UNIT-1

1. Define managerial economics? Explain the nature of Managerial

Economics?
A) Definition of Managerial Economics:
Managerial Economics is defined as the branch of Economics which deals with the application of
various concepts, theories, methodologies of Economics to solve practical problems in business
management.

Nature of Managerial Economics:

Managerial Economics is the application of economic principles and methods to solve business
problems and make decisions. It combines economic theory with practical tools to help managers plan,
organize, & achieve business goals effectively.
1. What should we produce?
2. How much should we produce?
3. What price should we set?
4. How can we use our resources efficiently?
It is the application of economic theory and methodology to business decision making.
1. Microeconomic foundation: It focuses on individual business decisions like pricing, production,
and demand.
2. Decision making: Helps managers make better decisions by analyzing costs, revenues, & market
conditions.
3. Optimization: Aims to find the best solutions like maximizing profits or minimizing costs.
4. Use of economic theories: Applies concepts like supply and demand, elasticity, and market
structure to business problems.
5. Predicting future trends: Helps managers forecast market behavior and plan.

2. Explain the various types of elasticity of demand?

A) 1. Price elasticity of demand:
Marshall was the first economist to define price elasticity of demand. Price elasticity of demand
measures changes in quantity demand to a change in Price. It is the ratio of percentage change in
quantity demanded to a percentage change in price. Proportionate change in the quantity demand of
commodity
There are five cases of price elasticity of demand
A. Perfectly elastic demand:
When small change in price leads to an infinitely large change is quantity demand, it is called
perfectly or infinitely elastic demand. In this case E=∞22
The demand curve DD1 is horizontal straight line. It shows the at “OP” price any amount is demand
and if price increases, the consumer will not purchase the commodity.

B. Perfectly Inelastic Demand:

In this case, even a large change in price fails to bring about a change in quantity demanded.
When price increases from „OP‟ to „OP‟, the quantity demanded remains the same. In other words
the response of demand to a change in Price is nil. In this case „E‟=0.

C. Relatively elastic demand:

Demand changes more than proportionately to a change in price. i.e. a small change in price loads to a
very big change in the quantity demanded. In this case E > 1. This demand curve will be flatter.23
When price falls from „OP‟ to „OP‟, amount demanded in crease from “OQ‟ to “OQ1‟ which is
larger than the change in price.

D. Relatively in-elastic demand.

Quantity demanded changes less than proportional to a change in price. A large change in price leads
to small change in amount demanded. Here E < 1. Demanded carve will be steeper.
When price falls from “OP‟ to „OP1 amount demanded increases from OQ to OQ1, which is smaller
than the change in price.

E. Unit elasticity of demand:

The change in demand is exactly equal to the change in price. When both are equal E=1 and elasticity
if said to be unitary.24
When price falls from „OP‟ to „OP1‟ quantity demanded increases from „OP‟ to „OP1‟, quantity
demanded increases from „OQ‟ to „OQ1‟. Thus a change in price has resulted in an equal change in
quantity demanded so price elasticity of demand is equal to unity.

2) Income elasticity of demand: It shows the extent to which a consumer's demand for the
commodity changes as a result of change in his income.
Eᵧ = (Percentage change in quantity demanded of good x) / (Percentage change in income of the
consumer)
a) High income elasticity: Here the value of the co-efficient E is greater than unity, which implies
that quantity demanded of good x increases by a larger percentage than the income of the consumer.
Graph illustration with ΔY (change in quantity demanded) and ΔM (change in income)
Units of demanded of good x by the household

b) Unitary income elasticity of demand: Income demand curve having this property. It indicates
that the percentage change in quantity demanded is equal to the percentage change in money income.

c) Low income elasticity: Income elasticity is low if the relative change in quantity demanded is
less than the relative change in money income.
Eᵧ < 1
(Graph showing: 0 < Eᵧ < 1)
Units of demanded of good x by the household

d) Zero income elasticity: Here, a change in income will have no effect on the quantity demanded
(like in case of salt). So the value of the co-efficient Eᵧ is equal to zero. Such a demand curve is
shown in figure.
(Graph showing Eᵧ = 0)
Units demanded of goods x by the household

e) Negative Income Elasticity

As pointed out above, inferior goods have negative income elasticity of demand. It explains that less
is bought at higher incomes and more is bought at lower incomes.
The value of the coefficient Eᵧ is less than zero (negative) in this case.
(Graph illustrating Eᵧ < 0)

c) Cross Elasticity of Demand (CED):

