Financial Statements

ACCOUNTING CONCEPTS
AND CONVENTIONS
• Periodicity
• Realization
• Accrual
• Matching
• Disclosure
• Materiality
• Consistency
 Proper distinction
• Revenue Expenditure and Capital
Expenditure
• Revenue receipts and Capital receipts

• Revenue profit and Capital profit

• Revenue loss and Capital loss
 Final accounts
• The final accounts of business concern
generally includes two parts.
• The first part is Trading and Profit and Loss
Account. This is prepared to find out the net
result of the business.
• The second part is Balance Sheet which is
prepared to know the financial position of the
business.
• However manufacturing concerns, will prepare a
Manufacturing Account prior to the preparation
of trading account, to find out cost of production.
 Trading Account
• Trading means buying and selling.
• The trading account shows the result of
buying and selling of goods.
Contents of Income Statement/
Trading Account
• Sales revenue
Net sales = sales – sales return
• Cost of goods sold
=Opening stock +(Purchase-Purchase return) +
direct expenses – closing stock
• Gross Profit = Net sales – Cost of goods
sold
 Trading and Profit and Loss Account
For the year ending.......
Particulars Rs. Particulars Rs.
To Opening Stock of Finished Goods By Sales
To Cost of finished goods transferred By Closing Stock of Finished Goods
from Manufacturing Account By Gross Loss c/d* (Balancing
To Gross Profit c/d* (Balancing Fig.)
Fig.)
Total Total
To Gross Loss b/d* By Gross Profit b/d*
To Salaries By Non-operating incomes
To Office Rent
To Advertising
To Carriage Outward
To Discount Allowed
To Provision for Bad and Doubtful
Debts
To Depreciation: Office Building
Furniture
To Non-Operating expenses By Net Loss-transferred to Capital
To Net Profit-transferred to Capital Account*
Account* (Balancing Fig.)
(Balancing Fig.)
Total Total
 Manufacturing Account
For the year ending.....
Particulars Rs. Particulars Rs.
To Opening Stock By Cost of finished goods
transferred to trading
Raw Materials account
(Balancing Fig.)
Partly Manufactured By Closing Stock:
Goods Raw Materials
To Purchase of Raw Partly Manufactured
Materials Goods
To Carriage Inwards
To Manufacturing Wages
To Factory Rent
To Depreciation
Factory Building
Machinery
To Repair to Plant
To Coal
To Salary of Works
Manager
 Income Statement
Trading
for the year Account
ending……………..
Particulars For the year ending....... Amount (RS)
Revenue (less sales return)
Less: Cost of Goods Sold(Opening
Particulars Rs. Stock+(Purchases-Purchase
Particulars Rs.
return)+direct expenses-Closing Stock)
Gross ProfitStock of
To Opening By Sales
Less:Finished
Operating
GoodsExpenses By Closing Stock of
To Cost of finished
Salaries Finished Goods
goods
Office transferred
Rent By Gross Loss c/d*
from (Balancing
Advertising
Manufacturing Fig.)
Carriage Outward
Account
Discount
To Gross Allowed
Profit c/d*
Provision (Balancing
for Bad and Doubtful Debts
Fig.)
Depreciation: Office Building Furniture
Operating Profit
Less: Non Operating Expenses
Add: Non operating Income
Earning Before Interest and Tax (EBIT)
TotalInterest
Less: Total
Profit Before tax (PBT)
Less: Tax
Profit after Tax (PAT) / Net Profit
Prepare Trading Account for the year ending 31st
March 2015 from the following information

• Opening stock Rs. 1,70,000

• Purchases return Rs. 10,000
• Sales Rs.2,50,000
• Wages Rs. 50,000
• Sales return Rs. 20,000
• Purchases Rs. 1,00,000
• Carriage inward Rs. 20,000
• Closing stock Rs. 1,60,000
Prepare a trading account of Dawn stores for the
year ending 31st December 2012 by using the
information given below:
Particulars Dr. (Rs.) Cr. (Rs.)
Capital 3600
Machinery 1700
Sales 8300
Sales return 200
Opening stock 1000
Drawings 400
Wages 800
Carriage inward 150
Purchases 4000
Purchase return 50
Closing stock 2000
 Contents of Income Statement/
Profit and Loss Account
• Operating expenses= administrative expenses
+Depreciation +selling and distribution expenses.
• Operating Profit = Gross profit – Operating expenses.
• Non operating expenses and incomes
• Net profit = Operating Profit + Non operating incomes -
Non operating expenses EBIT
• Interest
• Profit before tax= Net Profit - Interest
• Profit after tax = PBT- Tax
 Income Statement
for the year ending……………..
Particulars Amount (RS)
Revenue (less sales return)
Less: Cost of Goods Sold(Opening Stock+(Purchases-Purchase
return)+direct expenses-Closing Stock)
Gross Profit
Less: Operating Expenses
Salaries
Office Rent
Advertising
Carriage Outward
Discount Allowed
Provision for Bad and Doubtful Debts
Depreciation: Office Building Furniture
Operating Profit
Less: Non Operating Expenses
Add: Non operating Income
Earning Before Interest and Tax (EBIT)
Less: Interest
Profit Before tax (PBT)
Less: Tax
Profit after Tax (PAT) / Net Profit
Prepare a trading and Profit/Loss account of Dawn stores for the year
ending 31st December 2012 by using the information given below:
Particulars Dr. (Rs.) Cr. (Rs.)
Capital 3600
Machinery 1700
Sales 8300
Sales return 200
Opening stock 1000
Drawings 400
Wages 800
Carriage inward 150
Purchases 4000
Purchase return 50
Closing stock 2000
Salaries 600
General expenses 300
Rent 500
Carriage outward 100
Advertising 200
Prepare Income Statement for the year ending 31st
March 2012 from the books of Mr. Siva Subramanian business .
Assume the tax rate as 40 percent
• Stock (31.3.2011) 15,000
• Carriage outwards 4,000
• Purchases 1,65,000
• Wages 30,000
• Purchases return 10,000
• Sales return 5,000
• Postage 3,000
• Salaries 20,000
• Dividend received 5,000
• Stationeries 2,000
• Bad debts 1,000
• Interest 8,000
• Sales 3,00,000
• Insurance 4,000
• Stock (31.3.2012) 80,000