KAKATIYA INSTITUTE OF TECHNOLOGY AND SCIENCE,

WARANGAL

B.Tech VI/VII SEMESTER

MANAGEMENT , ECONOMICS AND ACCOUNTANCY
Course Code: U18MH602/701

Dr.S.SARIKA

Assistant Professor
Dept. of Management, KITSW
 UNIT-IV
FINAL ACCOUNTS
TRADING ACCOUNT
PROFIT & LOSS ACCOUNT
BALANCE SHEET
SIMPLE ADJUSTMENTS
 TRADING ACCOUNT
 After preparing Trail Balance ,the next stage follows the preparation of
Trading Accounts as well as P&L A/c to determine the result of business
operations.
 Even though Trail balance reveals arithmetic accuracy it won’t reveal the
financial position of the business organizations.
 By preparing final accounts we can know net result of the business
operations.
 The preparation of Final accounts will have two stages.
1. Preparation of Trading Account and P&L A/c
2. Preparation of Balance Sheet
 Trading Account reveals the overall result of trading done in the business
through purchase and sale of goods.
 Trading account is a nominal account.
 It is a part of Profit and loss account.
 It is generally prepared to find the gross profit or gross loss of the
business during the financial year.
Format of Trading Account:
Items appearing on Debit side :
 Opening stock
 Purchases: includes both cash and credit purchase of goods. Purchase
returns must be deducted from the total purchases to obtain net result.
 Direct expenses: expenses which are incurred from the stage of purchase
to the stage of making the goods in saleable condition are termed as direct
expenses.
 For example wages , carriage inwards / carriage, Octroi duty, customs duty,
dock duties, clearing charges, import duty etc. ,
 Other expenses.
Items appearing on Credit side :
 Sales includes both cash and credit sales made during the year. Net sales
will be derived by deducting sales returns from total sales.
 Closing stock
 Trading A/c of ABC Co. Ltd. For the year ending 31st March, 2019.
Dr Cr

Particulars Amt.(Rs) Amt.(Rs) Particulars Amt.(Rs) Amt.(Rs)

To Opening Stock 23,800 By Sales 2,13,000 1,88,000
(-) S.returns 25,000
To purchases 55,000 51,500 By closing stock 13,700
(-) P. returns 3,500
To M.expenses 14,500
To customs duty 1,700
To Mgr’s salary 4,000
To Wages 7,600
To Factory rent 5,000
To Frieght 2,600
To Gross Profit c/d 91,000
(transferred to P&L A/c)
2,01,700 2,01,700
  PROFIT & LOSS ACCOUNT:

 The Trading account does not reveal the net position of the business as it
does not take all the expenses into account.
 The of aim of Profit and Loss account is to ascertain the Net Profit earned
or Net Loss suffered during the particular period.
 The operating expenses and sales & distribution expenses of the business
will be considered.
 The Profit and Loss account is open with either gross profit or gross loss
b/d from trading account.
 It is prepared to find out net profit or net loss of the business.
 Importance of P & L A/c:
 Provides information about Net profit / Net loss out of business operations.
 Helps to ascertain whether the business is being run effectively or not.
 Helps in taking steps for effective control of various expenses.
 Profit and Loss A/c of AB Co Ltd. For the year ending 31 st March,2019.
Dr Cr
Particulars Amt.(Rs) Amt.(Rs) Particulars Amt.(Rs) Amt.(Rs)
To Salaries 7,000 By Gross Profit 33,100
To Carriage on sales 800 By rent received 5,000
To discount allowed 2,000 By commission received 4,900
To Repairs 3,500
To insurance premium 1,100
To audit fee 6,000
To General expenses 4,600
To Travelling expenses 2,300
To Bad debts 4,000
To Commission paid 1400
To Telephone charges 3,050
To Net Profit 7,250
(transferred to Capital
A/c)
43,000 43,000
  BALANCE SHEET

 The Balance Sheet is prepared with an intension to know the financial position of the business
at the end of the year.
 It is a statement at a given date showing on one side the traders’ property and possessions and
on the other side his liabilities.
 A Balance Sheet is said to be a list of assets and liabilities of the business at a specific point of
time.
 According to AICPA , Balance Sheet is a list of balances of the assets and liabilities accounts of
a specific business at a specific point of time.
 The total value of the assets is always equals to the of the liabilities as it is based on the
equation ASSETS = CAPITAL + LIABILITIES
 Balance Sheet of Aravind & Co. As on 31stMarch,2019.

LIABILITIES Amt.(Rs) Amt.(Rs) ASSETS Amt.(Rs) Amt.(Rs)

Capital 70,000 Cash 2,050

(+) Net profit 24,500
94,500
(-) Drawings 4,000 90,500
Bills payable 2,850 Closing stock 8,900
Creditors 6,500 Furniture 5,600
Loans 10,400 Machinery 28,000
Motor van 7,000
Land & Buildings 25,000
Sundry Debtors 12,000
Goodwill 20,000
Bills receivable 1,700
TOTAL 1,10,250 TOTAL 1,10,250
 Balance Sheet of M/s Pavan Sales as on 31.03.2012

LIABILITIES Amt.(Rs) Amt.(Rs) ASSETS Amt.(Rs) Amt.(Rs)

Capital 48,000 Cash 2,000

(+) Net profit 1,35,800

(-) Drawings 8,000 1,75,800

Bills payable 14,000 Closing stock 1,04,000
Creditors 80,000 Fixtures &Fittings 13,000
Bank overdraft 10,000 Sundry Debtors 1,26,000
Bills receivable 10,000

TOTAL 2,79,800 TOTAL 2,79,800

 S. No. Adjustment Trading A/c Profit & Loss A/c Balance Sheet

1. Outstanding Wages Dr. Add to wages Show O/s in Libailities

2. Outstanding Salaries Dr. Add to Salaries Show O/s in Liabilities
3. Prepaid Insurance Dr. Less from Insurance Show Prepaid in Assets
4. Income Receivable / Accrued Cr. Add to Income Show as an Asset
Income
5. Income received in advance Cr. Less from Income Show as Liability

6. Closing Stock Show it in Credit Show in Asset side

side
7. Depreciation on machinery Dr. Show the depreciation Liabilities – Deduct depreciation from
amount the Machinery
8. Depreciation on Furniture Dr. Show the depreciation Liabilities – Deduct depreciation from
amount the Furniture

9. Depreciation on Buildings Dr. Show the depreciation Liablitiies – Deduct depreciation from
amount the Buildings
10. Interest on Capital Cr. Interest on Capital Liabilities – Add to Capital

11. Interest on Drawings Dr. Interest on Drawings Liabilities – Less from Capital along
with drawings
12. Bad Debts Dr. Bad Debts Assets – deduct from Debtors

13. Reserve for Bad Debts Dr. Show the reserve for Assets – deduct from Debtors
Bad Debts
14. Further Bad Debts Dr. Add to existing Bad Assets – deduct further Bad Debts only
Debts from debtors
15. Goods withdrawn for personal Dr. Less from Liabilities – Deduct from Capital
use Purchases
Liabilities Amt.(Rs.) Amt.(Rs.) Assets Amt.(Rs.) Amt.(Rs.)

Bills payable 14,000 Cash in hand 2,000

Sundry creditors 80,000 Bills receivable 10,000
Bank overdraft 10,000 Sundry debtors 1,26,000
Capital 48,000 Stock 1,04,000
(-) drawings 8,000 Fixtures and 13,000
fittings
(+) Net profit 1,35,800 1,75,000

2,79,800 2,79,800