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.
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Accounts: Class 11 |
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Adjustment in Final Accounts |
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Capital and Revenue |
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Single Entry System |
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Non-Trading Concern |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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Trading account deals with trading activities such as buying and selling of goods and services.
Most of the traders buy finished products and sell them without any changing; they are traders.
There are some traders who purchase raw materials in large quantity and pack them in small packets.
In such a condition, labour, machine and other expenses are needed.
From trading account, we can find out gross profit or gross loss.
This account is prepared to show the profit made on selling the goods.
These goods were purchased earlier for resale purposes.
The word ‘gross’ means without deduction because other incomes and expenses are remaining to deduct. Expenses related to premises or assets does not include in this account.
The calculation of the gross profit or loss separately is very important because it plays vital role for the trader.
Gross profit = Net sales − Cost of goods sold
Net sales = Sales revenue – Sales return
Net purchase = Purchase – Purchase return
Cost of goods sold = Opening stock + Net purchase + Carriage or freight inward − Closing stock
Keep in Mind (KIM)
The amount associated with cost of the sold goods is known as cost of goods sold. While preparing trading account, some transactions of manufacturing account also included. |
Trading account deals with trading activities such as buying and selling of goods and services.
There are some traders who purchase raw materials in large quantity and pack them in small packets.
In such a condition, labour, machine and other expenses are needed.
From trading account, we can find out gross profit or gross loss.
The main features of trading account are given below:
· Trading account helps to determine gross profit or gross loss of a business.
· It helps to know direct expenses (related to manufacturing or trading account).
· It helps to determine cost of goods sold.
· It helps to determine gross profit ratio.
In manufacturing account, raw materials are converted to work in progress or finished good with the help of man and machine.
In trading account, goods are sold to the customers without adding additional value.
Difference between Manufacturing Account and Trading Account
Bases |
Manufacturing account |
Trading account |
Nature of goods |
Goods are converted to semi-finished product or finished product. |
Goods are sold without additional processing; but small quantity packaging may possible. |
Nature of inventory |
There are three types of inventories i.e. raw materials, work in progress and finished good. |
There is only one type of inventory i.e. finished good. |
Sales price |
Sales price is determined by adding profit on cost price. |
Sales price is determined by adding profit on purchase price. |
Intangible assets |
There may be intangible assets like patents. Trademark, design, research etc. |
Generally, intangible assets are recorded in trading account. |
Costs and expenses |
A clear distinction is made between costs and expenses. |
No distinction is made between costs and expenses. |
Result |
It is prepared to find out ‘cost of production’ |
It is prepared to find out ‘gross profit or gross loss’ |
Trading Account
ABC Company Ltd
As on 31st December 20X1
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock |
|
xxxx |
By Sales |
xxxx |
|
To Purchase |
xxxx |
|