It measures how the quantity demanded of one good (A) changes in response to a change in the price
of another good (B). It is an essential concept in economics, especially when studying substitute &
complementary goods.
CED = (Proportionate change in quantity demanded of product x) / (Proportionate change in price of
product y)
Edc = (Q2 - Q1) / Q1 ÷ (P2Y - P1Y) / P1Y
Where:
Q1 is quantity demanded before change,
Q2 is quantity demanded after change,
P1Y is the price before change,
P2Y is the price after change.

a) Positive CED:
Substitutes (which means the demand for tea goes up if there is an increase in the price of coffee).

b) Negative CED:
Complementary (which means that if there is an increase in the price of sugar, the demand for coffee
tends to fall).

E.g.: Cars & fuel

3.(i) Explain the scope of managerial economics?
A)

3.(ii) Explain the determinants of demand?

A)
4. Illustrate the Law of Demand with assumptions and exceptions with the
help of Individual demand schedule and demand curve.
A) Law of Demand:
Law of demand shows the relation between price and quantity demanded of a commodity in the
market.
> "The amount demand increases with a fall in price and diminishes with a rise in price."
— Marshall
A rise in the price of a commodity is followed by a reduction in demand and a fall in price is followed
by an increase in demand, if the condition of demand remains constant.
The law of demand may be explained with the help of the following demand schedule.

Demand Schedule:

Price fall Rs 10 to 8, quantity demand increases from 1 to 2.

In the same way, price fall, QD ↑. On the basis of the demand schedule we can draw demand curve.

[Demand Curve Graph]

The demand curve DD shows the inverse relation b/w price & QD. It's downward sloping.

Assumptions:
Law of demand is based on certain assumptions
1. There is no change in consumers’ taste and preferences.
2. Income should remain constant.
3. Prices of other goods should not change.
4. There should be no substitute for the commodity.
5. The commodity should not confer any distinction.
6. The demand for the commodity should be continuous.
7. People should not expect any change in the price of the commodity.

Exceptional Demand Curve:

It is a special case where the demand curve slopes upward instead of the usual downward slope. This
means that as the price of a good increases, people buy more of it, which is against the normal law of
demand.

[Exceptional Demand Curve Graph]

This can happen in certain situations, such as:

1. Giffen Goods: Basic necessities like bread or rice, where higher prices may force people to cut
back on other items and buy more of the good.
2. Veblen Goods: Luxury goods like designer bags or jewelry, where higher prices make them more
desirable as a status symbol.
3. Speculative Demand: If people expect prices to rise further, they may buy more now, even at
higher prices.
4. Ignorance: The quality of the commodity is judged by its price. Consumers think that the product
is superior if the price is high, so they buy more at a higher price.
5. Fear of Shortage: During times of emergency or war, people may expect a shortage of a
commodity. At that time, they may buy more at a higher price to keep stocks for the future.
6. Necessaries: In case of necessaries like rice, vegetables, etc., people buy more even at a higher
price.

5.(i) Explain price and income elasticity of demand with suitable formula?
A)

5.(ii) Explain Market and individual demand schedule?

A)

Demand Schedule:
Price fall Rs 10 to 8, quantity demand increases from 1 to 2.
In the same way, price fall, QD ↑. On the basis of the demand schedule we can draw demand curve.

[Demand Curve Graph]

The demand curve DD shows the inverse relation b/w price & QD. It's downward sloping.

UNIT-2

6. Explain the nature and significance of production?

A) Nature of Production Analysis

Production analysis is the study of how goods & services are created by combining different resources
like labour, raw material, machinery, & technology. It focuses on understanding the relationship
between the input (resources) and outputs (product or services) to determine how efficiently resources
are used.
In simple terms:
a) How much can we produce with the available resources?
b) What combination of resources is most cost-effective?
c) How does changing one input (like increasing labour or upgrading technology) affect production
level?
This analysis helps businesses optimize production processes, reduce cost, & increase profits.
Significance of Production Analysis

Production analysis is important because it helps businesses make better decisions about how to create
goods and services.

1. Improves efficiency: It shows how to use resources like labour and material in the best way to
avoid waste.
2. Reduces costs: Understanding production processes, businesses can find ways to lower expenses.
3. Increases output: It helps maximize the amount of goods or services produced with the resources
available.
4. Planning: Businesses can plan for the future by analyzing how changes in inputs (like new
machines or more workers) affect production.
5. Boosts profits: Efficient production means lower costs and higher profits.

