Dr.A.Prakash., M.Com.,M.Phil.,Ph.D.

Assistant Professor
Dept. of Commerce Shift - I
St.Thomas College of Arts and Science
Koyambedu,Chennai-107.
Final accounts
The following are the differences between trial balance and balance sheet:

Basis Trial balance Balance sheet

1. Nature Trial balance is a list of ledger balances Balance sheet is a statement showing
on a particular date. the position of assets and liabilities
on a particular date.

2. Purpose Trial balance is prepared to check Balance sheet is prepared to ascertain

the arithmetical accuracy of the
accounting entries made.
3. Contents It is a summary of balances of all
accounts – personal, real and nominal
accounts.
4. Format The trial balance contains columns
for debit balances and credit balances.
5. Stage It is prepared before the preparation
of final accounts.
6. Period It can be prepared periodically, say at
the end of the month, quarterly, half
yearly, etc.
7. Order Balances shown in the trial balance
need not be in order.
8. Compulsion Preparation of trial balance is not
compulsory.
the financial position of a business.
It is a statement showing the closing
balances of only personal and real
accounts.
The items are grouped as assets and
liabilities.
It is prepared after preparing trial
balance and trading and profit and
loss account.
It is generally prepared at the end of
the accounting period.
Balances shown in the balance sheet
must be in order.
Preparation of the balance sheet is
compulsory in certain cases.
 Need for preparing a balance sheet

The purposes of preparing a balance sheet are as follows:

The main purpose of preparing a balance sheet is to ascertain the true financial
position of the business at a particular point of time.
It helps in comparing the cost of various assets of the business such as the amount
of closing stock, amount due from debtors, amount of fictitious assets, etc.
Moreover as assets and liabilities of similar nature are grouped and presented in
balance sheet, a comparative study of these assets and liabilities is facilitated.
 It helps in comparing the various liabilities of the business.
It helps in finding out the solvency position of the firm.
The firm’s solvency position is favorable if the assets exceed the external
liabilities.
The firm’s solvency position is not favorable it the external liabilities exceed the
 Preparation of Trading Account

 At the end of the financial year or at the end of the

financial accounting period, an entity prepares the
financial accounting statements to know the profit and
loss and also the financial position of the business.

These statements help users of financial accounting,

information in decision making.
Features of Trading Account
It is the first stage in the preparation of financial
accounting statement of a trading concern.
It records only the net sales and direct cost of goods sold.
The balance of this account discloses the gross profit and gross
loss.
We transfer the balance of the trading account to the profit and
loss account.
 Contents of a Trading Account
Trading Account Statement include

Opening Stock
Purchases
Direct expenses
Gross profit
• Opening Stock
In the case of trading concern, the opening stock means the finished goods
only. We take the amount of opening stock from Trial Balance.
• Purchases
The amount of purchases during the year includes cash as well as credit
purchases. The deductions from purchases are purchase return, drawings of
goods by the proprietor, distribution of goods as free samples, etc.
• Direct expenses
It means all those expenses which are incurred from the time of purchases to
making the goods in suitable condition. This expense includes freight inward,
octroi, wages etc.
• Closing Stock
In the case of trading business, there will be closing stocks of finished
goods only. According to the convention of conservatism, the stock is
valued at cost or net realizable value whichever is lower.
• Gross profit
If the credit side of Trading A/c is greater than the debit side of Trading A/c
gross profit will arise.

• Gross Loss
When the debit side of Trading A/c is greater than the credit side of Trading
A/c, the gross loss will appear.
1. From the following information, prepare trading and profit
and loss account of Abdul Rahuman for the year ending 31st
December, 2016 and balance sheet as on that date. The closing
stock on 31st December, 2016 was valued at Rs.  2,000.
2. From the following trial balance of Sharan, prepare trading and profit and loss
account for the year ending 31st December, 2019 and balance sheet as on that date.
The closing stock on 31st December, 2019 was valued at Rs.  2,50,000.
1. From the following particulars, prepare the balance sheet of Madhu, for the
year ended 31st March, 2018.
The following adjustments were made at the time of preparing final accounts:

i.               Outstanding liabilities: Salaries Rs.  10,000; Wages Rs.  20,000; Interest on

Bank overdraft Rs. 3,000 and Interest on bank loan Rs.  6,000
 
ii.               Provide interest on capital @ 10% p.a.
 
iii.               Bad debts amounted to Rs.  10,000 and make a provision for bad debts @
10% on sundry debtors.
 
iv.               Closing stock amounted to Rs.  1,20,000
 
v.               Depreciate vehicles @ 10% p.a.
 
