entity can be managed by
proper cash flow management.
20.Preventing fraud: Accountants are responsible to prevent the frauds in the
organisation.
21.Hiring accounting and finance staff: Recruitment of accounting and finance staff
should be done by the accountant only, as he ban best test knowledge of the
candidate.
22.Facilitating Training of accounting staff: The accountant has to train the new staff as
per the norms of the organisation.

Role of an Accountant

An accountant in any business organisation plays the

most vital role. He is a multitasking performer and
performs various functions in the organisation. He is
the most trusted and reliable person in any business.
Every person directly or indirectly related to the
organisation is dependent on the accountants’ data.
An Accountant knows the organisation in and out. As
mentioned earlier, an accountant is a multitasking
performer, his roles are widely spread. He is
answerable to every person in the organisation,
starting right from the top management to the lowest management in the hierarchy. To be a
successful accountant, the accountant has to go through the below roles in an organisation:
 Cashier: Generally in small business organisations, an accountant starts with the job of
cashier. Being a cashier, an accountant learns about the liquidity norms in the organisation. Also,
the accountant gets in direct touch with the customers and suppliers of the organisation in this
position.
 Store Keeper: Store keepers are responsible for receiving, storing and maintaining records
of supplies in places like stores, hotels, construction sites etc. They also manage the activities of
lower-level personnel involved in warehouse activities.
 Accounting: Once the accountant is thorough with the liquidity norms and cash
management, he is given a job of accounting. This job makes an accountant thorough with the
integral details of the organisation. The accountant makes entries related to the purchase, sales,
receipts, payments, etc. This also helps the accountant learn the software used in any business in
detail.
 Administration Head and Trainer: An Administration Manager’s role is to oversee the
administrative operations of a business. They are in charge of the department’s day-to-day
functions as well as supervising and supporting staff. Here the accountant performs the job of a
trainer also. Being associated with the same field for a long period, the accountant trains the
fresher in any organisation.
 Accounts Manager: The roles of accounts manager include managing and overseeing the
daily operations of the accounting department monitoring and analyzing accounting data and
produce financial reports or statements establishing and enforcing proper accounting methods,
policies and principles. He comes in direct co-ordination with the senior level management in an
organisation. He is the intermediary between the top level managers and the lower level
managers. Being in this profile, he is responsible for even the smallest monetary transaction and
Finalisation of the Accounts, along with the statutory compliances such as GST, TDS, Customs,
etc. He will be accountable for any penalties payable by the organisation due to his negligence.

An accountants’ roles generally are wide spread, which cannot be summarized in a few words. An
accountant has a huge scope of expansion with his approach towards continuous learning. He
might start with a very small profile, but his continuity and affirmative approach towards his job
can help him reach to the Top Level Management.

Types of Accountant

1. Cost Accountant: These accountants are responsible for reduction and control of costs of
the organisation. They make sure that the expenses are relevant and as per the budgets.
2. Management Accountant: These accountants are the senior level accountants who take
care of the entire financial position of the organisation.
3. Auditor: These professionals check for accuracy and fairness of the transactions entered
into the books of accounts and the Financial Statements.
4. Forensic Accountant: These accountants act as the detectives and are in search of frauds
occurring while accounting.
5. Investment Accountant: These accountants work in the field of Investment and Finance.
CHAPTER 14: FINALISATION OF ACCOUNTS
Contents…
 Ledger Scrutiny
 Steps for Finalisation of Accounts