It helps businesses make smart choices to produce more, save money and grow.

7. Explain various cost concepts in cost analysis?

A) Cost Concepts and Cost Behaviour:

Cost concept refers to different types of costs a business incurs while producing goods & services.
Here are some key cost concepts:

1. Fixed Cost: These costs do not change with the level of production or sales. They remain constant
regardless of how much is produced.
Ex: Rent, salaries.
2. Variable Cost: These costs change depending on the amount of goods or services produced. The
more you produce, the higher the variable costs.
Ex: Raw materials, labour directly involved in production.
3. Total Cost: This is the sum of fixed cost & variable costs at a particular level of production.
It represents all the costs involved in production.
4. Average Cost: This is the total cost divided by the number of units produced. It shows the cost per
unit of production.
5. Marginal Cost: The additional cost incurred to produce one more unit of output. It helps
businesses determine if it's worth increasing production.
6. Opportunity Cost: This is the cost of the next best alternative that is forgone when making a
decision.
Eg: If you choose to spend money on marketing rather than on research, the opportunity cost is the
benefits you could have gained from research.

8.(i) A firm has a fixed cost of Rs10000 selling price per unit 5 and variable
cost per unit is Rs3
a) Determine BEP in terms of volume and sales value

A)
9. Explain the Merits and demerits of Break even analysis?
A) Merits (Advantages) of Break-Even Analysis:
1. Simple and Easy to Understand:
o The concept and calculation are straightforward, making it a user-friendly tool for managers.
2. Helps in Profit Planning:
o It identifies the minimum sales volume needed to avoid losses and helps in setting profit targets.
3. Useful in Decision-Making:
o Assists in decisions like pricing, adding or dropping products, and expanding production.
4. Cost Control Tool:
o Highlights the relationship between cost, output, and profit, helping in cost management.
5. Helps in Financial Planning:
o BEP provides useful insights for preparing budgets and evaluating financial viability of projects.
6. Risk Assessment:
o Helps businesses assess the level of risk involved in operations by identifying how far sales can fall
before incurring losses.
Demerits (Limitations) of Break-Even Analysis:
1. Assumes Constant Selling Price:
o In reality, prices may vary due to discounts, competition, or market demand.
2. Unrealistic Cost Classification:
o It assumes all costs are clearly divided into fixed and variable, but many costs are semi-variable.
3. Static Model:
o It assumes conditions remain constant (like costs and prices), which is not always true in dynamic
markets.
4. Ignores Inventory Changes:
o Assumes that all units produced are sold, which may not match actual business scenarios.
5. Short-Term Focus:
o Mostly useful for short-term decision-making and may not suit long-term strategic planning.
6. Doesn’t Consider External Factors:
o Market trends, competitor actions, and economic changes are not reflected in the model.

10) Explain the advantages of cost analysis

A) Advantages of Cost Analysis
Cost analysis is the process of examining and evaluating all the costs associated with a business
operation. It plays a key role in planning, decision-making, pricing, and improving overall business
performance.
Key Advantages:
1. Saves Money:
o Cost analysis identifies unnecessary or excessive expenditures, helping businesses reduce waste and
operate more economically.
2. Improves Profitability:
o By understanding cost behavior, firms can manage expenses better, increase efficiency, and
ultimately enhance profit margins.
3. Supports Better Decision-Making:
o Managers can make informed decisions related to pricing, production, expansion, or product
discontinuation based on accurate cost data.
4. Ensures Fair Pricing:
o Knowing the exact cost of production enables businesses to set prices that are both competitive and
profitable.
5. Improves Operational Efficiency:
o Identifying cost drivers and inefficient processes helps streamline operations and improve
productivity.
6. Reduces Business Risks:
o With proper cost forecasting and analysis, firms can prepare for potential financial setbacks and
maintain stability.
7. Aids in Budgeting:
o Cost analysis forms the foundation of effective budgeting and financial planning, ensuring that
resources are allocated wisely.
8. Helps in Performance Evaluation:
o Comparing actual costs with budgeted costs reveals deviations, enabling corrective action and better
control.
9. Guides Investment Decisions:
o It helps in evaluating the profitability and feasibility of new projects or investments by analyzing
expected costs and returns.
10. Enhances Strategic Planning:
• Cost analysis supports long-term planning by helping companies understand cost trends and
make future-focused strategies.