Net profit for the year amounted to Rs.  96,000 after considering all the above
adjustments.
 2. The following balances were extracted from the books of Thomas
as on 31st March, 2018

Additional information:
 
i.               Closing stock Rs.  9,000
 
ii.               Provide depreciation @ 10% on machinery
 
iii.               Interest accrued on investment Rs.  2,000
 
Prepare trading account, profit and loss account and balance sheet.
3. Consider the following balances extracted from the books of Jain as on 31st
December, 2016. Prepare the final accounts.

Adjustments
 
i.               Salaries outstanding for December, 2016 amounted to Rs.  600
 
ii.               Provide depreciation on furniture @ 10% p.a.
 
iii.               Provide interest on capital for the year @ 5% p.a.
 
iv.               Stock on 31st December, 2016 Rs.  14,000
4. Edward’s books show the following balances. Prepare his trading and profit and loss
A/c for the year ended 31st December, 2016 and a balance sheet on at that date.

Adjustments:
i.               Closing stock was Rs.  1,30,000 on 31st December, 2016.
 
ii.               Create 5% provision for bad and doubtful debts on sundry debtors
 
iii.               Create provision at 2% for discount on debtors
 
iv.               Interest on loan due for 9 months.
5. You are Required to Prepare Trial Balance from the Following as on 31st March 2005.

Particulars
Particulars Rs. Rs.

Capital 52,000 Printing 240

Sales 1,01,200 Sundry Debtors 31,000

Purchase Returns 1,900 Purchases 72,000

Opening Stock 22,000 Rent 560

Furniture 5,500 Carriage Inwards 390

Sundry Creditors 6,000 Bad Debts 160

Investments 16,700 Postage 210

Salaries 1,800 Travelling Expenses 770

Wages 1,300 Cash at Bank 3,270

Sales Return 5,200

6. Prepare Trail Balance from the following:

Particular Rs Particular Rs
Capital 40,000 Purchases 15,000
Sales 25,000 Salaries 2,000
Opening Stock 5,200 Rent 1,500
Creditors 1,000 Cash 2,000
Insurance 3,00 Drawings 5,000
Plant 28,000 Bank 4,500
Debtors 2,500
7. Following are the balances extracted from the books of Mr,Varatharaj and sons as on
31.12.2010. Prepare Trading Profit and loss account and balance sheet as on that date:

Particulars Debit Rs Particular Credit Rs

Purchases 15,000 Capital 40,000

Salaries 2,000 Sales 25,000

Rent 1,500 Creditors 1,000

Insurance 3,00
Drawings 5,000
Machinery 28,000

Cash at bank 6,500

Opening Stock 5,200
Debtors 2,500
TOTAL 66,000 TOTAL 66,000

Adjustment:
(A) Closing stock Rs4,900 ;
(B) Salaries unpaid Rs 300;
(C) Rent paid advance Rs 200;
(D) Insurance Prepaid Rs 90.
1. From the following information, prepare the trading account for the year
ended on 31st March 2011.
(Opening stock) 4,000
Purchases
(i) Cash purchases 20,000
(ii) (ii) Credit purchases 50,000
Sales
(iii)(i) Cash sales 20,000
(iv) (ii) Credit sales 60,000
(v) (Closing Stock) 6,000
 Trading Account for the year ended 31st March 2006
Dr Cr
Particular Rs Particular Rs
To Opening stock 4,000 By Credit sales 20,000
To Credit purchases 2 By Cash sales 60,000
0,000 By Total sales
80,000
To Cash purchases 50,000 By Closing stock
70,000 6,000
To Total purchases 12,000
To Gross profit c/d
86,000 86,000
 2. Prepare trading account of M/s Sundar and sons as on 31st March 2011

Opening stock 50,000

Purchases
(i) Cash 1,20,000
(ii)Credit 1,00,000
Sales
(i) Cash 40,000
(ii)Credit 1,00,000
Purchase Returns 20,000
Carriage Inwards 10,000
Marine insurance on purchase 6,000
Other direct expenses 4,000
Sales Returns 30,000
Closing Stock 10,000

In this problem, return outwards and inwards are given in addition to cash and credit
purchases and sales of a firm to find out the net purchases and the net sales of the firm.
Net Sales = Cash Sales + Credit Sales – Sales Returns
Net Purchases = Cash Purchases + Credit Purchases – Purchase Returns
 Trading account for the year ended 31st March 2011
Dr Cr
Particulars Rs Particulars Rs

