Final Accounts

Meaning of Final Accounts:

Final accounts are prepared at the end of the accounting year to ascertain the
profit or loss of the business and to know the financial position.
Accounts and statement to be prepared:
1.Trading Account
2.Profit and loss Account
3.Balance sheet

Trading account
An account which shows merely the result of trading or buying and selling of
goods. Trading account is prepared to find out the Gross profit or Gross loss of
the organization.

Profit & Loss account:

An account which shows net profit or net loss of the organization for the
accounting year.

Balance Sheet: is a statement of assets and liablities

 Trading Account
To Opening Stock **** By Sales ***
To Purchases **** Less:Returns *** ****
Less:Returns **** **** By Closing Stock ****
To Carriage Inward ****
To wages ****
To Gross Profit (Balancing ?
figure)

**** ****
 Profit and Loss Account
To Salaries **** By Gross Profit b/d (from ****
To Printing and Stationery **** Trading account)
To postage **** By Discount received ****
By Rent received ****
To General expenses ****
****
To Advertisement **** By Interest received
****
To Travelling expenses ****
To Taxes & Insurance ****
To Insurance ****
To Rent and taxes ****
To Bad debts ****
To Interest on Loan ****
To Carriage outward ****
To Bank charges ****
To discount allowed ****
To Repairs *****
To Depreciation ****
To Net Profit ?

**** ****
 Balance Sheet

Liablities Assets
Creditors *** Cash in hand ***
Bank overdraft *** Cash at Bank ***
Bills Payable *** Bills Receivable ***
Loan borrowed *** Debtors ***
Income received in advance *** Prepaid expenses ***
Capital *** Outstanding incomes ***
Add:Net profit *** *** Closing Stock ***
Less:Drawings *** Motor Vehicles ***
Land and Buildings ***
Investments ***
Machinery ***
Furniture ***
Loose Tools ***

*** ***
Principles related to treatment of Adjustments:
1.For each adjustment, there will be 2 treatment
2.Prepaid items should be deducted from the respective
account head.
3.Outstanding items should be added to the respective
account head.
4.Depreciation on asset should be deducted from the asset
5.Outstanding incomes and prepaid expenditures are treated
as assets and Outstanding expenditures and Income
received in advance are treated as liablities.
Nature of problems/ questions:

Trial Balance and Adjustments are available in the problem

Nature of solution:

Trading and Profit and loss account and Balance sheet is required to be
prepared.
Problem No.1
Prepare Trading and Profit and loss account and Balance sheet for the year ended 31 st
December 2012, after taking into account the adjustments.
Trial Balance as on 31st December, 2012
Dr Cr
Rajan’s Capital 29,000
Drawings 760
Purchases and sales 8,900 15,000
Sales returns and purchases returns 280 450
Stock(1-1-2012) 1,200
Wages 800
Buildings 22,000
Carriage Inward 2,000
General expenses 200
Advertisement 240
Interest received 350
Tax and Insurance 130
Debtors and Creditors 6,500 1,200
Bills receivable and bills payable 1,500 700
Cash at Bank 1,200
Cash in hand 190
Salaries 800
46,700 46,700
Adjustments:
1.Stock on 31stDecember 2012 was valued at Rs.5,000
2.Insuance was prepaid to the extent of Rs.40
3.Outstandings liablities were: salaries Rs.200 and Taxes
Rs.130
4.Depreciate Buildings at 5% p.a.
 Trading and Profit & Loss Account for the year ending 31 December 2018

To Opening Stock(1-1-2012) 1,200 By Sales 15,000

To Purchases 8,900 Less: Returns 14,720
Less: Returns 450 8,450 280 5,000
To Carriage Inwards 2,000 By Closing Stock (A-1)
To wages 800
To Gross Profit (Balancing 7,270
figure)

19,720 19,720
To Salaries 800 By Gross Profit b/d 7,270
Add: Outstanding (A-3) 200 1,000 By Interest received 350
To General expenses 200
To Advertisement 240
To Taxes & Insurance 130
Add: Outstanding taxes (A-3) 130

260 220
Less: prepaid insurance (A-2) 40 1100
To Depreciation on building (A-4) 4.860
To Net Profit

7,620 7,620
 Balance Sheet as on 31st,December 2012

Liablities Assets
Creditors 1,200 Cash in hand 190
Bills Payable 700 Cash at Bank 1,200
Outstanding Taxes (A-3) 130 Bills Receivable 1,500
Outstanding Salaries (A-3) 200 Debtors 6,500
Capital 29,000 Closing Stock (A-1) 5,000
Add:Net profit 4,860 Prepaid Insurance (A-2) 40
33,860 Buildings 22,000
Less:Drawings 33,100 Less:Depreciation (A-4) 1100 20,900
760

