Preparation of Final Accounts
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.
Adjustment entry |
Journal entry |
Effects on |
|
Closing stock |
Closing stock account |
Dr |
Show in credit side of trading account |
|
To Trading account |
|
Show in assets side of 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 |
Prepaid expenses |
Prepaid expenses account |
Dr |
Deducted from related expenses in trading/P&L A/c |
|
To Related prepaid exp A/c |
|
Show in assets 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 |
Discount on debtor |
Discount on debtor account |
Dr |
Show in debit side of profit and loss account |
|
To Debtors account |
|
Deducted from debtors in B/S |
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 |
Appreciation on asset |
Asset (by name) account |
Dr |
Show in debit credit of profit and loss account |
|
To Appn on Asset (by name) A/c |
|
Add in related asset in B/S |
Discount on creditor |
Creditors account |
Dr |
Show in credit side of profit and loss account |
|
To Discount on creditors A/c |
|
Deducted from creditors in B/S |
Capital expenses in |
Asset (by name) account |
Dr |
Add in related asset in B/S then deduct depreciation |
Revenue expenses |
To Expenses (by name) account |
|
Deducted from related expense on trading or P&L |
Click on the photo for FREE eBooks
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 8A
TK Manufacture Company has following trial balance on 31st December:
Particulars |
Amount Dr |
Particulars |
Amount Cr |
Purchase |
9,00,000 |
Sales |
13,00,000 |
Return inward |
20,000 |
Return outward |
20,000 |
Opening stock (inventory) |
3,80,000 |
Capital |
5,00,000 |
Factory expenses |
55,000 |
Creditors |
2,00,000 |
Land and building |
2,50,000 |
10% Bank loan |
1,00,000 |
Plant and machinery |
2,50,000 |
Interest on investment |
5,000 |
Preliminary expenses |
80,000 |
Commission received |
32,500 |
Debtors |
1,50,000 |
Bank overdraft |
2,50,000 |
Wages paid |
80,000 |
Sundry income |
60,000 |
Carriage on purchase |
20,000 |
Provision for bad debts |
7,500 |
Rent paid |
15,000 |
General reserve |
45,000 |
Cash |
35,000 |
Outstanding rent |
30,000 |
Investment |
1,00,000 |
|
|
Bad debts |
10,000 |
|
|
Office expenses |
25,000 |
|
|
Insurance expenses |
20,000 |
|
|
Salaries paid |
1,00,000 |
|
|
Advertisement expenses |
10,000 |
|
|
Drawings |
50,000 |
|
|
|
25,50,000 |
|
25,50,000 |
Additional information:
Closing stock (inventory) has cost value $450,000 but market value $480,000.
Land was increased by $50,000.
Plant and machinery was depreciated by 10%.
Outstanding wages was $10,000.
Prepaid insurance was $4,000.
Goods worth $6,500 loss by theft but insurance company accepted claim only $4,000.
Required: (1) Trading account; (2) Profit and loss account; (3) Balance sheet
[Answer: Gross profit = $311,500; Net loss = $253,000; Balance sheet = $13,48,000]
SOLUTION:
Trading Account
TK Manufacturing Company
On 31st December 2021
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock |
|
3,80,000 |
By Sales |
13,00,000 |
|
To Purchase |
900,000 |
|
Less: Return |
(20,000) |
12,80,000 |
Less: Return |
(20,000) |
|
By Closing stock |
|
4,50,000 |
Less: Loss by theft |
(6,500) |
873,500 |
|
|
|
To Factory expenses |
|
55,000 |
|
|
|
To Carriage on purchase |
|
20,000 |
|
|
|
To Wages paid |
80,000 |
|
|
|
|
Add: Outstanding |
+10,000 |
90,000 |
|
|
|
To Gross profit c/d |
|
311,500 |
|
|
|
|
|
17,30,000 |
|
|
17,30,000 |
Cr 17,30,000 – Dr 14,18,500 = 311,500 GP
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Salary paid |
|
1,00,000 |
By Gross profit b/d |
|
311,500 |
To Rent paid |
|
15,000 |
By Interest on investment |
|
5,000 |
To Bad debts |
10,000 |
|
By Commission |
|
32,500 |
Less: PBD, old |
(7,500) |
2,500 |
By Sundry income |
