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 |
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 |
Create reserve |
P&L or P&L Appn account |
Dr |
Show in debit side of P&L or P&L Appn A/c |
|
To Reserve fund account |
|
Show in liabilities side of B/S |
Prepaid exp. expired |
Prepaid expense expired A/c |
Dr |
|
|
To Prepaid expense (by name) |
|
|
Unearned income earned |
Unearned income (by name) A/c |
Dr |
Deducted from related advance income in B/S |
|
To Income earned (by name) |
|
Show in credit side of profit and loss account |
###########
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|
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: 7A
ABC Company has following trial balance year ended 31st December Current Year:
Particulars |
Amount Dr |
|
Particulars |
Amount Cr |
Trade debtors |
2,20,000 |
|
Provision for bad debts |
5,000 |
Bills receivable |
30,000 |
|
Capital |
6,50,000 |
Opening stock (inventory) |
1,80,000 |
|
Discount received |
500 |
Plant and machinery |
1,00,000 |
|
General reserve |
32,000 |
Wages paid |
50,000 |
|
Bills payable |
65,000 |
Office salaries |
2,00,000 |
|
Trade creditor |
46,000 |
Land and building |
5,25,000 |
|
Bank loan |
1,90,000 |
Bad debts |
5,000 |
|
Sales (net) |
15,00,000 |
Trade expenses |
2,500 |
|
Bank overdraft |
35,000 |
Prepaid insurance |
1,000 |
|
Outstanding rent |
25,000 |
Cash in hand |
22,000 |
|
Assets replacement fund |
1,25,000 |
Goodwill |
178,000 |
|
|
|
10% Investments (1 July) |
50,000 |
|
|
|
Purchases (net) |
10,00,000 |
|
|
|
Furniture |
90,000 |
|
|
|
Interest paid |
20,000 |
|
|
|
|
26,73,500 |
|
|
26,73,500 |
Additional information:
a. Stock (inventory) at end $3,50,000.
b. Bad debts $2,000 and create provision for bad debts @ 5% on trade debtors.
c. Outstanding wages $40,000.
d. Prepaid salary $20,000.
e. Depreciate plant and machinery @10%.
f. Transfer to general reserve $75,000.
Required: (1) Trading account; (2) Profit and loss account; (3) Balance sheet
[Answer: Gross profit = $580,000; Net profit = $282,600; Balance sheet = $15,65,600]
SOLUTION:
Trading Account
ABC Company
As on 31st December 20XX
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock |
|
1,80,000 |
By Sales |
15,00,000 |
|
To Purchase |
10,00,000 |
|
Less: Return |
Nil |
15,00,000 |
Less: Return |
Nil |
10,00,000 |
By Closing stock |
|
3,50,000 |
To Wages |
50,000 |
|
|
|
|
Add: Outstanding |
+40,000 |
90,000 |
|
|
|
To Gross profit c/d |
|
5,80,000 |
|
|
|
|
|
18,50,000 |
|
|
18,50,000 |
Cr 18,50,000 – Dr 12,70,000 = 580,000 GP
Profit and Loss Account
ABC Company
As on 31st December 20XX
Particulars |
|
Amount |
Particulars |
Amount |
To Office salaries |
200,000 |
|
by Gross profit b/d |
5,80,000 |
Less: Prepaid |
(20,000) |
1,80,000 |
by Discount received |
500 |
To Bad debts, old |
5,000 |
|
by Interest receivable (50,000 @ 10% x 6/12) |
2,500 |
Add: Bad debts, new |
2,000 |
|
|
|
Add: PBD, new |
10,900 |
|
|
|
Less: PBD, old |
(5,000) |
12,900 |
|
|
To Trade expenses |
|
2,500 |
|
|
To Depreciation on P&M |
|
10,000 |
|
|
To Interest paid |
|
20,000 |
|
|
To General reserve |
|
75,000 |
|
|
To Net profit c/d |
|
2,82,600 |
|
|
|
|
5,83,000 |
|
5,83,000 |
Cr 583,000 – Dr 300,400 = 282,600 NP
Balance Sheet
ABC Company
As on 31st December 20XX
Liabilities + capital +profit |
|
Amount |
Assets |
|
Amount |
Capital |
650,000 |
|
Cash in hand |
|
22,000 |
Add: Net profit |
282,600 |
|
Goodwill |
|
178,000 |
Less: Drawings |
Nil |
9,32,600 |
Plant and machinery |
100,000 |
|
General reserve |
32,000 |
|
Less: Depreciation |
(10,000) |
90,000 |
Add: New reserve |
75,000 |
1,07,000 |
Land and building |
|
5,25,000 |
Bills payable |
|
65,000 |
Furniture |
|
90,000 |
Trade creditors |
|
46,000 |
10% Investment |
50,000 |
|
Bank loan |
|
1,90,000 |
Add: Interest receivable |
+ 2,500 |
52,500 |
Bank overdraft |
|
35,000 |
Trade debtors |
220,000 |
|
Outstanding rent |
