Final accounts are also known as financial statements.
These statements are prepared to know about operating results and overall financial position to the company.
Joint Stock Company needs to prepare its final account at the end of every financial year.
Generally, final accounts of a manufacturing company involve the following statements:
(1) Manufacturing account
(2) Trading account
(3) Profit and loss account
(4) Profit and loss appropriation account
(5) Balance sheet
According to Company Act, annual financial statement should be prepared by the board of directors of a public limited company every year at least thirty (30) days prior to the holding of its annual general meeting.
In the case of private limited company, within the six months of the expiry of its financial year.
According to company act, financial statement involves the following statements:
(a) Balance sheet as at the last date of the accounting or financial year.
(b) Profit and loss account of the accounting or financial year.
(c) Description of cash flow of the accounting or financial year.
Meaning of Final Accounts
Final account is prepared by every business organization at the end of accounting period.
Trading account is prepared to determine gross profit or gross loss of the company.
Profit and loss account is prepared to find out net profit or net loss of the business activities of the company.
Balance sheet is prepared to find out financial position of the organization.
Final Accounts with Adjustments | Accumulated Depreciation | Free Sample | Interest on Capital | Monthly Expense | Increase in PBD | Manager’s Commission
Prepaid expired |
Prepaid (by name) expired A/c |
Dr |
Deduct from asset in B/S |
|
To Prepaid (by name) account |
|
Show in debit side of trading or P&L account |
Depreciation on asset |
Depreciation account |
Dr |
Show in debit side of profit and loss account |
|
To Asset (by name) A/c |
|
Deducted from related asset in B/S |
Outstanding expenses |
Related expenses account |
Dr |
Added with related expenses in trading/P&L A/c |
|
To O/s related expenses A/c |
|
Show in liabilities side of B/S |
Accrued income |
Accrued income account |
Dr |
Added with related income in trading or P&L A/c |
|
To Related income A/c |
|
Show in assets side of B/S |
Commission to |
Manager’s commission account |
Dr |
Show in debit side of profit and loss account |
manager |
To Outstanding M’s commission |
|
Show in liabilities side of B/S |
New bad debts |
Bad debts account |
Dr |
Show in debit side of profit and loss account |
|
To Debtors account |
|
Deducted from debtors in B/S |
Provision for bad debts |
Provisions for bad debts account |
Dr |
Show in debit side of profit and loss account |
|
To Debtors account |
|
Deducted from debtors in B/S |
Unearned or |
Related income account |
Dr |
Deducted from related income in trading/P&L A/c |
advance income |
To Unearned income A/c |
|
Show in liabilities side of B/S |
Goods distributed |
Advertisement account |
Dr |
Deduct from purchase of goods |
for free sample |
To Purchase account |
|
Show in debit side of profit and loss account |
Goods lost by fire and |
Insurance claim account |
Dr |
Show insurance claim in assets side of B/S |
insurance claim |
P&L account (loss) |
Dr |
Debit loss in profit and loss account |
|
To Purchase account |
|
Deduct full amount from purchase of goods |
Interest on capital |
Interest on capital account |
Dr |
Show in debit side of profit and loss account |
|
To Capital account |
|
Added with capital in B/S |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 9A
KK Audit From has following Trial Balance on 31st December 20XX:
Account heads |
Amount Dr |
Amount Cr |
Cash |
38,000 |
|
Legal expenses |
36,000 |
|
Cash at bank |
28,500 |
|
Office building |
8,60,000 |
|
Accumulated Depn: office building |
|
2,06,500 |
Office equipment |
4,35,000 |
|
Accumulated Depn: office equipment |
|
1,06,000 |
Sundry income |
|
58,500 |
Bills receivable |
4,44,500 |
|
Capital |
|
14,17,500 |
Withdrawals |
2,20,000 |
|
Professional fees (service revenue) |
|
11,28,000 |
Salary expenses |
5,09,500 |
|
Travel expenses |
1,13,500 |
|
Office rent paid |
95,000 |
|
8% Investment |
70,000 |
|
Prepaid insurance |
31,000 |
|
Internet and telephone expenses |
7,000 |
|
Stock of office materials (31 Dec) |
12,500 |
|
Miscellaneous expenses |
16,000 |
|
Total |
29,16,500 |
29,16,500 |
Additional information:
(a) One-half of the prepaid insurance has expired.