Ledger Scrutiny

Ledger scrutiny is to be done for all type of organisations whether the same is sole proprietor,
partnership firm, company, or any other. The ledger scrutiny is required irrespective of whether
the accounts are maintained manually, on Tally or on SAP or customised accounting software.
Where ever there is a ledger, Scrutiny is must for Finalisation of Accounts. Ledger scrutiny,
although being a part of audit, should be performed by the accountant as well before finalisation
of accounts. With the help of ledger scrutiny, an accountant can finalise the accounts and arrive at
the correct Tax liability, preparation of Financial Statements being the responsibility of the
management as per the Auditing norms. There is no standardised procedure for ledger scrutiny,
however we can summarise the same in the below steps:
1. Reconciliation of Opening and Closing Balance: The opening and closing balance in a
particular Ledger account should be reconciled to find out that the balance includes only
entries pertaining to the said account and each and every amount in the Balance is
identifiable with the said account.
2. Debtors Scrutiny: A debtor is a person, company, or other entity that owes money. In other
words, the debtor has a debt or legal obligation to pay the amount owed. Debtors scrutiny
is done to find out the amount receivable from the debtors along with the ageing analysis.
The below steps can be followed for Debtors Scrutiny:
a. Prepare the bill-wise outstanding entries, along-with the remarks of receipts during the
subsequent audit period.
b. Obtain the Auditee’s response, for debtors outstanding of more than 90 days.
c. Verify if there have been any mutual settlement, identify the bad debts, if any.
d. Check whether discount allowed is properly recorded.
e. In case of sales return, verify the proper reversal of VAT, if necessary and its inventory
accounting.
f. Check that the balance shown by the Debtors Ledger Trial balance agrees with the balance
shown by the Debtors control account in the General Ledger Trial balance.
g. Check the Age-wise analysis of Sundry Debtors and comment upon it.
h. Check the Debtors Accounts that are stuck up for long and are doubtful of recovery
i. Check the debtors accounts where legal cases have been filed / are to be filed and ascertain
the progress in the legal cases.
3. Creditors Scrutiny: A creditor is a person, bank, or other enterprise that has lent money or
extended credit to another party. The creditors scrutiny is carried out with the help of
following steps:
a. During Creditors scrutiny, verify if there are any long outstanding bills.
b. Obtain the Auditee’s response, for Creditors outstanding of more than 90 days.
c. Verify if there have been any mutual settlement.
d. Check whether discount received is correctly recorded.
e. Check the accounting entry for purchase return.
f. Check the period for which the amount is outstanding.
g. Ascertain the reasons for the outstanding amount.
h. Check whether the amount has actually paid after the date of balance sheet date.
 i. Check the Age-wise analysis of Sundry Debtors and comment upon it.
4. Scrutiny of Fixed Assets and Depreciation: A fixed asset is a long-term tangible piece of
property that a firm owns and uses in its operations to generate income. Fixed assets are not
consumed or converted into cash within a year, they are used for more than one year. Fixed
assets are known as property, plant, and equipment (PP&E). They are also known as
capital assets:
a. Check the Bills for any new purchases which were made during the year.
b. Check whether the rates for depreciation are proper and also whether it has been correctly
calculated. Any company incorporated under the Companies Act has to follow schedule II
for Depreciation.
c. Whether the asset has been capitalized properly.
d. Fixed assets are properly recorded at cost/valuation.
e. Ensure appropriate authority for acquisition.
f. Whether the Fixed Assets purchased are tagged giving an appropriate reference number.
g. Whether the asset has been entered in the fixed asset register
5. Fixed Deposits:
a. Reconcile the amount with FD certificate.
b. Ask for 16-A & check whether TDS have been correctly deducted by bank.
c. Reconcile the TDS deducted with 26AS statement.
d. Collect Form 16-A for your record.
6. Secured loans/Term loans/Cash Credit.
a. Obtain the Statement of Accounts from the financier Bank/ Institution
b. Obtain interest certificate as to compare with the balance in the Books.
c. If the loans are obtained from Directors/ Shareholders, obtain certificate that the
same is not given out of borrowed funds.
d. Balance, Additions , Repayment, interest credited , Tax Deducted and any other
e. Adjustments , so as to agree with the total opening and total closing balance and
maximum outstanding during the year.
7. Director’s Account Scrutiny: Generally this is performed in case of Company (body
corporates).
a. Check the transactions that have taken place through the directors personal account.
b. Verify the calculation of directors’ remuneration including the amount of the TDS
Deducted.
c. See that the personal expenses have been debited to drawings accounts
8. Investments:
a. Details of Investments at the Year end
b. Check the income accrued on the Investments
c. Disclosure requirements under Schedule III in case of Company incorporated under
the Companies Act.
9. Inventory:
a. Check the Method of Valuation of the Closing Stock.
b. Reconcile the physical / book items of inventory showing opening balances, purchases,
issued for consumption/sales, short & excess and closing Stock with the GST Records.
c. Trace the deviations if any from the method of valuation of Stock, purchases, sale
according to section 145A of the Income Tax Act.
d. According to the provisions of the said section all duties, cess, taxes and levies are to be
Included at the first instance in the said items including provisions for excise duty on
closing stock of finished goods.
 e. Check the Compliance of the Accounting Standard -2 “Valuation of Inventories.” It may
be noted that the said Accounting Standard ignores the GST adjustments and only
exclusive method is permissible.
f. Sheet of physical verification conducted by the management to be obtained.
10.Loans and Advances Given:
a. Prepare the Chart of Loans and advances given showing the opening balance, additions,
repayment , interest charged , TDS deducted and other adjustments made during the
year.
b. Check the Compliances as per Para 8(B) above.
c. Obtain the details of Due from directors with maximum outstanding during the year
d. Ensure proper disclosure is made w. r. t. security aspects.
11.Provision for Taxation:
a. Ensure the taxation provided according to the taxation Laws applicable at the date of
balance Sheet
b. Ensure that provision for tax is made in accordance with the AS-22. ” Deferred Tax”
c. Ensure that Provisions u/s 115JB MAT is also considered as per the Companies Act.
12.Other Incomes:
a. Interest Income correlates the same with TDS receivable for the year.
b. Insurance Claims received.
c. Commission Income

