Financial statement of sole

proprietorship (final a/c)

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
It refers to the statements prepared at the end of the accounting
period to determine the financial position. (Also profit or loss)
Financial statement includes
1. Trading and profit and loss Account show profit / loss
2. Balance sheet shows a certain liability as on the date. They are the
end product of accounting process made from trial balance

Trading and profit and loss account also known as income statement
1. To compare with previous year profit
2. To determine Gross Profit and Gross Loss (from trading account)
3. To determine Net Profit and Net Loss (from P&L account)
4. Details about expenses and income
5. To find accounting ratio

Balance sheet (Position Statement)

1. Shows Financial Position
2. To Compare with Previous year
3. To ascertain short term solvency

(Both Revenue & Capital Nature )

Trial Balance

Trading A/c P&L Account Capital Nature

items of Revenue Nature

Capital Nature
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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Capital expenditure (benefit for more than 1 year)
Expenditure made by an enterprise on fixed assets.
It increases the earning capacity or reduces the operating
expenses.
It can be on tangible or intangible asset
Example
1. Expenses on purchase of asset
2. expenses on extension or improvement of fixed assets
3. expenses on purchase of intangible assets.
They are not regular

Treatment - debited to relevant asset (Added) and shown in balance

sheet

Revenue expenditure ( benefit will be consumed within 1 year)

Example
1. Expenses on day-to-day running of Business
(such as rent salaries, wages, fuel etc) 2. depreciation on Fixed assets
3. expenses on purchase of stock (consumed during the year).
They are accounted as an expense and is matched against
revenue of the period to determine P&L of that period .

Treatment = shown in the debit side of trading or P&L A/C

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Illustration 1. State whether following expenditures are capital or
revenue in nature:
(i) Second-hand car was purchased for a sum of 1,00,000. A sum
of 10,000 was spent on its overhauling.
(ii) 25,000 paid for the installation of a new machine.
(iii) Repairs for 5,000 necessitated by negligence.
(iv) Cost of annual taxes paid and the annual insurance premium
paid on the car mentioned above.
(v) Cost of air-conditioning of the office of the General Manager.

Deferred revenue expenditure

It refers to the revenue expenditure incurred during an
accounting year But it's benefit will extend beyond that year.
Example advertisement of new product

Treatment Amount to be written off in the current year is debited

to P&L account and amount. Not written off in current year will
be shown in a set side of balance sheet as Fictitious asset

i.e .. Although it appears in Asset side , but it is not really an assets

Capital receipt Amount received but are not income

Example
1. Capital received
Increase liability
2. Loan received
3. Sale of fixed assets ---- Non revenue
It does not affect the P&L of the business
Shown in balance sheet
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 NOTES
FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Revenue receipt
Received in the normal course of action (operating activities).
Example
Cash sales
Bad debts recovered
Cash received from debtors etc.
Shown in credit side of trading or P&L account

Income statement
Trading A/C (Shows gross profit/loss)
Profit and Loss A/C (Shows net Profit/Loss)

Trading account
First stage of final account
Shows result of buying and selling of goods and services
End result - gross profit / gross loss
Records only net sales or direct cost of good sold

Opening Stock + Purchase (Net)

+ Direct Expenses - Closing Stock

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
dr. Trading account of the year ended cr.

Particular Amt Particular Amt

To opening stock -1 xxx By sales (Net) -4 xxx

To purchase (Net) -2 xxx By closing stock -5 xxx
To direct exp -3 By gross loss xxx
To gross profit & xxx ( transfered to P&L
loss (transfer to P&L balance) *
balance) *

Any one

1. Opening stock closing off previous year .

2. Purchase (net) purchase --- xxx

less purchase return --- xxx
less drawing of goods --- xxx
less donation of goods --- xxx
less sales promotion (surplus) --- xxx
xxx

3. Direct expenses it includes

wages
carriage
frieght or cartage inward
power and fuel
factory rent
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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
4. Sales Sales --- xxx
Less Sales return --- xxx
xxx

5. Closing stocks Generally, it doesn't appear in trial balance.

It will appear at 2 places

trading account --- credit side balance sheet --- asset side

6 .Adjusted purchase = op.stock + Net Purchase - Closing Stock

Entries for trading account

1. Trading account ...... dr. A/C
To opening stock A/C
To purchase A/C
To direct exp A/C
To sales A/C

2. Sales A/C....... dr
Purchase Return A/C.......dr
Closing Stock A/C........dr
To Trading A/C

3. For Gross Profit or Gross Loss

Trading A/C P&L A/C Dr.
To P&L A/C To Trading A/C

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Illustration 5. From the following information, prepare Trading
Account for the year ended 31st March, 2020:
Cash Purchases 1,50,000; Credit Purchases 9,00,000; Returns
Inward 20,000; Cash Sales 1,60,000; Credit Sales 11,00,000;
Returns Outward 10,000; Freight Inwards 3,000; Carriage Inwards
3,000; Wages and Salaries 4,000; Opening Stock 1,50,000; Closing
Stock was 88,000 at cost but its net realisable value (market value)
was 84,000.

Profit & loss A/C

Prepare after trading A/C
It determines net profit loss earned during an year
Starts with Gross Profit / Loss which is transferred from Trading
account.
All indirect expenses & income will transfer to P&L.

Expenses -- on debit side Income -- on credit side

dr. P&L A/c .. for the year ended cr.