|
25,000 |
Less: bad debts |
(2,000) |
|
Assets replacement fund |
|
1,25,000 |
|
218,000 |
|
Outstanding wages |
|
40,000 |
Less: PBD 5% |
(10,900) |
2,07,100 |
|
|
|
Closing stock |
|
3,50,000 |
|
|
|
Bills receivable |
|
30,000 |
|
|
|
Prepaid salary |
|
20,000 |
|
|
|
Prepaid insurance |
|
1,000 |
|
|
15,65,600 |
|
|
15,65,600 |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 7B
BL Trading Company has following trial balance on 31 December 2021:
Accounts balances |
Dr Amount |
Cr Amount |
|
Capital |
|
25,00,000 |
|
Opening stock (inventory) |
1,74,400 |
|
|
Carriage inward |
42,400 |
|
|
Return inward |
25,500 |
|
|
Return to suppliers |
|
17,500 |
|
Deposit with suppliers |
1,18,300 |
|
|
Carriage on sales |
37,000 |
|
|
Rent outstanding |
|
25,000 |
|
Loan to Max Company |
1,00,000 |
|
|
Stationery expense |
5,000 |
|
|
Creditors |
|
130,000 |
|
Purchases |
51,30,000 |
|
|
Sales |
|
88,80,000 |
|
Provision for bad debts |
|
15,000 |
|
Debtors |
5,60,000 |
|
|
Goodwill |
1,25,000 |
|
|
Advertisement |
49,500 |
|
|
Bad debts |
14,000 |
|
|
Cash at bank |
2,20,600 |
|
|
Discount allowed |
23,300 |
|
|
Wages |
1,17,500 |
|
|
Salary to staff |
12,50,000 |
|
|
Plant and machinery |
5,78,000 |
|
|
Prepaid insurance |
12,000 |
|
|
Goodwill written off |
12,500 |
|
|
Land and building |
30,92,500 |
|
|
General reserve |
|
1,25,000 |
|
Tax paid |
40,000 |
|
|
Cash in hand |
75,000 |
|
|
Sundry incomes |
|
110,000 |
|
|
1,18,02,500 |
1,18,02,500 |
|
Additional information:
Closing stock (inventory) at the end $530,000.
Write off further bad debts of $25,000.
Depreciate plant by 15% and land and building by $92,500.
Prepaid insurance expired to the extent of $11,000.
Transfer to general reserve $75,000.
Required: (a) Trading account; (b) Profit and loss account; (c) Balance sheet
[Answer: GP = $39,37,700; NP = $23,41,200; Balance sheet = $51,96,200]
SOLUTION:
Trading Account
BL Trading Company
As on 31 December 2021
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock |
|
1,74,400 |
By Sales |
88,80,000 |
|
To Purchase |
51,30,000 |
|
Less: Return inward |
(25,500) |
88,54,500 |
Less: Return |
(17,500) |
51,12,500 |
By Closing stock |
|
5,30,000 |
To Carriage inward |
|
42,400 |
|
|
|
To Wages |
|
1,17,500 |
|
|
|
To Gross Profit c/d |
|
39,37,700 |
|
|
|
|
|
93,84,500 |
|
|
93,84,500 |
Cr 93,84,500 – Dr 56,46,800 = 39,37,700 GP
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Salary to staff |
|
12,50,000 |
By Gross Profit b/d |
|
39,37,700 |
To Carriage on sales |
|
37,000 |
By Sundry incomes |
|
1,10,000 |
To Stationery |
|
5,000 |
|
|
|
To Advertisement |
|
49,500 |
|
|
|
To Bad debts |
14,000 |
|
|
|
|
Add: Bad debts |
25,000 |
|
|
|
|
Less: PBD old |
(15,000) |
24,000 |
|
|
|
To Discount allowed |
|
23,300 |
|
|
|
To Goodwill written off |
|
12,500 |
|
|
|
To Depreciation on: |
|
|
|
|
|
Plant and machinery |
86,700 |
|
|
|
|
Land and building |
92,500 |
1,79,200 |
|
|
|
To Tax paid |
|
40,000 |
|
|
|
To Prepaid ins. expired |
|
11,000 |
|
|
|
To General reserve |
|
75,000 |
|
|
|
To Net profit c/d |
|
23,41,200 |
|
|
|
|
|
40,47,700 |
|
|
40,47,700 |
Cr 40,47,700 – Dr 17,06,500 = 23,41,200 NP
Balance Sheet
BL Trading Company
As on 31 December 2021
Liabilities + capital +profit |
|
Amount |
Assets |
|
Amount |
Capital |
25,00,000 |
|
Cash in hand |
|
75,000 |
Add: Profit |
23,41,200 |
48,41,200 |
Cash at bank |
|
2,20,600 |
General reserve |
125,000 |
|
Goodwill |
|
1,25,000 |
Add: New reserve |
75,000 |
2,00,000 |
Plant and machinery |
578,000 |
|
Creditors |
|
1,30,000 |
Less: Depn 15% |
(86,700) |
4,91,300 |
Outstanding rent |
|
25,000 |
Land and building |
30,92,500 |
|
|
|
|
Less: Depn |
(92,500) |
30,00,000 |
|
|
|
Debtors |
560,000 |
|
|
|
|
Less: Bad debts |
(25,000) |
5,35,000 |
|
|
|
Closing stock |
|
5,30,000 |
|
|
|
Deposit with suppliers |
|
1,18,300 |
|
|
|
Loan to Max Company |
|
1,00,000 |