To Opening Stock 50,000 By Cash Sales 40,000

To Cash Purchase 1,20,000 Add: Credit Sales 1,00,000

Add: Credit Purchase 1,00,000 By Total Sales 1,40,000

To Total Purchase 2,20,000 Less: Sales Return 30,000

Less: Purchase Return 20,000 By Net Sales 1,10,000

To Net Purchase 2,00,000 By Closing Stock 10,000

To Carriage Inwards 10,000 By Gross Loss c/d 1,50,000

To Marine Insurance 6,000

To Other Direct 4,000

Expenses
2,70,000 2,70,000

To Gross Loss B/d 1,50,000 1,50,000

 4. From the following Trial balance of Mr. Gopal for the year ending 31.3.2011,
prepare Trading and Profit & Loss account and Balance Sheet as on 31.3.2011.
Particulars Rs Rs
Opening stock 25,000 -
Capital 2,25,000
Debtors and creditors 30,000 17,500
Purchases and sales 2,00,000 3,50,000
Returns 7,500 5,000
Carriage 4,000 -
Wages 12,500 -
Commission 6,500
Machinery 40,000 -
Furniture 10,000 -
Bad debts 4,000 -
Provision for doubtful debts 5,000
B/R and B/P 15,000 3,500
Land and Buildings 2,00,000 -
Taxes and Insurance 8,500 -
Discount allowed 6,000 -
Bank 25,000 -
Drawings 25,000 -
6,12,500 6,12,500

Value of closing stock is Rs. 20,000

 1. Compute cost of goods sold from the following information:

Particulars Rs
Opening stock 8,000
Purchases 60,000
Direct expenses 5,000
Indirect expenses 6,000
Closing stock 9,000

Solution
= Opening stock + Net purchases + Direct
Cost of goods sold expenses – Closing stock
= 8,000 + 60,000 + 5,000 – 9,000
= ` 64,000
 Final accounts with adjustments
2. Prepare trading account from the following ledger balances presented by Mr. X as on 31 st
March, 2016.

Particulars Rs Particulars Rs

Stock (1-4-2015) 10,000 Sales 3,00,000

Purchases 1,60,000 Returns inward 16,000

Wages 30,000 Returns outward 10,000

Carriage inwards 10,000 Gas and Fuel 8,000

Freight inwards 8,000

Additional information:
•Stock on 31st March, 2016 Rs. 20,000
•Outstanding wages amounted to Rs. 4,000
•Gas and fuel was paid in advance for Rs. 1,000
Solution

Dr. Trading account for the year ended 31st March, 2016 Cr.

Particulars ` ` Particulars ` `
To Opening Stock 10,000 By Sales 3,00,000
To Purchases 1,60,000 Less: Returns inward 16,000 2,84,000
Less: Returns outward 10,000 1,50,000 By Closing Stock 20,000
To Wages 30,000
Add: Outstanding 4,000 34,000

To Carriage inwards 10,000

To Freight inwards 8,000
To Gas and fuel 8,000
Less: Prepaid 1,000 7,000
To Gross profit c/d 85,000
3,04,000 3,04,000
 3. Consider the following balances extracted from the books of Mr.JP as on 31st
December, 2016. Prepare the final accounts.

Particulars Rs Particulars Rs
Capital 20,000 Office Salaries 6,600
Debtors 8,000 Establishment expenses 4,500
Creditors 10,500 Selling expenses 2,300
Purchases 60,000 Furniture 10,000
Sales 80,000 Cash at bank 2,400
Income tax of Jain paid 500 Miscellaneous receipts 600
Opening stock 12,000 Drawings 4,800

Adjustments
•Salaries outstanding for December, 2016 amounted to Rs600
•Provide depreciation on furniture @ 10% p.a.
•Provide interest on capital for the year @ 5% p.a.
Stock on 31st December, 2016 Rs 14,000
4. Edward’s books show the following balances. Prepare his trading and profit and loss A/c for
the year ended 31st December, 2016 and a balance sheet on at that date.