UNIT-3

1. Explain the Imperfect market competition?

A) Market:
It is defined as a place (or) point at which buyers and sellers negotiate their exchange of well-defined
goods and services.

Perfect Competition

It means a market where small businesses sell the same product and no one controls the price.
Everyone must sell at the same price because the products are identical and buyers can easily switch
the sellers. The price is decided by overall demand and supply in the market.
Ex: Agriculture (wheat, rice, etc.)
Imperfect Competition

In this imperfect competition, what we see in most real world markets with varying levels of
competition and products differentiate.

i) Monopoly (One seller, no close substitute)

A monopoly is when a single company controls the entire supply of a product (or) service leaving no
competition. This allows the company to set prices and terms because the customer has no alternative.
Ex:
1. Utility Companies
2. Tech Companies, Microsoft

Features of Monopoly:

 Single seller → they control the market

 No competition
 Price makers → because customers have no alternative
 Restricted entry → cannot easily enter the market
 Unique products
 Control over supply → availability of the product Dependence of consumers

Monopolistic Competition (Many Firms)

It is a market situation where many companies sell similar but slightly different products. Each
company tries to make its products unique through branding, quality or other features giving them
some control over prices.
Ex:
Shirts in Puma, Nike, Adidas
Beauty products in Lakme, Dazzler, Eytex

Features of Monopolistic Competition:

 Many sellers
 freedom of entry and exit
 Product differentiation
 some control over prices
 No price competition
 customer choice
Oligopoly (Few Large Firms Competition)
It is a market situation where a few large companies dominate the industry. These companies often
sell similar or related products and their decisions (pricing) can affect each other.

Features of Oligopoly:

 Few sellers
 Interdependence
 Barriers to entry
 Similar or differentiated products
 Non-price competition
 Price rigidity

2. Explain various kinds of business organizations?

A) Forms of Business Organisation:
It refers to the way a business is structured and operated. It includes all the systems and methods that
govern how it works. These forms determine how the business is owned, managed, and how profits
and responsibilities are shared.

1. Sole Proprietorship: A business owned and run by one person. The owner gets all the profits but is
also responsible for all the debts.

2. Partnership: A business owned by two or more people who share profits and responsibilities. Each
partner is also liable for the business’s debts.

3. Joint Stock Company: This is a business owned by shareholders, who invest money in exchange
for shares (ownership). The company is a separate legal entity, meaning it can own assets, enter into
contracts, and be sued independently. The shareholders are not personally liable for the company’s
debts beyond their investment.

4. Public Sector Enterprises: These are businesses owned and operated by the government. The aim
is to provide services to the public, rather than to make a profit. It includes utilities, transportation,
and public health services.
3.(i) Explain the public enterprises?
A) Public Sector Enterprises: These are businesses owned and operated by the government. The aim
is to provide services to the public, rather than to make a profit. It includes utilities, transportation,
and public health services.

Types of Public Sector:

1. Departmental Undertaking: Operated directly by government departments (e.g., Indian Railways).
2. Public Corporations: Separate legal entities but government-owned (e.g., LIC of India).
3. Government Companies: Companies where the government owns at least 51% of shares (e.g.,
BHEL, SAIL).

3.(ii) Explain the features of sole proprietorship?

A) Sole Proprietorship:
It is a type of business that is owned and run by just one person. Here are its main features in simple
terms:

1. Single Ownership: One person owns and controls the entire business.
2. Unlimited Liability: The owner is personally responsible for all the business's debts and legal
actions. If the business goes into debt, the owner’s personal assets (like house or car) could be used to
pay it off.
3. Full Control: The owner makes all the decisions and has complete control over the business
operations.
4. Profit & Loss: The owner keeps all the profits but also faces all the risks and losses alone.
5. Simple to Start: It’s easy and inexpensive to set up compared to other types of businesses with
fewer legal requirements.
6. Limited Lifespan: The business usually ends if the owner dies or decides to stop operating.

4.(i) Define partnership? Explain merits and demerits of partnership?

A) Advantages of Partnership:

1. Shared Resources: Partners can combine their money, skills, and knowledge, which can help the
business grow faster.
2. Shared Responsibility: The workload and decision-making are shared, so no single person is
overwhelmed.
3. More Capital: With multiple partners, it’s easier to raise more money to invest in the business.
4. Tax Benefits: Partnerships often enjoy simpler tax rules where profits are taxed as personal income
of the partners (no corporate taxes).
5. Flexibility: Partners can agree on how to run the business, split profits, and handle different roles.

