Final Accounts

Dr.M.Velavan
Faculty,
School of Management
SASTRA Deemed University
Thanjavur - 613401
Introduction:
Trial balance proves the arithmetical accuracy of the business transactions,
but it is not the end. The businessman is interested in knowing whether the
business has resulted in profit or loss and what the financial position of the
business is at a given period. In short, he wants to know the profitability
and the financial soundness of the business. The trader can ascertain these
by preparing the final accounts. The final accounts are prepared at the end
of the year from the trial balance. Hence the trial balance is said to be the
connecting link between the ledger accounts and the final accounts.
Final Accounts:
Final Accounts
[31.3…]

Final Accounts Final Accounts

[Without Adjustments] [With Adjustments]

Based on Trial Balance

a) Final Accounts of a Trading Concern:

Final Accounts
[31.3…]

Trading Account Profit and Loss

Balance Sheet
A/C

To find out
To find out Net To know the
Gross profit or
Profit or Net Loss Financial Position
Gross Loss
b) Final Accounts of a Manufacturing Concern:

Final Accounts
[31.3..]

Manufacturing
Trading A/c Profit & Loss A/c Balance Sheet
A/c

Cost of GP and GL Financial

NP and NL
Production Position
c) Final Accounts of a Company:

Final Accounts
[31.3..]

Manufacturing P&L
Profit & Loss
and Trading Appropriation Balance Sheet
A/c
A/c A/c

Cost of NP and NL Balance of Profit Financial

Production and carried over to Position
GP and GL B/S
1. Trading Account:
Trading refers to buying and selling of goods. Trading Account shows the
results of buying and selling of goods. This account is prepared to find out
the difference between buying price and selling price. If the selling price
exceeds the cost price, it will bring gross profit. If the cost price exceeds
selling price, it will bring gross loss.
Example:
• Cost price or Purchase price of goods is Rs. 40,000 and selling price is
60,000, that will result in gross profit of Rs. 20,000
• Cost price or Purchase price of goods is Rs. 60,000 and selling price is
50,000, that will result in gross loss of Rs. 10,000
Format: Trading Account for the year ending 31.3…
Solved Problems:
1. Prepare trading Account for the year ending 31-3-2021 from the following
transactions:
Opening stock – Rs. 70,000
Purchase return – Rs. 15,000
Sales – Rs. 2,50,000
Wages – Rs. 60,000
Sales return – Rs. 20,000
Purchases – 1,00,000
Carriage inwards – 17,000
Closing Stock – Rs. 60,000
Solution:
Dr Trading Account for the year ending 31-3-2021 Cr
2. Prepare Trading Account for the year ending 31st March 2002 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
Solution:
Dr Trading Account for the year ending 31-3-2021 Cr
Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock 1,70,000 By Sales 2,50,000

To Purchases 1,00,000 Less: Return 20,000 2,30,000
Less: Return 10,000 90,000 By Closing stock 1,60,000
To Carriage inwards 20,000
To Wages 50,000
To Gross Profit c/d 60,000
Total 3,90,000 Total 3,90,000
2. Profit and Loss Account:
This account is open with either Gross Profit b/d or Gross Loss b/d from
trading account. It is prepared to find out net profit or net loss of the
business.
Format: Profit and Loss Account for the year ending 31.3…
Particulars Rs. Particulars Rs.

To Insurance ×××
To Carriage outwards ×××
To Commission paid ×××
To Discount Allowed ×××
To Depreciation ×××
To Bad debts ×××
To Advertisement etc., ×××
To Distribution expenses ×××
T o Sundry expenses ×××
To Net profit (Transferred to Capital A/c) ××× By Net loss (Transferred to Capital A/c) ×××
Total ××× Total ×××
3. Prepare profit and loss account from the following balances of V.Sabarish
Ltd., for the year ending 31-3-2018:
Gross profit – Rs. 25,000
Salaries – Rs. 8,000
Rent – Rs. 3,000
Printing and Stationery – Rs. 4,600
Tax and insurance – Rs. 1,400
Discount allowed – Rs. 600
Discount Received - Rs. 400
Travelling Expenses – Rs. 2,600
Advertisement – 3,600
Solution:
Profit and loss account for the year ending 31-3-2018
4. Prepare Profit and Loss Account, from the following balances of
Mr.Kandan for the year ending 31.12.2003.
Office rent Rs. 30,000
Salaries Rs. 80,000
Printing expenses Rs. 2,000
Stationeries Rs. 3,000
Tax, Insurance Rs. 4,000
Discount allowed Rs. 6,000
Advertisement Rs. 36,000
Travelling expenses Rs. 26,000
Gross Profit Rs.2,50,000
Discount received Rs. 4,000
Solution: Profit and loss account for the year ending 31-3-2018
Particulars Rs. Particulars Rs.