Debit balances Rs Credit balances Rs

Drawings 5,000 Capital 1,31,500
Sundry debtors 60,000 Loan at 6% p.a. 20,000
Coal, gas and water 10,500 Sales 3,56,500
Returns inward 2,500 Interest on investments 2,550
Purchases 2,56,500 Sundry creditors 40,000
Stock on 1-1-2016 89,700
Travelling expenses 51,250
Interest on loan paid 300
Petty cash 710
Repairs 4,090
Investments 70,000
5,50,550 5,50,550

Adjustments:
•Create provision at 2% for discount on debtors
•Closing stock was Rs 1,30,000 on 31st December, 2016.
•Interest on loan due for 9 months.
•Create 5% provision for bad and doubtful debts on sundry debtors
4. Edward’s books show the following balances. Prepare his trading and profit and loss A/c for
the year ended 31st December, 2016 and a balance sheet on at that date.

Debit balances Rs Credit balances Rs

Drawings 5,000 Capital 1,31,500
Sundry debtors 60,000 Loan at 6% p.a. 20,000
Coal, gas and water 10,500 Sales 3,56,500
Returns inward 2,500 Interest on investments 2,550
Purchases 2,56,500 Sundry creditors 40,000
Stock on 1-1-2016 89,700
Travelling expenses 51,250
Interest on loan paid 300
Petty cash 710
Repairs 4,090
Investments 70,000
5,50,550 5,50,550

Adjustments:
•Create provision at 2% for discount on debtors
•Closing stock was Rs 1,30,000 on 31st December, 2016.
•Interest on loan due for 9 months.
•Create 5% provision for bad and doubtful debts on sundry debtors
Solution Trial Balance
Particulars Debit Credit
Mr. X’s Capital — 5,00,000
Drawing 20,000 —
Purchase 2,00,000 —
Loan — 1,00,000
Machinery 50,000 —
Return to supplies — 50,000
Sales — 4,00,000
Return inward 60,000 —
Carriage outward 20,000 —
Bad debts 5,000 —
Sundry Debtors 1,00,000 —
Bills receivable 20,000 —
Sundry creditors — 50,000
Carriage inward 10,000 —
Salary and wages 5,000 —
Depreciation 2,000 —
Cash in hand 1,00,000 —
Sale of scrap — 5,000
Closing stock 50,000 —
Prepaid tax 10,000 —
Outstanding wages — 5,000
Suspense A/c 4,40,000 —
Total 11,10,000 11,10,000
 Trading and P & L A/c
Dr. Cr.

Particulars Amount Particulars Amount

To Purchase 2,00,000 By Sales 4,00,000

Less: Returns 50,000 1,50,000 Less: Returns 60,000 3,40,000
To Direct Expense:
Carriage inward 10,000
To Gross profit 1,80,000

Total 3,40,000 Total 3,40,000

Dr. Cr.
Particulars Amount Particulars Amount
To Salaries and wages 5,000 By Gross profit 1,80,000
To Depreciation 20,000 By Sale of scrap 5,000
To Carriage outward 20,000
To Bad debts 5,000
To Net profit 1,35,000
Total 1,85,000 Total 1,85,000
 Balance Sheet

Liabilities Amount Assets Amount

Capital 5,00,000 Fixed Assets:

Less: Drawing 20,000 Machinery 50,000

4,80,000

Add: Net Profit 1,35,000 Current Assets:

6,15,000 B/R 20,000

Sundry Debtors 1,00,000

Loan 1,00,000 Cash in hand 1,00,000

Current liability Closing stock 50,000

Sundry Creditor 50,000 Prepaid tax 10,000

Outstanding
wages 5,000 Suspense A/c 4,40,000

Total 7,70,000 Total 7,70,000

 Following is the trial balance as on 30th June 2001.
Trial Balance

Particulars Debit Credit

Land and building 20000
Machinery 50000
Furniture and fixtures 4000
Opening stock 16300
Purchases 80000
Salaries 6000
Carriage on sales 1500
Freight on purchases 2000
Custom duty on purchases 8000
Advertising 5400
Wages 15000
Rent 3000
Postage and stationary 1500
General expenses 3200
Repairs to Machinery 2000
Loan to Kumar @ 9% 5000
Prepaid insurance 200
Sundry debtors 20000
Cash in hand 250
Cash at bank 3100
Capital 80000
Sundry creditors 8000
Discount received 400
Outstanding expenses 1550
Sales 150500
Repairs and rewards (provision) 6000

Total 246450 246450

The additional information is as follows:
•Closing stock was worth Rs. 14900.
•Dep. is to be written of @ 3% on land and building, 10%
on machinery and 5% on furniture and fixture.
•Provision for repairs and renewals are credited with Rs.
1500 every year.
•Provision for bad debts is 5% on Sundry debtors.