Disadvantages of Partnership:
1. Unlimited Liability: In most partnerships, if the business loses money, the partners are personally
responsible, risking their personal assets.
2. Shared Profits: The profits must be divided among the partners, so each gets a smaller share
compared to a sole proprietor.
3. Disagreement: Partners may have different ideas or ways of running the business, which can lead to
conflicts.
4. Unstable: If a partner leaves, becomes ill, or dies, it can disrupt or even end the partnership unless
agreed otherwise.
5. Limited Life: The partnership usually ends if one partner leaves, unless the others agree to continue.

5.(i) Explain the features of monopolistic competition?

A)Features of Monopolistic Competition:

 Many sellers
 freedom of entry and exit
 Product differentiation
 some control over prices
 No price competition
 customer choice

5.(ii) Explain the different types of partners?

A) Types of Partners:
1. Active Partner: Actively involved in the day-to-day operations of the business. Has unlimited
liability in most partnership types.
2. Sleeping Partner: Invests money in the business but does not take part in daily operations. It
shares profits and losses but may still have liability unless in a limited partnership.
3. Nominal Partner: Lends their name or reputation to the business but does not invest or participate
in operations. May still be liable for business actions since they appear as a partner.
4. Limited Partner: Contributes capital but has no active role in management. Liability is limited to
their investment amount.
5. General Partner: Actively manages the business and makes decisions. Has unlimited personal
liability for the business debts.
6. Partner by Estoppel: Someone who behaves or presents themselves as a partner but is not
formally part of the partnership.
7. Secret Partner: Actively participates in the business but is not publicly identified as a partner. Has
the same liabilities as other active partners.
8. Minor Partner: A person under the legal age of majority who is admitted to share profits but has
limited legal liabilities.

UNIT-4

1.(i) Explain importance of capital budgeting?

A) Significance of Capital Budgeting:
In its role in helping businesses make smart, long-term investment decisions:
1. Maximizes profits:By choosing the best investments, businesses can earn higher returns.
2. Ensures efficient use of funds:It helps businesses avoid wasting money on bad investments.
3. Long-term growth:Smart capital budgeting decisions lead to business growth and stability over
time.
4. Manages risks:It allows businesses to evaluate the risk involved in big investments and choose the
safest or most rewarding options.
5. Supports strategic goals:This process ensures that investments align with the company’s long-term
objectives and vision.

1(ii) Explain the significance of working capital?

A) a) Gross Working Capital (GWC):This is the total current assets of a company. It includes cash,
accounts receivable, inventory, and other short-term assets that can be converted into cash within a
year.
b) Net Working Capital:This is the difference between current assets and current liabilities. It shows
the company’s short-term financial health and ability to pay off its short-term debts.
a) Fixed Working Capital (Permanent WC):This is the minimum amount of working capital a business
always needs to run smoothly. It remains constant regardless of sales or season.
b) Temporary (Variable) Working Capital (Extra for short term needs):This is the additional working
capital needed during peak seasons or special situations. It increases or decreases based on business
demand.
1) Seasonal Working Capital:This is the additional working capital a business needs during a specific
season when demand is predictably higher every year.
2) Special Working Capital (Extra money for unexpected or one-time needs):This is additional
working capital needed for unexpected or special situations like expansion, marketing campaigns or
sudden bulk orders.

4. Explain sources of finance for Long term capital?

A) Long-term capital is used for major business expenses like expanding a factory, buying
machinery, or launching a new product. These funds are usually repaid over several years.

Main Sources of Long-term Capital: (Then it lists the 6 sources as above.)

I. Equity Capital (Owner or shareholder money):
Businesses raise money by selling shares (ownership) to investors.
Example: A company issues shares in the stock market to build a new factory.

2. Long Term Loans (Bank Loans for many years)

Banks provide loans that businesses repay over 5–10 years with interest.
Example: A manufacturing company takes a 210 crore loan to buy new machines.

3. Debentures (Bonds - borrowing from the public)

Companies issue bonds (like IOUs) to raise money from investors and repay later with interest.
Example: A company sells ₹50 crore worth of bonds to fund a new power plant.

4. Retained Earnings (Profits reinvested in business)

Instead of distributing all profits, businesses save some and use them for growth.
Example: A business saves ₹5 crore from its profits to open a new store.