To Salaries 80,000 By Gross Profit b/d 2,50,000

To Office rent 30,000 By Discount Received 4,000
To Printing expenses 2,000
To Stationeries 3,000
To Tax, Insurance 4,000
To Discount allowed 6,000
To Advertisement 36,000
To Travelling expenses 26,000
To Net Profit (Carried to B/S) 67,000
Total 2,54,000 Total 2,54,000
5. Prepare Trading and Profit Loss Account for the year ending 31st March
2002 from the books of Mr. Siva Subramanian.
Stock (31.3.2001) Rs. 15,000
Carriage outwards Rs. 4,000
Purchases Rs. 1,65,000
Wages Rs. 30,000
Purchases return Rs. 10,000
Sales return Rs. 5,000
Postage Rs. 3,000
Salaries Rs. 20,000
Discount received Rs. 5,000
Stationeries Rs. 2,000
Bad debts Rs. 1,000
Interest Rs. 8,000
Sales Rs. 3,00,000
Insurance Rs. 4,000
Stock (31.3.2002) Rs.80,000
Solution:
Trading and Profit & Loss Account for the year ended 31.3.2002
Particulars Rs. Particulars Rs.

To Opening stock 15,000 By Sales less return 2,95,000

To Purchases less return 1,55,000 By Closing stock 80,000
To Wages 30,000
To Gross profit C/d 1,75,000
Total 3,75,000 Total 3,75,000
To Salaries 20,000 By Gross Profit b/d 1,75,000
To Postages 3,000
To Carriage outwards 4,000
Particulars Rs. Particulars Rs.

To Stationeries 2,000 Discount received 5,000

To Insurance 4,000
To Interest 8,000
To Bad debts 1,000
To Net Profit (Carried to B/S) 1,38,000
Total 1,80,000 Total 1,80,000
3. Balance Sheet:
Balance Sheet is a statement. It is not actually an account. It is a statement
showing the financial position of the business on a particular date. It shows
all the assets and liabilities of the business. It has two sides. The left hand
side shows liabilities of the business and the right hand side shows assets of
the business.
Balance sheet is defined as ‘a statement which sets out the assets and
liabilities of a business firm and which serves to ascertain the financial
position of the same on any particular date’.
Form of Balance Sheet:

Balance Sheet

Horizontal Form Vertical Form

Basis for preparation of Balance Sheet:

Balance Sheet

Liquidity Basis Permanency Basis

Partnership
Sole Trader Company Trust/Institution
Firm
Order of liquidity Order of permanency

Cash in hand Goodwill

Cash at Bank Copy right
Bills receivable Building
Investments Machinery
Stock in trade Furniture
Sundry debtors Stock in trade
Prepaid Expenses Sundry debtors
Machinery Bills receivable
Building Prepaid expenses
Copy right Cash in hand
Good will Cash at bank
Format: Balance Sheet as on 31.3… [Liquidity Basis]
6. From the following trial balance extracted from the books of Mr. V.
Sabarish as on 31-3-2017. Prepare Trading, Profit and Loss account and
Balance Sheet.
Debit Balances Rs. Credit Balances Rs.

Cash in hand 2,000 Capital 2,00,000

Machinery 60,000 Sales 2,54,800
Stock 50,000 Sundry Creditors 40,000
Bills receivable 1,600 Bank Overdraft 22,000
Sundry debtors 50,000 Return Inwards 3,000
Wages 70,000 Discount Received 1,800
Land 40,000 Bills Payable 1,800
Carriage inwards 2,400

Purchases 1,80,000
Salaries 24,000
Rent 4,000
Postage 1,000
Return inwards 3,200
Drawings 10,000
furniture 18,000
Interest 600
Cash at Bank 6,600
Total 5,23,400 Total 5,23,400
Closing stock as on 31.3- 2017 is Rs. 1,00,000
Solution:
Trading and Profit and Loss Account for the year ending 31.3.2017
Balance Sheet as on 31.3.2017
Adjustments in Final accounts:
The object of book keeping is to present a “true and fair view” of the profit
or loss and present state of the business. The Trading and Profit and Loss
account disclose the profit or loss and the Balance Sheet of the present
financial position of the company. If there is any item which is incorrectly
stated in either the Trading Account and Profit & Loss Account or the Balance
Sheet, then the books of accounts will not fulfil the object of presenting
“true and fair view” of the business.
In the preceding chapter the Final Accounts were prepared without taking
into consideration the bending bills, i.e., Outstanding Expenses and incomes,
Prepaid Expenses and Incomes, Depreciation on Fixed Assets etc.,. Naturally
the Final Accounts cannot reveal the true state if affairs in such
circumstances.
The purpose of the adjustments is to take into consideration all such details
necessary to bring the books in perfect order.
The Trading and Profit & Loss Account is prepared for a particular period. It
is essential that we include in it all expenses incurred and loss sustained
and incomes of the business for the period for which the Final Accounts are
Prepared. If any expenses related to the period were omitted, the final
figure of profit would be untrue and would be overstated or understated.
These adjustments are recorded in the Journal and such entries are known
as Adjusting entices.
The following are some common adjustments:
1. Closing stock
2. Outstanding Expenses
3. Prepaid expenses
4. Accrued Income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Interest on capital
9. Interest on Drawings
10. Provision for doubtful debts
11. Provision for discount on debtors
12. Reserve for discount on creditors
13. Deferred Revenue expenditure
14. Loss of stock by fire
15. Reserve fund
16. Goods distributed as free sample.
17. Manager’s Commission
18. Goods taken by the proprietor for personal use
19. Hidden adjustments
1. Closing stock:
Goods remain unsold at the end of the accounting period.
Adjusting Entry:
Stock A/c Dr.
To Trading Account
Two fold effect:
1) Closing stock will be shown on the assets side of the Balance Sheet.
2) It will be shown on the credit side of the trading Account.
2.Otstsnding Expenses:
Those expenses which have been incurred and due for payment [not paid
as yet] are called outstanding expenses.
Example: Salary due for a month Rs. 10,000
Adjusting Entry:
Salary A/c Dr.
To Outstanding salary A/c
Two fold effect:
1. Outstanding expenses will be shown on the debit side of the trading
account or profit & loss account by way of addition to the expenses.
2. Outstanding expenses will be shown on the liability side of the Balance
Sheet.
Nominal Accounts: Expenses
Expenses