(b) Depreciation on building and equipment amount to $35,000 and $26,000 respectively.
(c) Outstanding salaries at the year-end amount to $13,500.
(d) Accrued sundry income $2,400.
(e) Manager is entitled 5% commission before charging net profit
Required: (1) Profit and loss account; (2) Balance sheet
Net profit = $327,500; Balance sheet = $19,12,000]
* Manager’s commission = (Cr 11,94,500 – Dr 867,000 ) x 5/100 = $16,375
SOLUTION:
Profit and Loss Account
KK Audit Form
As on 31st December 20XX
Particulars |
|
Amount |
Particulars |
|
Amount |
To Salary |
509,500 |
|
By Service revenue |
|
11,28,000 |
Add: Outstanding |
13,500 |
5,23,000 |
By Sundry income |
58,500 |
|
To Legal expenses |
|
36,000 |
Add: Accrued |
2,400 |
60,900 |
To Travel expenses |
|
1,13,500 |
By Interest on investment |
Nil |
|
To Office rent |
|
95,000 |
Add: Accrued interest |
+ 5,600 |
5,600 |
To Prepaid insurance expired |
|
15,500 |
|
|
|
To Internet and telephone |
|
7,000 |
|
|
|
To Miscellaneous expenses |
|
16,000 |
|
|
|
To Accumulated depn on: |
|
|
|
|
|
Building |
35,000 |
|
|
|
|
Equipment |
26,000 |
61,000 |
|
|
|
To Manager’s commission due |
|
16,375 |
|
|
|
To Net profit |
|
3,11,125 |
|
|
|
|
|
11,94,500 |
|
|
11,94,500 |
Cr 11,94,500 – Dr 867,000 = 327,500
Manager’s commission = 327,500 x 5/100 = $16,375
NP = 327,500 – 16,375 = 311,125
Balance Sheet
KK Audit Form
For the year ended 31st December 20XX
Liabilities + capital +profit |
|
Amount |
Assets |
|
Amount |
Capital |
14,17,500 |
|
Cash in hand |
|
38,000 |
Add: Net profit |
3,11,125 |
|
Cash at bank |
|
28,500 |
Less: Drawings |
(2,20,000) |
15,08,625 |
Office building |
|
8,60,000 |
Accumulated depn on build. |
|
|
Office equipment |
|
4,35,000 |
(206,500 + 35,000) |
|
2,41,500 |
Bills receivable |
|
4,44,500 |
Accumulated depn on equip. |
|
|
8% Investment |
70,000 |
|
(106,000 + 26,000) |
|
1,32,000 |
Add: Accrued interest |
5,600 |
75,600 |
Outstanding salary |
|
13,500 |
Prepaid insurance |
31,000 |
|
Manager’s commission due |
|
16,375 |
Less: Expired |
(15,500) |
15,500 |
|
|
|
Accrued sundry income |
|
2,400 |
|
|
|
Stock of office materials |
|
12,500 |
|
|
19,12,000 |
|
|
19,12,000 |
###########
Click on the link for YouTube videos: |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance & Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Final Accounts: Class 11 |
|
Adjustment in Final Accounts |
|
Capital and Revenue |
|
Single Entry System |
|
Non-Trading Concern |
|
Government Accounting |
|
Goswara Voucher (Journal Voucher) |
###########
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 9B
The following unadjusted trial balance was given by KK Suppliers on 31st December 2021:
Name of ledgers |
Amount Dr |
Amount Cr |
|
10% Investments |
45,000 |
– |
|
10% Bank loan |
– |
6,00,000 |
|
Bad debts |
4,500 |
– |
|
Drawings and capital |
5,70,000 |
24,00,000 |
|
Debtors and creditors |
90,000 |
60,000 |
|
Provision for bad debts |
– |
4,500 |
|
Cash in hand |
8,300 |
– |
|
Bank balance |
7,500 |
− |
|
Purchase and sales |
14,40,000 |
25,20,000 |
|
Opening inventory |
96,000 |
– |
|
Sales return |
15,000 |
– |
|
Freight inward |
6,000 |
– |
|
Discount |
8,000 |
4,000 |
|
Land |
28,00,000 |
– |
|
Equipment |
3,00,000 |
– |
|
Accumulated depreciation on equipment |
– |
90,000 |
|
Office salaries paid |
68,200 |
– |
|
Insurance |
18,000 |
– |
|
Wages and salary paid |
2,50,000 |
– |
|
Commission |
30,000 |
90,000 |
|
Interest |
15,000 |
3,000 |
|
Total |
57,71,500 |
57,71,500 |
|
Additional information:
(a) Further bad debts write off $2,000 and make a provision for bad debts 5%.
