Abstract

Final account is the ultimate stage of accounting process where the different ledgers
maintained in the trial balance (books of accounts) of the business organization are presented
in the specified way to provide the profitability and financial position of the entity for a
specified period to the stakeholders and other interested parties.
 AIMS AND OBJECTIVES:

The aim of this project is to do Analytical study on various adjustments in final

accounts. There are many objectives of this project. Major few objectives are given

below.

Objectives:
 To understand the final account in detail
 To know the required adjustments done in the final account
 To understand the importance of the final account in business
 To know the contents of the final accounts
 To ascertain any doubts regarding the adjustments of the final account
 Contents

1. Introduction

2. Methodology

3. Adjustments

4. Analysis of Data

5. Conclusion
INTRODUCTION:

Final accounts provide inspiration concerning the profit and monetary position of a business
to its management, owners, and different interested parties. All business transactions are
initially recorded during a journal. they’re then transferred to a ledger and balanced. These
final tallies are prepared for a particular period. The preparation of a final accounting is that
the last stage of the accounting cycle. It determines the financial position of the business. The
term “final accounts” includes the trading account, the profit and loss account, and therefore
the balance sheet.
 METHODOLOGY:

The method used to gather the required information on the project is an internet survey
method. The Internet has extensive information on this subject. The survey has unveiled
information about final accounts that is vital to make this project. The major and basic few
points to understand this project are listed below:

 Meaning of final accounts and its contents

 Adjustments of final accounts
 ADJUSTMENTS IN FINAL ACCOUNTS:

 Meaning of Final account and its contents:

As the name suggests they’re the ultimate accounts that are prepared at the last stage of an
accounting cycle. Final accounts show each monetary position of a business in conjunction
with the profit, they’re employed by external and internal parties for varied functions.
Trading account, Profit and Loss account and balance sheet along are known as final
accounts

 Adjustments of final Account:

The adjustment transactions represent such things of incomes and expenditures, that relate
to this year and haven’t however been brought into the book of accounts. Such money
transactions are adjusted when the preparation of trial balance. The adjustment helps to see
the particular profits and monetary position of the business.

Every adjustment encompasses a twin impact. The potential effects are as follows: –

Trading account and balance sheet or Profit and loss account and balance sheet or Trading
account and profit and loss account.

1. Closing Stock:

As the worth of closing inventories is determined at the end of the accounting year, it seems
like an adjustment. It ought to be attributable to trading a/c and shown within the asset side
of the B/S.

The entry is:

Closing Stock a/c Dr.

To trading a/c

2. Outstanding Expenses:

These are the expenses incurred among the accounting year however the payment has not
been created. Outstanding or unpaid expenses ought to be else to the involved expenses a/c
in P&L a/c and can be shown as a current liability within the B/S.

For example, the Rent of the month of October 2010 Rs. 1,000 remain unpaid. The year is
that the accounting year.

Adjusting Entry:

Rent account Dr. Rs.1000

To Outstanding Rent a/c Rs. 1,000

 3. Prepaid Expenses:

These are the expenses, that are paid, however, a part of the quantity paid extends to
consequent year. it’s additionally known as ‘Un-expired Expenses’. Advance quantity paid
ought to be subtracted from the involved expenses and be shown as a Current plus within the
B/S.

For example, the premium of Rs.2,400 a year was paid on first July 2002. The year is that the
accounting year. Since, one year’s premium has been paid on first July, the premium for six
months, i.e., 0.5 the amount relates to the present year and therefore the other half relates to
consequent year.

Hence, Rs. 1,200 should be treated as post-paid and subtracted from the premium paid and be
shown as a plus within the B/S.

Adjusting Entry:

Prepaid Insurance a/c Dr. Rs. 1, 200

To premium a/c Rs. 1, 200

4. Accrued Financial Gain:

It is the financial gain that has already been earned [i.e., the service has already been
rendered] however the money has not been received. for instance, Interest on investments
increased Rs. 1,200.

The interest for the present year is due at the shut of the year. the quantity could also be truly
received within the next year. nowadays it represents a financial gain, that has become due or
increased. thus, it’s attributable to P&L a/c and being assets, shown as a plus within the B/S.

Adjusting Entry:

Accrued Interest a/c Dr. Rs. 1,200

To Interest a/c Rs. 1,200

 5. Incomes Received in Advance:

These are incomes received throughout the present year, however, a part of the amount
received relates to consequent year. Such quantity should be subtracted from the entire
amount received in P&L a/c and shown on the liabilities side of the B/S because it represents
an amount, that the business is obligated to come back.

For example, concern has received apprentice premium for 3 years amounting to Rs.6, 000.
during this quantity Rs.2, 000 i.e., 1/3 of Rs.6, 000 is for the current year and may be
attributable to P&L a/c as financial gain. and therefore, the balance Rs.4, 000 represents a
liability because the business is obligated to come back.

Adjusting Entry:

Apprentice Premium a/c Dr. Rs. 4000

To Apprentice Premium received before Rs. 4000

 6. Depreciation on Assets:

Depreciation suggests that diminution or fall in the worth of a plus thanks to its constant use.
it’s going to additionally arise on account of damage and tear, lapse of your time and
degeneration. it’s a loss to the business.

It is sometimes calculated at an explicit share on {the worth} of plus and therefore the
quantity therefore obtained is initially shown on the accounting system of the P&L a/c and so
subtracted from the initial value of plus within the B/S.