35,330 35,330
Problem No.2
Prepare Trading and Profit and loss account and Balance sheet for the year ended 31 st December 2018,
after taking into account the adjustments given below:
Trial Balance as on 31st December, 2018
Dr Cr
Stock(1-1-2018) 6,800
Machinery 12,,000
General expenses 3,400
Advertisement 3,500
Insurance 3,000
Debtors and Creditors 20,000 10,000
Bills receivable and bills payable 6,000 2,000
Cash at Bank 3,500
Salaries 9,000
Loan 9,500
Interest on loan 300
Provision for Bad debts 700
Motor vehicles 10,000
Bad debts 1,000
Carriage outwards 2,500
Carriage Inward 3,000
Disount 500
Rent received 800
Cash in hand 2,000
Capital 30,000
Drawings 5,000
Purchases and sales 66,000 1,10,,000
Sales returns and purchases returns 8,000 1,500

1,65,000 1,65,000
Adjustments:
1.Depreciate Machinery at 5%
2.Salaries outstanding Rs.500
3.Prepaid insurance Rs.200
4.Closing stock Rs.7,000

Gp 34700
Np 13100
Bs 60100
 Trading and Profit & Loss Account for the year ending 31 December 2018

To Opening Stock(1-1-2012) 6,800 By Sales 1,10,000

To Purchases 66,000 Less: Returns 1.02,000
8,000 7,000
Less: Returns 1,500 By Closing Stock (A-4)
To Carriage Inwards
To Gross Profit (Balancing 64,500
figure) 3,000
34,700

1,09,000

1,09,000
3. Prepare Trading & Profit and loss A/C and Balance sheet for the
year ended 31st December 2009 after taking in to consideration
the following Trial Balance & adjustments.
Trial Balance as on 31st December 2009

Particulars Debit Credit

Salary 19,100
Cash 4,900

Debtors and Creditors 25,000 16,800

Purchases & Sales 51,000 97,800
Sales Returns & Purchases Return 600 5,600

Wages 10,500
office Power 4,000
Drawings 5,000
Printing 3,200
Carriage inward 2,000
opening stock 5,800
Land & Buildings 40,000

Machinery 20,000
Furniture 7,500
General Expenses 3,000
Insurance 600
Adjustments:

I .Outstanding Salary Rs. 500

ii. Depreciate Machinery at 10% per annum
iii.Closing stock was valued at Rs.15, 000
Problem No.4
From the following Trial Balance of Gangesh
as on 31-12-2005, prepare final accounts
after taking into accounts the adjustments
given below:
 Dr. Cr.
(Rs) (Rs)

Capital Account 1,20,000

Drawings Account 15,000
Bills Receivable 22,000
Machinery 20,000
Debtors and creditors 60,000 58,000
Wages 39,000
Purchases and sales 2,52,000 3,55,000
Commission 5,500
Rent and taxes 6,000
Stock on 1-1-2005 90,000
Salaries 10,500
Traveling expenses 2,000
Insurance 600
Repairs 3,400
Bad debts 3,500
Furniture 9,000
Returns 5,000 2,000
Cash in hand 500
Cash at bank 2,000
5,40,500 5,40,500
• Adjustments:
1.Reserve for bad debts Rs.500
2.Depreciate Furniture by 20%
3.Outstanding wages Rs.2000
4.Closing stock Rs.3000
5.Outstanding commission Rs.500
6.Prepaid travelling expense Rs.200
Problem No.5
Prepare Trading and Profit and loss account
and Balance sheet as on 31st December
2006
 Dr. Cr.
(Rs) (Rs)

Plant & machinery 32,000

Bad debts 2,600
Opening stock 4,000
Sundry debtors 15,000
Capital account 50,000
Drawings account 10,000
Returns 1,600 2,000
Purchases 50,000
Bills receivables 5,000
Land & buildings 65,000
Bills payable 8,000
Salaries 24,000
Trade expenses 14,000
Rent 2,400
Stationery 1,400
Sundry creditors 17,200
Reserve for Bad &doubtful debts 800
Insurance 2,000
Furniture 8,000
Sales 1,60,000
Bank 1,000
2,38,000 2,38,000
Adjustments:
i. Closing stock Rs.5,000
ii. New reserve for bad debts Rs.1,000
ii. Outstanding trade expense Rs.1,000
iv. Depreciate furniture by 20%
v. Insurance was prepaid Rs.2,000
.