(b) Closing Inventory was valued at $80,000.
(c) Commission received in advance $3,000.
(d) Equipment was to be depreciated @ 10% p.a. on original cost at straight line method.
(e) Monthly salary of office was $6,200
(f) Goods worth $3,000 were distributed as samples
(g) Insurance was prepaid to the extent of $6,000.
(h) A valuator appreciated land by $140,000.
(i) Goods worth $75,000 were destroyed by fire and Insurance Company admitted full claim.
Required: Trading account; profit and loss account and balance sheet
[Answer: GP = $871,000; NP = $871,000; Balance sheet = $35,46,900]
SOLUTION:
Trading Account
KK Suppliers
As on 31st December 2021
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening inventory |
|
96,000 |
By Sales |
25,20,000 |
|
To Purchase |
14,40,000 |
|
Less: Return |
(15,000) |
25,05,000 |
Less: Return |
Nil |
|
By Closing inventory |
|
80,000 |
Less: Free sample |
(3,000) |
|
|
|
|
Less: Loss by fire |
(75,000) |
13,62,000 |
|
|
|
To Freight inward |
|
6,000 |
|
|
|
To Wages and salary paid |
|
2,50,000 |
|
|
|
To Gross profit c/d |
|
8,71,000 |
|
|
|
|
|
25,85,000 |
|
|
25,85,000 |
Cr 25,85,000 – Dr 17,14,000 = 871,000 GP
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Office salaries |
68,200 |
|
By Gross profit b/d |
|
8,71,000 |
Add: Salary payable |
+ 6,200 |
74,400 |
By Interest received |
3,000 |
|
To Interest on loan |
15,000 |
|
|
|
|
Add: Outstanding |
+ 45,000 |
60,000 |
Add: Accrued |
+ 1,500 |
4,500 |
To Bad debts |
4,500 |
|
By Discount received |
|
4,000 |
Add: New bad debts |
2,000 |
|
By Appreciation on land |
|
1,40,000 |
Add: PBD |
4,400 |
|
By Commission received |
90,000 |
|
Less: PBD, old |
(4,500) |
6,400 |
Less: Advance |
(3,000) |
87,000 |
To Free sample (advertisement) |
|
3,000 |
|
|
|
To Loss by fire |
|
Nil |
|
|
|
To Discount allowed |
|
8,000 |
|
|
|
To Depn on equipment |
|
30,000 |
|
|
|
To Insurance |
18,000 |
|
|
|
|
Less: Prepaid |
(6,000) |
12,000 |
|
|
|
To Commission allowed |
|
30,000 |
|
|
|
To Net profit |
|
882,700 |
|
|
|
|
|
11,06,500 |
|
|
11,06,500 |
Cr 11,06,500 – Dr 223,800 = 882,700 NP
Balance Sheet
KK Suppliers
As on 31st December 2021
Liabilities + capital + profit |
|
Amount |
Assets |
|
Amount |
Capital |
24,00,000 |
|
Cash in hand |
|
8,300 |
Add: Net profit |
8,82,500 |
|
Cash at bank |
|
7,500 |
Less: Drawings |
(5,70,000) |
27,12,500 |
10% Investment |
45,000 |
|
10% Bank loan |
600,000 |
|
Add: Accrued interest |
+ 1,500 |
46,500 |
Add: O/s interest |
+ 45,000 |
6,45,000 |
Debtors |
90,000 |
|
Creditors |
|
60,000 |
Less: Bad debts |
(2,000) |
|
Accumulated depn on equipment |
|
|
|
88,000 |
|
(90,000 + 30,000) |
|
1,20,000 |
Less: PBD 5% |
(4,400) |
83,600 |
Advance commission |
|
3,000 |
Land |
28,00,000 |
|
Salary payable |
|
6,200 |
Add: Appn 5% |
+ 1,40,000 |
29,40,000 |
|
|
|
Equipment (at cost) |
|
3,00,000 |
|
|
|
Insurance claim |
|
75,000 |
|
|
|
Prepaid insurance |
|