|
60,000 |
To Office expenses |
|
25,000 |
By Appreciation on land |
|
50,000 |
To Insurance |
20,000 |
|
|
|
|
Less: Prepaid |
(4,000) |
16,000 |
|
|
|
To Advertisement expenses |
|
10,000 |
|
|
|
To O/s interest on loan |
|
10,000 |
|
|
|
To Depreciation on P&M |
|
25,000 |
|
|
|
To Loss by theft (6,500 – 4,000) |
|
2,500 |
|
|
|
To Net profit |
|
2,53,000 |
|
|
|
|
|
4,52,500 |
|
|
4,59,000 |
Cr 459,000 – Dr 206,000 = 253,000 NP
Balance Sheet
TK Manufacturing Company
As on 31st December 20XX
Liabilities + capital +profit |
|
Amount |
Assets |
|
Amount |
Capital |
500,000 |
|
Cash in hand |
|
35,000 |
Add: Net profit |
253,000 |
|
Cash at bank |
|
|
Less: Drawings |
(50,000) |
7,03,000 |
Land and building |
250,000 |
|
Creditors |
|
2,00,000 |
Add: Appreciation |
+50,000 |
3,00,000 |
10% Bank loan |
100,000 |
|
Plant and machinery |
250,000 |
|
Add: O/s interest |
10,000 |
1,10,000 |
Less: Depn |
(25,000) |
2,25,000 |
Bank overdraft |
|
2,50,000 |
Preliminary expenses |
|
80,000 |
General reserve |
|
45,000 |
Debtors |
|
1,50,000 |
Outstanding: |
|
|
Investment |
|
1,00,000 |
Rent |
30,000 |
|
Prepaid insurance |
|
4,000 |
Wages |
10,000 |
40,000 |
Closing stock |
|
4,50,000 |
|
|
|
Insurance claim |
|
4,000 |
|
|
13,48,000 |
|
|
13,48,000 |
###########
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: 8B
Dharan Multi Suppliers has following Trial Balance on 31st December
Debit balance |
Amount |
Credit balance |
Amount |
Drawing |
12,500 |
Capital |
1,30,000 |
Opening stock |
74,800 |
Return to suppliers |
7,500 |
Carriage inward |
12,000 |
Rent outstanding |
31,000 |
Return inward |
5,500 |
Interest received |
500 |
Fixed deposit |
18,300 |
Creditors |
30,000 |
Carriage on sales |
7,000 |
Sales |
7,20,000 |
Loan to friend (investment) |
10,000 |
Provision for bad debts |
7,000 |
Purchases |
5,30,000 |
|
|
Debtors |
60,000 |
|
|
Goodwill |
8,500 |
|
|
Advertisement expenses |
9,500 |
|
|
Bad debts |
4,000 |
|
|
Cash |
20,600 |
|
|
Commission paid |
3,300 |
|
|
Wages paid |
30,000 |
|
|
Plant and machinery |
78,000 |
|
|
Prepaid Insurance |
2,000 |
|
|
Salaries paid |
40,000 |
|
|
|
9,26,000 |
|
9,26,000 |
Additional Information:
Write-off bad debts of $2,000, provision for bad debts @ 5% and discount 2% on debtors.
Closing stocks (inventory) at the end of the year were valued at $1,60,000.
Wages included $2,000 paid for erection of plant and depreciate plant by 10%.
Discount on creditors @ 5%.
Required: (1) Trading account; (2) Profit and loss account; (3) Balance sheet
[Answer: Gross profit = $237,200; Net profit = $168,398;
Balance sheet = $345,398]
SOLUTION:
Dharan Multi Suppliers
Trading Account
As on 31st December 20XX
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock |
|
74,800 |
By Sales |
720,000 |
|
To Purchase |
530,000 |
|
Less: Return |
(5,500) |
714,500 |
Less: Return |
(7,500) |
522,500 |
By Closing stock |
|
160,000 |
To Carriage on purchase |
|
12,000 |
|
|
|
To Wages paid |
30,000 |
|
|
|
|
Less: Plant |
(2,000) |
28,000 |
|
|
|
To Gross profit |
|
237,200 |
|
|
|
|
|
874,500 |
|
|
874,500 |
Cr 874,500 – Dr 637,300 = 237,200 GP
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Salary paid |
|
40,000 |
By Gross profit |
|
237,200 |
To Carriage on sales |
|
7,000 |
By Interest received |
|
500 |
To Advertisement expenses |
|
9,500 |
By Discount on creditors |
|
1,500 |
To Bad debts |
4,000 |
|
|
|
|
Add: Bad debts, new |
2,000 |
|
|
|
|
Add: PBD |
2,900 |
|
|
|
|
Add: Discount |
1,102 |
|
|
|
|
Less: PBD, old |
(7,000) |
3,002 |
|
|
|
To Commission paid |
|
3,300 |
|
|
|
To Depn on machinery |
|
8,000 |
|
|
|
To Gross profit |
|
168,398 |
|
|
|
|
|
239,200 |
|
|
239,200 |
Cr 239,200 – Dr 70,802 = 168,398 NP
Balance Sheet
Dharan Multi Suppliers
As on 31st December 20XX