|
|
|
Prepaid insurance |
12,000 |
|
|
|
|
Less Expired insurance |
(11,000) |
1,000 |
|
|
51,96,200 |
|
|
51,96,200 |
#####
Problems and Answers of Final Accounts |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 7A
Following trial balance and additional information are provided by ABC Traders on 31 December:
Particulars |
Amount Dr |
Particulars |
Amount Dr |
Purchases |
310,000 |
Sales |
415,000 |
Opening stock |
50,000 |
Capital |
200,000 |
Cash at bank |
12,000 |
Rent and commission income |
8,500 |
Drawing |
4,000 |
Creditors |
25,000 |
Salaries and wages |
63,500 |
Bills payable |
15,000 |
Commission |
35,000 |
Outstanding expenses |
11,000 |
Advertisement |
17,000 |
Loan from bank |
80,000 |
Printing and stationery |
5,000 |
|
|
General expenses |
14,000 |
|
|
Cash in hand |
24,000 |
|
|
Prepaid rent and insurance |
14,000 |
|
|
Furniture |
22,000 |
|
|
Machinery |
70,000 |
|
|
Discount |
4,000 |
|
|
Carriage inward |
10,000 |
|
|
Debtors |
100,000 |
|
|
|
754,500 |
|
754,500 |
Additional information:
(a) Closing stock at the end of December was valued at $1,64,000.
(b) Depreciate furniture by 10% and machinery by 5%.
(c) Prepaid rent and insurance expired to the extent of $11,000 at the end of the year.
(d) Write off $5,000 bad debts and maintained reserve for doubtful debt at the rate 2% on debtor.
Required: Trading account, profit and loss account and balance sheet
[Answer: Gross profit = $209,000; Net profit = $55,400; Balance sheet = $382,400]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 7B
The trial balance of Khan Traders, of Mr Khan, at the end of December is as under:
Particulars |
Amount Dr |
Particulars |
Amount Cr |
Opening stock |
30,000 |
Khan’s capital |
1,50,000 |
Plant and machinery |
80,000 |
Bank loan |
50,000 |
Furniture |
40,000 |
Sundry creditors |
40,000 |
Book debt |
80,000 |
Sales |
3,00,000 |
Cash at bank |
26,000 |
Purchase returned |
10,000 |
Purchases |
2,00,000 |
Reserve for bad debts |
2,000 |
Wages and direct expenses |
30,000 |
Discount and commission |
3,000 |
Carriage inwards |
5,000 |
|
|
Office salaries |
25,000 |
|
|
Bad debts |
500 |
|
|
General expenses |
1,500 |
|
|
Insurance for business |
2,000 |
|
|
Office rent |
20,000 |
|
|
Khan’s drawings |
15,000 |
|
|
555,000 |
555,000 |
Additional information:
(a) Plant and machinery and furniture are to be depreciated by 10% each.
(b) Reserve for doubtful debts is to be maintained at 5%.
(c) Office salary to be paid $5,000.
(d) Closing stock was valued at $40,000.
Required: Trading account, profit and loss account and balance sheet
[Answer: Gross profit = $85,000; Net profit = $20,000; Balance sheet = $250,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 7C
Following trial balance of AF Trading Concern for the year ending 31st December 2019 is given.
Debit Items |
Amount Dr |
Credit Items |
Amount Cr |
Land and Building |
15,000 |
Unearned commission |
2,000 |
Goodwill |
10,000 |
Overdraft |
12,000 |
Drawing |
5,000 |
Reserve of doubtful debts |
1,000 |
Freight on sales |
500 |
Creditors |
13,000 |
Closing stock |
7,000 |
Purchase return |
1,500 |
Discount allowed |
500 |
Sales |
90,000 |
Cash at bank |
2,200 |
Capital |
45,000 |
Bad debts |
500 |
|
|
Plant and machinery |
42,000 |
|
|
Rent, rates and insurance |
900 |
|
|
Debtors |
10,000 |
|
|
Salaries |
7,400 |
|
|
Wages |
3,000 |
|
|
Sales return |
500 |
|
|
Purchases |
48,000 |
|
|
Opening stock |
12,000 |
|
|
|
164,500 |
|
164,500 |
Additional information:
(a) Depreciate plant and machinery by 10%.
(b) Reserve for doubtful debts is to be maintained at 5%.
(c) Unearned commission is earned to the extent of $1,500.
(d) Prepaid salary amounted to $400.
Required: Trading account, profit and loss account and balance sheet
[Answer: Gross profit = $28,000; Net profit = $16,400; Balance sheet = $81,900]
***********
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