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Final Accounts with Adjustments | Problem and Solution | P6

Published on: July 5, 2020

Final account is prepared by every business organization at the end of accounting period. It contents Trading A/c, Profit and Loss A/c and Balance Sheet.

Final Accounts Problem and Solution

final-accounts-problem-and-solution-with-adjustments-closing-stock-outstanding-prepaid-p6

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.

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

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

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Single Entry System	http://tiny.cc/n19jkz
Non-Trading Concern	http://tiny.cc/j09jkz
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 6A

Itex Traders has following trial balance on 31^st December 2021:

Particulars	Debit $	Credit $
Drawings and capital	30,000	300,000
Machinery	75,000
Motor bike	125,000
Stock (1 Jan)	60,000
Equipment	36,000
Bills receivable/payable	60,000	40,000
Cash in hand	12,300
Wages	150,000
Salaries	96,000
Purchase and sales	350,000	647,600
Debtors and creditors	55,000	25,000
Return	10,000	15,000
Office expenses	12,000
Carriage inward	16,300
Carriage outward	25,000
Bad debts	10,000
Discount allowed/received	3,000	8,000
Sundry income	−	10,000
General reserve		20,000
Bank overdraft		60,000
Total	11,25,600	11,25,600

Additional information:

(a) Closing stock valued $80,000.

(b) Prepaid salary $6,000.

Required: (1) Trading account; (2) Profit and loss account; (3) Balance sheet

[Answer: GP = $156,300; Net loss = $20,300; BS = $449,300]

SOLUTION:

Trading Account

Itex Traders

As on 31^st December 2021

Particulars		Amount	Particulars		Amount
To Opening stock		60,000	By Sales	647,000
To Purchase	350,000		Less: Return	(10,000)	637,600
Less: Return	(15,000)	335,000	By Closing stock		80,000
To Wages		150,000
To Carriage inward		16,300
To Gross profit		156,300
		717,600			717,600

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Salary	96,000		By Gross profit	156,300
Less: Prepaid	+6,000	90,000	By Discount received	8,000
To Office expenses	12,000		By Sundry income	10,000
Add: Outstanding	+14,000	26,000
To Carriage outward		25,000
To Bad debts		10,000
To Discount allowed		3,000
To Net profit		20,300
		174,300		174,300

Balance Sheet

Itex Traders

As on 31^st December 2021

Liabilities + capital +profit		Amount	Assets	Amount
Capital	300,000		Cash in hand	−
Add: Net profit	20,000		Cash at bank	12,300
Less: Drawings	(30,000)		Machinery	75,000
Bills payable		290,300	Motor bike	125,000
Creditors		40,000	Equipment	36,000
General reserve		25,000	Bills receivable	60,000
Bank overdraft		20,000	Debtors	55,000
Outstanding office exp.		60,000	Prepaid salary	6,000
		14,000	Closing stock	80,000
		449,300		449,300

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Problems and Answers of Final Accounts

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 6A

RS Trading House has following trial balance on 31^st December 2021:

Particulars	Debit $	Credit $
Drawings and capital	20,000	200,000
Machinery	50,000	−
Motor bike	75,000	−
Stock (Inventory, 1 Jan)	40,000	−
Equipment	24,000	−
Bills receivable/payable	40,000	20,000
Cash at bank	8,200	−
Wages	100,000	−
Salaries	64,000	−
Purchase and sales	213,500	400,000
Debtors and creditors	35,000	15,000
Return	9,000	5,000
Office expenses	6,000	−
Carriage inward	6,300	−
Bad debts	5,000	−
Discount allowed/received	4,000	10,000
Sundry income	−	30,000
General reserve	−	20,000
Total	700,000	700,000