Checklist for Finalisation of Books of Account

The general steps for

Finalisation of accounts
are as follows:

 Ensuring that all the entries pertaining to a given year are recorded in that year itself. This
is essential as many invoices relating purchases/direct costs/other expenses are received in
the next year. It is on the basis of these invoices, that we can record the outstanding
payable and receivable amounts at the year end.
 The next step would be Ledger Scrutiny. Ledger scrutiny is done to ensure that the
accounting is complete in all aspects along with the provisions for expenses and incomes.
 We then proceed to prepare with the reporting of the Financial information. Essentially a
set of financial statements would include Statement of Financial Position , Statement of
Comprehensive Income, Statement of changes in equity, Statement of Changes in Cash
Flow and notes to accounts
 Prepare Notes to Accounts - Notes to accounts are an integral part of the financial
statements. It gives a detailed view of the accounting practices followed and bifurcation of
different assets and liabilities as reflected in the Balance Sheet and the revenue & cost
groups as reflected in the Profit & Loss Account.
 Profit & Loss Account - Transfer all revenue, direct cost and indirect costs to the statement
of comprehensive income. This account gives you the amount of net profit/loss during the
period. This amount is carried forward to the statement of changes in equity.
 Statement of changes in equity - The net profit from above is added to the retained
earnings. This statement would also reflect the changes in the capital and the reserves of
the company.
 Balance Sheet - The balance of the various asset/liability groups (current, non-current, etc.)
as reflected in the notes to accounts are transferred to the statement of financial position.
The capital, reserves and the retained earnings amounts are taken from the Statement of
Changes in Equity. Needless to say (and as every person connected to accounts would
know), the asset and the liability side of this statement should tally.
 The final step shall be preparation of the Cash Flow Statement, which gives an idea of the
cash movement from operating activities, investing activities and financing activities.
Conclusion:

Management is the brain and Accounting is the heart of any business organisation. Accounting
and Management go hand in hand as either cannot perform without each other. Accounting is not
limited to the book keeping. It is a wider concept involving book keeping, summarising,
interpreting, finalisation of books of accounts, taxation implications, reporting and auditing. The
accountant is bundled with trust and responsibility. An accountant acts as the trustee, who takes
care of the financial matters of the organisation and is responsible for any errors or frauds
regarding to the Finance of the organisation. The accountant has to look after each aspect of the
financial matters of the company and is answerable to the Management for spending every rupee
of the company.