6,000 |
|
|
|
Closing inventory |
|
80,000 |
|
|
35,46,700 |
|
|
35,46,900 |
#####
Problems and Answers of Final Accounts |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 9A
The following is the trial balance of EP Online Study for the year ended 31 December 2021:
Debit balance |
Amount Dr |
Credit balance |
Amount Cr |
Fixed assets |
350,000 |
Capital |
200,000 |
Account receivable |
88,000 |
Commission received |
9,000 |
Cash in hand |
1,850 |
Service revenue |
307,000 |
Interest paid |
3,650 |
10% Bank loan |
60,000 |
Investment |
25,000 |
Account payable |
25,000 |
Office supplies |
1,200 |
Provision for doubtful debts |
3,000 |
Bad debts |
2,650 |
Accumulated depreciation on fixed assets |
70,000 |
Office salaries paid |
90,000 |
|
|
Advance insurance |
1,000 |
|
|
Audit fees |
11,325 |
|
|
Legal charge |
1,675 |
|
|
Office rent paid |
82,500 |
|
|
Telephone and internet expenses |
2,150 |
|
|
Drawing |
13,000 |
|
|
|
674,000 |
|
674,000 |
Additional information:
(a) Commission received includes advance commission of $1,750.
(b) Monthly office salaries is $10,000 per month
(c) Increase the provision for doubtful debts to $4,200 from $3,000
(d) Fixed assets is depreciated by 20% p.a. on SLM
(e) Office supplies in hand $350
(f) Provide interest on capital @ 5%
Required: Profit and loss account and balance sheet
[Answer: Net profit = $900; Balance sheet = $462,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 9B
The following is the trial balance of AM Trading Concern for the year ended 31 December 2021:
Debit balance |
Amount |
Credit balance |
Amount |
Equipment |
100,000 |
Sales revenue |
275,000 |
Cash and bank balance |
7,750 |
Discount on purchases |
1,200 |
Sundry debtors |
110,500 |
Provision for bad debts |
1,500 |
Inventories (31 December) |
28,800 |
Capital |
115,000 |
Salaries and wages |
9,600 |
Sundry creditors |
10,500 |
Custom duty |
1,500 |
8% Bank loan |
12,500 |
Purchase |
136,000 |
Accumulated depreciation on equipment |
15,000 |
Returns inward |
300 |
Interest on investment |
640 |
Income tax paid |
1,660 |
|
|
Discount on sales |
1,500 |
|
|
Repairs expense |
480 |
|
|
Bad debts |
1,500 |
|
|
Rent paid |
10,800 |
|
|
Interest on loan |
650 |
|
|
Drawings |
1,500 |
|
|
10% Investment |
15,000 |
|
|
Advances salary paid |
3,800 |
|
|
|
431,340 |
|
431,340 |
Additional information:
(a) Provision for bad debts increased $2,000 from $1,500.
(b) Charge depreciation on equipment @ 15% p.a. on SLM
(c) Rent payable for 3 months.
(d) Goods worth $750 distributed as charity.
(e) Interest on capital to be charged @ 5% p.a.
(f) Manager is entitled 5% commission before charging net profit.
Required: Trading account, profit and loss account and balance sheet
[Answer: Gross profit = $137,950; Net profit = $84,084; Balance sheet = $264,710]
* Manager’s commission (Cr 140,650 – Dr 52,140) x 5/100 = $4,426
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