Less: Return |
(xxx) |
xxxx |
Less: Return |
(xxx) |
|
By Closing stock |
|
xxxx |
Less: Free sample |
(xxx) |
|
By Gross loss c/d |
|
xxxx |
Less: Loss by fire1 |
(xxx) |
xxxx |
|
|
|
Purchase expenses: |
|
|
|
|
|
To Carriage or carriage inward |
|
xxxx |
|
|
|
To Freight or freight inward |
|
xxxx |
|
|
|
To Carriage on purchase |
|
xxxx |
|
|
|
To Purchase expenses |
|
xxxx |
|
|
|
To Octoi |
|
xxxx |
|
|
|
To Import duty or custom duty |
|
xxxx |
|
|
|
To Clearing charge |
|
xxxx |
|
|
|
To Dock charge (dock dues) |
|
xxxx |
|
|
|
To Coolie and cartage |
|
xxxx |
|
|
|
To Packing on purchase |
|
xxxx |
|
|
|
Factory expenses: |
|
|
|
|
|
To Wages and salary |
|
xxxx |
|
|
|
Add: Outstanding2 |
|
xxxx |
|
|
|
Less: Prepaid3 |
|
xxxx |
|
|
|
To Productive wages |
|
xxxx |
|
|
|
To Store keeper’s salary |
|
xxxx |
|
|
|
To Fuel and power |
|
xxxx |
|
|
|
To Motive power |
|
xxxx |
|
|
|
To Store consumed* |
|
xxxx |
|
|
|
To Coal, gas, stem and water |
|
xxxx |
|
|
|
To Heating and power |
|
xxxx |
|
|
|
To Excise duty |
|
xxxx |
|
|
|
To Royalty (for manufacturing) |
|
xxxx |
|
|
|
To Factory insurance |
|
xxxx |
|
|
|
To Factory rent, rates and taxes |
|
xxxx |
|
|
|
To Estimate expenses |
|
xxxx |
|
|
|
To Benefit to workers |
|
xxxx |
|
|
|
To Other factory expenses |
|
xxxx |
|
|
|
To Gross profit c/d |
|
xxxx |
|
|
|
|
|
xxxxx |
|
|
xxxxx |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2A
ABC Manufacturing Company Limited has following extracted data on 31st December 2021:
Ledgers |
Amount $ |
|
Ledgers |
Amount $ |
Opening stock |
55,000 |
|
Wage |
25,000 |
Purchase |
115,000 |
|
Indirect material |
12,350 |
Sales |
222,450 |
|
Dividend received |
5,000 |
Purchase return |
4,450 |
|
Miscellaneous received |
1,250 |
Sales return |
5,500 |
|
Commission paid |
560 |
Carriage inward |
4,250 |
|
Land and building |
500,000 |
Freight inward |
3,500 |
|
Coal, gas, water and fuel |
7,500 |
Custom duty |
12,000 |
|
Tax paid |
5,000 |
Clearing charge |
11,500 |
|
Transfer to general reserve |
1,000 |
Royalty |
5,250 |
|
Motive power |
3,150 |
Factory rent |
12,450 |
|
Factory insurance |
4,000 |
Additional information: Closing stock for the year $75,000
Required: Trading account
[Answer: Gross profit = $75,450]
SOLUTION:
Trading Account
ABC Manufacturing Company Ltd
As on 31st December 2021
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock |
|
55,000 |
By Sales |
272,450 |
|
To Purchase |
115,000 |
|
Less Return |
(5,500) |
266,950 |
Less: Return |
(4,450) |
110,550 |
By Closing stock |
|
75,000 |
To Carriage inward |
|
4,250 |
|
|
|
To Freight inward |
|
3,500 |
|
|
|
To Custom duty |
|
12,000 |
|
|
|
To Clearing charge |
|
11,500 |
|
|
|
To Royalty |
|
5,250 |
|
|
|
To Factory rent |
|
12,450 |
|
|
|
To Wage |
|
25,000 |
|
|
|
To Indirect material |
|
12,350 |
|
|
|
To Coal, gas, water, and fuel |
|
7,500 |
|
|
|
To Motive power |
|
3,150 |
|
|
|
To Factory insurance |
|
4,000 |
|
|
|
To Gross profit c/d |
|
75,450 |
|
|
|
|
|
341,950 |
|
|
341,950 |
Gross profit = Cr 341,950 – Dr 226,500 = 75,450
Keep in Mind (KIM)
All the expenses related to manufacturing, production and works are debited in manufacturing. All the income related to manufacturing, production and works are credited in manufacturing. It is not compulsory to write Dr and Cr at ear column. In production company, royalty is recorded in manufacturing or trading account. In trading company, royalty is recorded in profit and loss account. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2B
AM Textile (P) Limited has following extracted data for the current year:
|
Amount $ |
|
Amount $ |
Stock (1 Jan): |
|
Factory insurance |
5,000 |
Raw materials |
1,24,000 |
Factory rent |
1,20,000 |
Work in progress |
1,06,000 |
Repairs of machinery |
6,000 |
Finished goods |
2,40,000 |
Depreciation on machinery |