5. Venture Capital (Investment in startups)

Investors provide funds to startups in exchange for ownership and future profits.
Example: A tech startup receives ₹20 crore from a venture capital firm to expand operations.

6. Government Grants & Subsidies (Free or low-cost funds)

Some businesses get financial help from the government for specific projects.
UNIT-5

1)Explain the concepts and conventions of Accounting?

A) Accounting Concepts & Conventions
GAAP (Generally Accepted Accounting Principles)
Concepts:

1. Business Entity Concept:

A business is treated as a separate entity from its owner.
Ex: Personal expenses of the owner are not recorded in the business accounts.
2. Dual Aspect Concept:
Every transaction affects two accounts (debit and credit).
Ex: Buying machinery increases assets and reduces cash balance.
3. Going Concern Concept:
A business is expected to continue operating into the foreseeable future.
Ex: Assets are valued based on their long-term use, not immediate sale.
4. Money Measurement Concept:
Only financial transactions that can be measured in terms of money are recorded.
Ex: Employee satisfaction is not recorded, but salaries paid are recorded.
5. Objective Evidence Concept:
All financial transactions should be supported by reliable and verifiable evidence, such as invoices,
receipts, bank statements, or contracts.
Ex: If the company buys equipment, there should be a purchase receipt or agreement to confirm the
transactions.
6. Cost Concept:
Assets are recorded at their original purchase price, not current market value.
Ex: A building purchased for 10 lakhs is recorded as 10 lakhs even if the market value increases.
7. Accounting Period Concept:
Financial activities are recorded and reported for a specific period of time, such as a month, quarter, or
year.
Ex: A company prepares its financial statements (like profit and loss statement) for the period from
April 1st to March 31st (financial year).
8. Accrual Concept:
Transactions are recorded when they happen, not when cash is received or paid.
Ex: Sales made on credit are recorded as income even before payment is received.
9. Matching Concept:
Expenses should be recorded in the same period as the revenues they help to generate.
Ex: If a company makes a sale in March but pays the commission to the salesperson in April, the
commission expense should still be recorded in March (when the sale happened).
10. Historical Record Concept:
Assets and transactions should be recorded at their original purchase price, not their current market
value.
Ex: If a business buys land for 2 lakhs in 2010, it will be recorded at 2 lakhs in accounts even if the
land’s value increases to 50 lakhs in 2025.

Conventions:

1. Full Discipline:
Following all the established rules, principles, and standards of accounting consistently and accurately
while recording and reporting financial transactions.
2. Materiality:
Record only significant financial information that affects decisions.
Ex: A small stationery purchase may not be recorded separately.
3. Consistency Concept:
Use the same accounting methods over time.
Ex: If depreciation is calculated using the straight-line method, continue using it every year.
4. Conservatism Concept:
Record potential losses but not unrealized gains.
Ex: Record expected bad debts, but don't record future profits.

2)Explain about the Classification of accounts?

A)
3.(i) Explain the importance of journal book in accounting?
A) 1. Journal:
The word Journal is derived from the Latin word "JOURN" which means a day. Therefore journal
means a day book, wherein day-to-day business transactions are recorded in chronological order.
The process of recording the transaction is called Journalising. The entries made in the book are called
Journal Entries.
A)

4. What is meant by accounting? Explain the accounting cycle?

A)
1. Journal:
The word Journal is derived from the Latin word "JOURN" which means a day. Therefore journal
means a day book, wherein day-to-day business transactions are recorded in chronological order.
The process of recording the transaction is called Journalising. The entries made in the book are called
Journal Entries.

2. Ledger:
A Ledger is a book which contains various accounts and summary statement of all transactions
relating to a personal, real and nominal account.
Characteristic:
1. It is a permanent record of business.
2. It provides means of easy references.
3. It provides final balances of the accounts.
3. Trail Balance:
The statement of debit and credit balances called trail balance. All debit should be equal to the credit
in the trail balance.

4. Trading profit & Loss A/c:

Profit and account shows net profit or net loss for the year end of a given period from the gross profit
or gross loss transferred from trading a/c. Deduct all expenses relating to office, selling distribution
departments. Add all non-operating income such as commission or rent received.
P&L A/c consider only revenue expenditure such or those incurred in:Maintaining the capital asset →
Running business from time to time Selling & distribution of the goods of the business
5. Balance Sheet:
It is a financial statement that shows a company's financial position at a specific date. It lists the
company's assets, liabilities and equity.