For Example, a business has furnishings of the worth of Rs.50, 000 at the tip of the year it’s
depreciated at five-hitter.

Adjusting Entry:

Depreciation a/c Dr. Rs. 2,500

To furnishings a/c Rs.

2,500 [5% on Rs.50, 000 = 2,500]

7. Bad Debts:

Debts represent cash due from debtors [i.e., uncollected portion of credit sales]. once debts
become lost, it becomes dangerous debts and is treated as a loss. the quantity of dangerous
debts is debited to P&L a/c and is subtracted from Sundry Debtors within the B/S
.
For example, the ledger balance in respect of sundry debtors of a merchant shows Rs.20, 000
and of this Rs. 1,000 is calculable to be lost.

Adjusting Entry:

Bad Debts a/c Dr. Rs. 1,000

To Sundry Debtors a/c Rs. 1,000

 8. Provision for Discount on Debtors:

Cash discounts are allowed to debtors so as to encourage them to form prompt payments. when
providing for bad and uncertain debts, the balance of debtors represents debts due to sound
parties. They may attempt to pay their dues on time and avail themselves of the money
discounts permissible. Hence, this discount ought to be anticipated and provided for. It is,
therefore, the same old observe in business is to supply for a discount on debtors at a sure
share on smart debts.

Example:

Suppose a merchant has sundry debtors amounting to Rs.20, 000 and he estimates that when
a provision of fifty for uncertain debts, a provision for discounts at two is fascinating. Then,
on the sound debts, i.e., Rs. 19,000 a provision of twenty-two is formed as Reserve for
Discount on Debtors.

Adjusting Entry:

Profit and Loss a/c Dr. Rs.380

To Discount on Debtors a/c Rs.380

 9. Provision for Discount on Creditors:

Creditors represent the quantity owed by the business to suppliers of products on credit.
Sound business issues create it a observe to settle accounts with creditors in time to earn the
goodwill of the creditors and additionally the discount allowed by them.

In that case, the liability in respect of sundry creditors may be reduced to the extent of
discounts anticipated. supported the past observe, an explicit share on creditors balance is
calculated as Provision for discounts and subtracted from the creditor’s balance within the
B/S and therefore the same amount is attributable as again within the P&L a/c.

Example:

A merchant had sundry creditors at Rs. 10,000 on thirty-first December 2002. it’s desired to
form a provision of three on this quantity for discounts.

Adjusting Entry:
Discounts on Creditors a/c Dr. Rs. 300
To Profit and Loss a/c Rs 300

10. Interest on Capital:

Often, interest at a traditional rate is allowed on the capital of the businessman utilized within
the business. this can be necessary so as to assess the potency of the business. Otherwise, the
profits would come with the interest and seem at a better rate.
The interest therefore charged may be a loss to the business and gain to the businessman.
therefore, it’s debited to the Profit and Loss a/c and else to the capital within the record.

Adjusting Entries:

Interest on Capital a/c Dr.

To Capital

a/c Profit and Loss

a/c Dr.

To Interest on Capital a/c

11. Interest on Drawings:

Drawings are cash withdrawn by the businessman from his capital. even as the business
permits interest on capital, it charges interest on drawings. it’s again to the business and a loss
to the businessman. So, it’s attributable to the Profit and Loss a/c and subtracted from the
capital within the balance sheet.
ANALYSIS OF DATA:

Final accounts are a somewhat archaic accountancy term that refers to the ultimate balance at
the end of an accounting amount from that the monetary statements are derived. This final
balance includes all of the journal entries used to shut the books, such as:

 Wage and payroll tax accruals

 Income tax accruals Asset write-downs
 Adjustments to reserves for returns, uncertain debts, and bad inventory
 Depreciation and amortization
 Overhead allocation
 Customer billings
Thus, final accounts will refer to the ultimate balance or the monetary statements upon that
they’re based mostly. the first monetary statements are the financial statement, balance sheet,
and statement of money flows.

Since final accounts refers to a company’s ending account balances, that successively are
used to produce monetary statements, this suggests that the ultimate accounts reveal the
results of the business throughout an amount, its monetary position at the end of that amount,
and its sources and uses of funds throughout that amount (which is that the purpose of the
monetary statements).

A final account, or final accounting, can even be the summarized statement issued once a
business dealing has been terminated.
CONCLUSION:

The purpose of the financial statements of a corporation is to supply insights into operations,
money position, and money flows of a corporation. These financial statements of a
corporation are employed by the readers to create choices relating to the allocation of
resources. At a lot of refined levels, there’s a special purpose related to every of the money
statements. The financial statement informs the reader regarding the flexibility of a business
to come up with profit. additionally, it helps the reader interpret the number of sales, and also
the nature of the varied expenses incurred, relying upon however expense data is mass.

The purpose of the balance sheet is to tell the reader regarding this standing of the business as
of the date listed on the record. This data is employed to estimate the liquidity, funding, and
debt position of an entity, and is that the basis for a variety of liquidity ratios.

Finally, the aim of the statement of money flows is to point out the character of money
receipts and disbursements, in a very kind of classes. This data is of sizeable use since money
flows don’t perpetually match the revenues and expenses shown within the financial
statement.

Financial statements of a corporation have a variety of functions, relying upon who is reading
the knowledge and that money statements square measure getting used.
References:

1. Double Entry Book-Keeping written by C. Mohan Juneja, J.S Arora, R.C Chawla and P.C
Sahoo.
2. WWW.google.com
3. WWW.wikipedia.com