30,000 |
Purchase of raw materials |
8,60,000 |
Sales of finished goods |
21,50,000 |
Freight inward |
35,000 |
Sales of scrap |
28,000 |
Manufacturing wages |
3,60,000 |
Stock (31 Dec): |
|
Import duty |
60,000 |
Raw materials |
1,08,000 |
Dock dues |
12,000 |
Work in progress |
92,000 |
Motive power |
50,000 |
Finished goods |
3,20,000 |
Lubricant and grease |
3,000 |
|
|
Required: (a) Manufacturing account; (b) Trading account
[Answer: (a) Cost of production = $15,43,000; (b) Gross profit = $6,87,000]
SOLUTION:
Manufacturing Account
AM Textile (P) Limited
As on 31st December 2021
Particulars |
|
Amount |
Particulars |
|
Amount |
To Opening stock: |
|
|
By Closing stock: |
|
|
Raw materials |
124,000 |
|
Raw materials |
108,000 |
|
Work in progress |
+106,000 |
230,000 |
Work in progress |
+92,000 |
200,000 |
To Raw materials purchase |
860,000 |
|
By Scrap sold |
|
28,000 |
Less: Return |
Nil |
860,000 |
By Cost of production (b/f) |
|
15,43,000 |
To Freight inward |
|
35,000 |
(transferred to trading account) |
|
|
To Import duty |
|
60,000 |
|
|
|
To Dock dues |
|
12,000 |
|
|
|
To Manufacturing wages |
|
360,000 |
|
|
|
To Motive power |
|
50,000 |
|
|
|
To Lubricant and grease |
|
3,000 |
|
|
|
To Factory rent |
|
120,000 |
|
|
|
To Factory insurance |
|
5,000 |
|
|
|
To Repairs of machinery |
|
6,000 |
|
|
|
To Depreciation on machinery |
|
30,000 |
|
|
|
|
|
17,71,000 |
|
|
17,71,000 |
Trading Account
AM Textile (P) Limited
As on 31st December 2021
|
Amount $ |
|
|
Amount $ |
To Opening stock of finished good |
240,000 |
By Sales |
21,50,000 |
|
To Cost of production |
15,43,000 |
Less: Return |
Nil |
21,50,000 |
To Gross profit (b/f; c/d) |
6,87,000 |
By Closing stock of finished good |
|
3,20,000 |
|
|
|
|
|
|
|
|
|
|
|
24,70,000 |
|
|
24,70,000 |
********
Problems and Answers of Trading Account in Final Accounts |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2A
YB Manufacturing Company has following extracted information on 31st December:
|
Amount $ |
|
|
Amount $ |
Opening stock |
5,000 |
|
Manufacturing expenses |
8,000 |
Sales |
200,000 |
|
Import duty |
5,000 |
Purchase return |
2,000 |
|
Motive power |
7,000 |
Wages |
40,000 |
|
Purchase |
80,000 |
Carriage inward |
3,000 |
|
Purchase expenses |
3,000 |
Sales return |
4,000 |
|
|
|
Required: Trading account if closing stock is $/₹/Rs 20,000.
[Answer: Gross profit = $67,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2B
RB Manufacture has following extracted information on 31st December:
|
Amount $ |
|
|
Amount $ |
Opening stock |
60,250 |
|
Carriage on purchase |
15,150 |
Purchase |
190,500 |
|
Coal, gas and water |
7,550 |
Sales |
281,500 |
|
Power and electricity |
3,500 |
Return outward |
1,500 |
|
Royalty |
5,000 |
Return inward |
1,800 |
|
Store consumed (factory) |
1,500 |
Wages and salary |
46,800 |
|
|
|
Required: Trading account if closing stock is $/₹/Rs 93,750.
[Answer: Gross profit = $44,700]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2C
EP Textile (P) Limited has following extracted data for the current year: (amount in thousand dollars):
|
Amount $ |
|
Amount $ |
Stock (1 Jan): |
|
Direct wages |
24,000 |
Raw materials |
10,800 |
Royalty |
600 |
Semi-finished goods |
8,400 |
Depreciation on machinery |
7,000 |
Finished goods |
21,000 |
Depreciation on factory building |
2,000 |
Purchase of raw materials |
75,000 |
Sundry factory expenses |
2,800 |
Purchase return |
4,000 |
Stock (31 Dec): |
|
Freight inward |
2,500 |
Raw materials |
14,500 |
Sales |
190,000 |
Semi-finished goods |
15,000 |
Sales return |
6,000 |
Finished goods |
26,000 |
Power and heating |
4,800 |
|
|
Required: (a) Manufacturing account; (b) Trading account
[Answer: (a) Cost of production = $104,400; (b) Gross profit = $84,600]
***********
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