ACCOUNTS

PROJECT 2
Navya Almal
11 C 2021-22

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 ACKNOWLEDGEMENT
I would like to thank my Accounts teacher, Mrs. T. Roy, for
setting up such an interesting project for us and guiding me
through the complicated process of creating the project. I
would also like to thank my mother for giving her inputs on
my project.

CONTENT
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Serial Topic Page
No. Number

1 Objective 4

2 Introduction 5

3 Problem 10

4 Conclusion 16

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 OBJECTIVE
To develop a trial balance with adjustments of a sole trader
and prepare final accounts from the given trial balance

INTRODUCTION
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 FINAL ACCOUNTS
After the Trial Balance is prepared, the next step in the
accounting process is the preparation of Final Accounts,
which include:
1. Trading and Profit and Loss Account
2. Balance Sheet
Trading and Profit and Loss Account shows the
financial performance i.e., profit earned or loss incurred
by an enterprise during the accounting period and
Balance Sheet shows the financial position of an
enterprise on the date it is is prepared. They are
collectively called Final Accounts or Financial
Statements.

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PROFIT AND LOSS ACCOUNT
Profit and Loss Account is prepared after preparing the
Trading, Account to determine net profit or net loss for
a given accounting period.
indirect expenses and indirect incomes are transferred
to Profit and Loss Account.
Profit and Loss Account starts with either Gross Profit
(transferred from Trading Account) in the credit side or
Gross Loss (transferred from the Trading Account) in
the debit side.
Thereafter, indirect expenses or losses for the current
year are transferred to Profit and Loss Account. Stating
differently, expenses and losses which are not shown in
the Trading Account are transferred to the debit side of
Profit and Loss Account. Indirect expenses are
administrative expenses, selling and distribution
expenses such as salaries, postage, stationery,
depreciation, interest paid, carriage outwards, etc.
Losses include items like loss by fire, loss by theft, etc.
Incomes and gains being not from operating activities
for the current year are transferred to the credit of Profit
and Loss Account. Incomes and gains may be cash
discount, interest earned, gain (profit) on sale of fixed
assets, etc.
Importance of a profit and loss account are:

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1. Helps in preparing the balance sheet as net profit or
loss is added or deducted respectfully from the capital.
2. It helps in determining whether the business is being
conducted efficiently or not by comparing with the
previous year’s profits

TRADING ACCOUNT
The first stage in the process of preparing the Final
Accounts is preparing Trading Account. It is prepared

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to determine gross profit earned or gross loss incurred
during the accounting year. Direct Expenses and
Revenue from Operating Activities are transferred to
Trading Account to determine Gross Profit or Gross
Loss.
Some advantages of a trading account are:
1. It gives information about gross profit.
2. Entities can decide whether to continue or
discontinue a specific product by preparing the Trading
account. It aids in maximising profits or minimising
losses.

BALANCE SHEET
Balance Sheet is prepared after preparing Trading
Account and Profit and Loss Account. It is a statement
which sets out the assets and liabilities of a firm or an

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institution as at a certain date. It shows the financial
position of the business as at a given time, i.e., assets
owned by the enterprise and the liabilities i.e., claims of
creditors and owners against these assets.
Some advantages of a balance sheet are:
1. It shows the financial position of a business at the
particular time and date on which it is prepared.
2. It is the basis of determining the net worth of a
business and helps in determining the purchase
considerations of that business.

Difference between a Trading Account and a Profit and

Loss Account
Trading Account
It is prepared to calculate
gross profit and loss.
Its balance is transferred
to the profit and loss
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Profit and Loss Account
It is prepared to calculate
net profit and loss.
Its balance is transferred
to the capital account of
accounts. the proprietor in the
balance sheet.
It includes items such as It includes items such as
purchases, sales, direct sales ,finance,
expenses, stock etc. administration, indirect
expenses etc.
It is prepared before a It is prepared after a
profit/loss account. trading account.

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 PROBLEM
The following balances were extracted from the books of Mr. Harsh
Sureka as at 31st March,2021:

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

Stock at the beginning 41,000 Adjusted Purchases 1,45,000

Rent 9,600 Sales 2,80,000

Salary 20,000 Returns (Dr.) 6,000

Bad Debts 400 Returns (Cr.) 2,000

Provision for Doubtful Debts 3,000 Carriage Inward 3,500

Travelling Expenses 1,400 Carriage Outward 500

Insurance Premium 1,800 Capital 1,75,000

Proprietor’s Withdrawals 4,000 Loan (Cr.) 20,000

Telephone Charges 7,300 Debtors 43,000

Printing and Advertising 5,000 Creditors 36,000

Commission (Cr.) 6,000 Investments 11,000

Rent from Sublet 4,800 Interest on Investments 600

Land and Building 1,40,000 Closing Stock 75,000

Furniture 10,000

Cash 2,900

TRIAL BALANCE
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 Debit Credit

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

Stock at the beginning 41,000 Provision for Doubtful Debts 3,000

Rent 9,600 Commission (Cr.) 6,000

Salary 20,000 Rent from Sublet 4,800

Bad Debts 400 Sales 2,80,000

Travelling Expenses 1,400 Returns (Cr.) 2,000

Insurance Premium 1,800 Capital 1,75,000

Proprietor’s Withdrawals 4,000 Loan (Cr.) 20,000

Telephone Charges 7,300 Creditors 36,000

Printing and Advertising 5,000 Interest on Investments 600

Land and Building 1,40,000

Furniture 10,000

Cash 2,900

Adjusted Purchases 1,45,000

Returns (Dr.) 6,000

Carriage Inward 3,500

Carriage Outward 500

Debtors 43,000

Investments 11,000

Closing Stock 75,000

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Prepare Trading and Profit & Loss Account for the year and a Balance Sheet as at 31st
March, 2021, after taking into the account the following:

1) You are informed that a fire occurred on 28th March,2019 in the godown and stock of
the value of Rs.10,000 was destroyed. Insurance Company admitted a claim of 75%.
2) Further bad debts of Rs.1,000.
3) Provision for bad debts @ 5% on debtors
4) Provision for discount 2% on debtors
5) Depreciate: Land and Building @ 2% p.a. , Furniture @ 10% p.a.
6) Salary and Rent Outstanding @ Rs.2000 and Rs. 1000 respectively.
7) Commission earned but not received- Rs. 3000
8) Insurance paid in advance - Rs. 600.
9) Rs.1800 is due for interest on loan.
10) Provide for manager’s commission at 10% on net profit before charging such
commission.

Trading & Profit/Loss A/c for year ended 31st March, 2021:

Debit Credit

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

To Stock at the beginning 41,000 By Sales 2,80,000

To Adjusted Purchases 1,45,000 less Returns (Dr.) 6,000 2,74,000

less Returns (Cr.) 2000

less Goods lost by fire 10,000 1,33,000

To Carriage Inwards 3,500

To Gross Profit c/d 96,500

2,74,000 2,74,000

To Rent By Gross Profit b/d 96,500

9,600

add Outstanding Rent 1,000 10,600 By Commission 6,000

To Salary 20,000 add Accrued Commission 3,000 9,000

Add Outstanding Salary 2,000 22,000 By Rent for Sublet 4,800

To Travelling Expenses 1,400 By Interest on Investment 600

To Insurance Premium 1,800

less Prepaid Insurance 600 1,200

To Telephone Charges 7,300

To Printing and Advertising 5,000

To Carriage Outwards 500

To Goods lost by fire 10,000

less Insurance Claim 7,500 2,500

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To Bad Debts 400

add Further Bad Debts 1,000

add New Provision 2,100

3,500

less Old Provision 3,000 500

To Provision for discount on 798

debtors

To Interest on loan 1,800

To Depreciation on Land and 2,800

Building

To Depreciation on Furniture 1,000

To Manager’s Commission 5,350

To Net Profit c/d 48,152

1,10,900 1,10,900

BALANCE SHEET
as at 31st March, 2021:
Liabilities Amt (Rs.) Assets Amt (Rs.)

Capital 1,75,000 Fixed Assets:

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add Net Profit 48,152 Land and Building 1,40,000

less Drawings 4,000 2,19,152 less Depreciation 2,800 1,37,200

Loan 20,000 Furniture 10,000

add Outstanding Interest 1,800 21,800 less Depreciation 1,000 9,000

Investments 11,000

Current Liabilities: Current Assets:

Creditors 36,000 Closing Stock 75,000

Outstanding Expenses: Debtors 43,000

Rent 1,000 less Bad Debts 1,000

Salary 2,000 less Provision for bad debts 2100

Outstanding Manager's 5,350 39,900

Commission

less Provision for discount 798 39,102

Cash Balance 2,900

Insurance Claim 7,500

Prepaid Insurance 600

Accrued Commission 3,000

2,85,302 2,85,302

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 CONCLUSION
As a conclusion, final accounts have been formed
(consisting of - trading account and profit and loss
account, balance sheet). Final accounting is an essential
practice for every enterprise to know their actual
performance. This shows us the importance of final
accounting in running a business as it keeps a proper
and well-maintained track of all the transactions of the
business. Trading account looks over mostly direct
expenses and the profit and loss account looks over
indirect expenses. Balance sheet shows the liabilities
and assets of the business on the date of its preparation,
making it easier to see the financial position of the
business. Thus, helping make future decisions for the
business.

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