Liabilities + capital +profit |
|
Amount |
Assets |
|
Amount |
Capital |
130,000 |
|
Cash in hand |
|
20,600 |
Add: Net profit |
168,398 |
|
Cash at bank |
|
− |
Less: Drawings |
(12,500) |
2,85,898 |
Fixed deposit |
|
18,300 |
Outstanding rent |
|
31,000 |
Loan to friend |
|
10,000 |
Creditors |
30,000 |
|
Debtors |
60,000 |
|
Less: Discount 5% |
(1,500) |
28,500 |
Less: Bad debts |
(2,000) |
|
|
|
|
|
58,000 |
|
|
|
|
Less: PBD 5% |
(2,900) |
|
|
|
|
|
55,100 |
|
|
|
|
Less: Discount 2% |
(1,102) |
53,998 |
|
|
|
Goodwill |
|
8,500 |
|
|
|
Plant and machinery |
78,000 |
|
|
|
|
Add: Wages |
+2,000 |
|
|
|
|
|
80,000 |
|
|
|
|
Less: Depn 10% |
(8,000) |
72,000 |
|
|
|
Prepaid insurance |
|
2,000 |
|
|
|
Closing stock |
|
160,000 |
|
|
345,398 |
|
|
345,398 |
#####
Problems and Answers of Final Accounts |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 8A
Following is the trial balance of EP Traders on 31st December 2021:
Particulars |
Amount Dr |
Particulars |
Amount Cr |
Purchase |
310,000 |
Sales (net) |
300,000 |
Carriage |
5,000 |
Advance commission received |
20,000 |
Salaries paid |
24,000 |
Creditors |
85,000 |
Electricity expenses |
4,500 |
Bank overdraft |
80,000 |
Travelling expenses |
8,900 |
Bills payable |
10,000 |
Telephone expenses |
4,300 |
Capital |
120,000 |
Advertisement expenses |
10,000 |
|
|
Advance insurance |
3,300 |
|
|
Land |
150,000 |
|
|
Bad debts |
2,000 |
|
|
Sundry debtors |
45,000 |
|
|
Bills receivable |
30,000 |
|
|
Cash in hand |
8,000 |
|
|
Drawings |
10,000 |
|
|
|
615,000 |
|
615,000 |
Additional information:
(a) Purchase includes $10,000 representing the value of furniture purchase.
(b) $12,000 commission earned during the year out of advance.
(c) Provides $1,000 for new bad debts and create a reserve @ 5%.
(d) Discount on debtors 2% and creditors agreed to provide discount 2%
(e) Provide 15% depreciation on furniture and appreciate land by $20,000.
(f) The stock on 31st December was valued $1,20,000 but cost value was $126,530.
(g) Goods worth $3,000 lost by fire but insurance company did not accept any claim.
Required: Trading account, profit and loss account and balance sheet
[Answer: Gross profit = $118,000; Net profit = $89,464; Balance sheet = $380,764]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 8B
The following trial balance and adjustments of AK Trading Concern on 31 Dec 2021were given to you:
Name of ledgers |
Dr Amount |
Cr Amount |
|
Drawing |
12,500 |
|
|
Capital |
|
1,60,000 |
|
Opening stock |
74,400 |
|
|
Carriage inward |
12,400 |
|
|
Return inward |
5,500 |
|
|
Return to suppliers |
|
7,500 |
|
Deposit with suppliers |
18,300 |
|
|
Carriage on sales |
7,000 |
|
|
Rent outstanding |
|
1,000 |
|
Loan to Raju |
10,000 |
|
|
Interest on loan |
|
500 |
|
Creditors |
|
30,000 |
|
Purchases |
11,30,000 |
|
|
Sales |
|
12,80,000 |
|
Provision for bad debts |
|
12,000 |
|
Debtors |
60,000 |
|
|
Goodwill |
31,000 |
|
|
Advertisement |
9,500 |
|
|
Bad debts |
4,000 |
|
|
Cash |
20,600 |
|
|
Discount allowed |
3,300 |
|
|
Wages |
7,500 |
|
|
Plant and machinery |
78,000 |
|
|
Prepaid Insurance |
2,000 |
|
|
Goodwill written off |
5,000 |
|
|
Total |
14,91,000 |
14,91,000 |
|
Additional information:
(a) Write off further bad debts of $2,000.
(b) Make provision for bad debts @ 10 % on debtors.
(c) Closing stock at the end of the year was valued at $188,000 but market value was $195,500.
(d) Wages included $2,000 paid for erection of plant.
(e) Depreciate plant by 10%
(f) Prepaid insurance expired to the extent of $1,500.
Required: Trading account, profit and loss account and balance sheet
[Answer: Gross profit = $247,700; Net profit = $214,100; Balance sheet = $392,600]
***********
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