Particular Amt Particular Amt

To gross loss By Gross Profit

(transferred from
Trading A/C)
TO Indirect Exp. -- 1
TO net Profit * (Transfer
to Capital) in b/sheet
(Transferred from trading)
By indirect income -- 2
By net loss * (Transfer to
capital in b/sheet)

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)

1. Indirect expenses that is not debited to trading account such as

,salaries, Postage ,office rent ,office electricity ,insurance expenses
,advertisement expenses, Bad debts, discount allowed, depreciation
,loss by fire and all of the expenses

2. Indirect income such as amount received on everything, rent

received, discount received, Gain on sale of fixed assets, bad debts
recovered etc

Entries for P&L

1. P&L A/C Dr.
expenses (dr. side)
To Indirect Exp A/C

2. Indirect Income A/c ... Dr.

income (cr. side))
To P&L A/C

3. For Net Profit/Loss Transfer to Capital

Net Profit Net Loss
P&L A/C ...Dr. Capital A/C ... Dr.
To Capital A/C To P&L A/C

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Illustration 19. Following is the Trial Balance of Venkat on 31st March,
2020. Prepare Trading a Profit and Loss Account for the year ended
31st March, 2020.
TRIAL BALANCE as at 31st March, 2020
Heads of Accounts L.F Dr. (₹) Cr. (₹)

Capital A/c ------------ 10,00,000

Stock A/c (1st April, 2019) 2,00,000 ------------
Cash at Bank 1,00,000 ------------
Cash in Hand 44,000 ------------
Machinery A/c 6,00,000 ------------
Furniture and Fittings A/c 1,36,000 ------------
Purchases A/c 15,00,000 ------------
Wages A/c 10,00,000 ------------
Power and Fuel A/c 3,00,000 ------------
Factory Lighting A/c 20,000 ------------
Salaries A/c 7,00,000 ------------
Discount Allowed A/c 50,000 ------------
Discount Received A/c ------------ 30,000
Advertising A/c 5,00,000 ------------
Sundry Office Expenses A/c 4,00,000 ------------
Sales A/c ------------ 50,00,000
Sundry Debtors 11,00,000 ------------
Sundry Creditors ------------ 3,70,000
Input IGST A/c 4,50,000 ------------
Input CGST A/c 1,50,000 ------------
Input SGST A/c 1,50,000 ------------
Output IGST A/c ------------ 5,00,000
Output CGST A/c ------------ 2,50,000
Output SGST A/c ------------ 2,50,000

Total 74,00,000 74,00,000

Value of closing stock as on 31st march,2020 was 2,70,000

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Operating profit Profit generated through normal operating
activities.
Operating profit = gross profit - operating Exp

Expenses associated with operating activities

Ex Salaries, electricity exp, selling & distribution Activities, dep.,
rent, repairs, bad debt, cash discount etc.. (without them,
organisation can't wary properly)

Non-operating exp Int. on loan, charity, loss on sale of fixed asset,

loss by fire / theft etc.

operating income cash discount received, commission received.

Non-operating income Interest received on investment, Jain on

sale of fixed Assets,
operating profit = gross profit - operating exp.
(Net Sales- LOGS)
= Net profit + Non-operating exp- Non-operating
= Net sales - {COGS - operating exp
= Operating cost
Balance Sheet
It shows the financial position of the business as at a given time
It is a statement having & sides.
Asset side → Right side
Labilities side → left side.
The Balances of those o/c from Trial Balance, which does'nt
transfer to Trading & P&L ,will goes here.
It also shows capital
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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Balance sheet of _____ as at _____

Liabilities Amt Assets Amt

Creditors xx Assets xx
Bill payable xx Cash xx
Loans & Advance taken xx Bank xx
Reserves xx BLR xx
Capital (opening) xx Debtors xx
Add Net profit xx All other Ass Balances xx
Int on cap xx xx
Less Drawing (xx) xx
Net loss (xx) xx

xx xx

Both sides should match

Note Assets and liabilities can be shown in specific order in B/Sheet

(known as grouping or marshalling)
Such as... in order of liquidity.

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)

Liabilities Amt Assets Amt

Current liabilities. Current Asset

Creditors xx Cash xx
B/P xx xx Bank xx
Cap B/R xx xx
Opening Bal xx Fixed Asset
Add - NP xx Furniture xx
less → Drawing xx xx Plant xx
Land xx xx

xx xx

Both sides should match

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FINANCIAL STATEMENT OF SOLE
PROPRIETORSHIP (FINAL A/C)
Illustration 23. From the following Trial Balance of Ram Chandra on
31st March, 2020, prepare Trading
TRIAL BALANCE as at 31st March, 2020

Heads of Accounts L.F Dr. (₹) Cr. (₹)

Capital A/c ---------- 1,50,000

Stock A/c (1st April, 2019) 30,000 ----------
Cash at Bank 10,000 ----------
Cash in Hand 5,000 ----------
Machinery A/c 1,00,000 ----------
Furniture 13,000 ----------
Purchases A/c 2,00,000 ----------
Wages A/c 50,000 ----------
Carriage Inward 33,000 ----------
Salaries A/c 70,000 ----------
Discount Allowed A/c 4,000 ----------
Discount Received A/c ---------- 5,000
Advertising A/c 50,000 ----------
Office Expenses A/c 40,000 ----------
Sales A/c ---------- 5,00,000
Sundry Debtors 90,000 ----------
Sundry Creditors ---------- 40,000

Total 6,95,000 6,95,000

Value of Closing Stock at cost as on 31st March, 2020 was 50,000.

Its Net Realisable Value (Market Value) is 51,500.

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