FINAL ACCOUNTS

By
Astha Chandna- 13030141080 Nikita Bhirud- 13030141090

FINAL ACCOUNTS
This is the last step in the accounting process. The basic objective of accounting is to know about the profit or loss as a result of operations of business during the previous year & to know the financial position at the end of the accounting year. This can be known only if Trading account , Profit & Loss account and Balance Sheet are prepared at the end of the year. These are also known as FINANCIAL STATEMENTS.

 These are prepared from Trial Balance. For this purpose both the sides of Trial Balance must tally and if it does not tally, Suspense Account must be opened for this purpose and put on the asset side or liabilities side as the case may be.

 All of these should be prepared in the following sequence:

1.Trading Account. 2.Profit and Loss Account. 3.Balance Sheet.

These are collectively called as final accounts. Accounting cycle finally ends with these statements.

Trading Account
Trading account is prepared by trading concerns i.e., concerns which purchase and sell finished goods, to know the gross profit or gross loss incurred by them from buying and selling of goods during a particular period of time. Gross profit or gross loss is the difference between the cost of goods sold and the proceeds of their sale. If the sale proceeds exceed the cost of goods sold , gross profit is made. Other wise, gross loss is made.

Particulars Rs. Sales 3,03,000 Less Sales return 3,000 Opening stock Purchases 1,75,000 Less purchase return 5,000 Carriage Inward 5,000 Wages 30,000 Less Closing Stock Cost of Good sold Gross profit

Rs.

Rs. 3,00,000

40,000 1,70,000

35,000 2,45,000 65,000 1,80,000 1,20,000

Profit & Loss Account

Profit & Loss account is prepared to know the net profit/loss of business during a particular accounting year. Gross profit or loss is adjusted keeping in view the indirect expenses like administrative, selling and distribution and any other expenses and incomes to find out net profit or net loss

Balance Sheet
Balance Sheet is the last of financial statements which shows the financial position of the business at the end of the accounting year interims of balances of capital, liabilities & assets. After all nominal accounts are closed by transferring these to Trading & Profit & Loss Account, only personal & real accounts are left for Balance Sheet

Treatment of Adjustments
Closing Stock: If this item is given inside the trial balance then only mention as Current assets in Balance Sheet. But if given in adjustments then show the same in trading account as well as in Current Asset side of Balance Sheet. Outstanding Expenses : ( due for accounting period but not paid) Add this amount in the particular expense either in trading or P&L A/c and show as Current Liabilities in Balance Sheet. Prepaid Expenses: (Expenses paid in advance) Deduct this amount in the particular expense either in trading or P&L A/c and show as Current Assets in Balance Sheet.

 Closing Stock: If this item is given inside the trial balance then only mention as Current assets in Balance Sheet.
But if given in adjustments then show the same in trading account as well as in Current Asset side of Balance Sheet. Outstanding Expenses : ( due for accounting period but not paid) Add this amount in the particular expense either in trading or P&L A/c and show as Current Liabilities in Balance Sheet. Prepaid Expenses: (Expenses paid in advance) Deduct this amount in the particular expense either in trading or P&L A/c and show as Current Assets in Balance Sheet.

 Bad Debts and Provision for Bad debts: In Profit and loss account ( Selling and distribution expenses) Bad Debts ( if Given in Trial balance) Add: New Bad Debts ( given in Adjustment) Add: New provision D/D (given in Adjustment) Deduct: Old Provision (if given inside trial Balance) Balance Sheet: In Current assets: Debtors Deduct: New Bad debts

Deduct: New provision

Thank You