Paid for 11 Paid for 12 Paid for 14

months months months

Slow Correct Fast

Outstanding Prepaid
No
Expenses Expenses

Required Required
No Adjustment Adjustment
Adjustment
Nominal Accounts: Income
Income

Received for 11 Received for 12 Received for

months months 14 months

Slow Correct Fast

Outstanding Prepaid
No
Income Income

Required Required
No Adjustment Adjustment
Adjustment
3. Prepaid or Unexpired Expenses:
Those expenses which have been paid in advance are called prepaid
expenses.
Example: Rent paid in advance Rs. 5,000
Adjusting Entry:
Prepaid Rent A/c Dr.
To Rent A/c
Two fold effect:
1. Prepaid expenses will be shown on the debit side of the profit and loss
account by way of deduction from the expenses.
2. These will be shown on the assets side of the Balance Sheet as prepaid
expenses.
4. Accrued Income:
That income which has been earned but not received during the Accounting
year is called accrued income.
Example: Outstanding interest on investment Rs. 1,000
Adjusting Entry:
Accrued Interest A/c Dr.
To Interest A/c
Two fold effect:
1.It will be shown on the credit side of the profit and loss account by way of
addition to the income.
2. It will be shown on the assets side of the Balance Sheet As accrued
income.
5. Income received in advance:
Income received but not earned during the accounting year is called as
income received in advance.
Example: Rent received in advance Rs. 600
Adjusting Entry:
Rent Account Dr.
To Rent received in advance Account
Two fold Effect:
1. It is shown on the credit side of profit and loss account by way od
deduction from the income.
2. It is shown on the liability side of the balance sheet as income received
in advance.
6. Depreciation:
Depreciation is the reduction in the value of the asset due to use, wear and
tear or obsolescence.
Example: Charge depreciation @ 20% of machinery.
Adjusting Entry:
Depreciation A/c Dr.
To Fixed Asset A/c
Two fold Effect:
1. Depreciation is shown on the debit side of the profit and loss account.
2. It shown on the asset side by way of deduction from the value of
concerned assets.
7. Bad debts:
Debts which cannot be recovered or become irrecoverable are called bad
debts. It is a loss for the business.
Adjusting entry:
Bad debts A/c Dr.
To Sundry debtors A/c
Two fold effect:
1. Shown on the debit side of the profit and loss account.
2. Shown on the assets side of the balance sheet by way of deduction
from the sundry debtors.
8. Interest on capital:
Some time in order to see whether the business is really earning profit or
loss, interest on capital at a certain rate is provided.
Example: If A has invested Rs. 50,000 as capital and 10% interest is to be
provided.
Adjusting Entry:
Interest on capital A/c Dr.
To Capital Account
Two fold Effect:
1. Interest on capital will be shown on the debit side of the profit and loss
account.
2. It will be shown on the liability side of the Balance Sheet by way of
addition to the capital.
9. Interest on drawings:
If interest on capital is allowed, it is but natural that interest on drawings
should br charged from the proprietor, as drawings reduce capital.
Adjusting Entry:
Drawings A/c Dr.
To Interest on drawings A/c
Two fold Effect:
1. Interest on drawings will be shown on the credit side of the profit and
loss account.
2. Shown on the liability side of the Balance Sheet by way of addition to
the drawings and which are ultimately deducted from the capital.
10. Provision for bad and doubtful debts:
In addition to the actual bad debts, a business unit may find on the last day
of the accounting period that certain debts are doubtful (i.e., the amount to
be received from debtors may or may not be received. The amount of
doubtful dents is calculated either by carefully examining the position of
each debtor or it may be computed on the basis of some percentage
adopted usually based upon the past experience of the business.
Adjusting Entry:
Profit and loss A/c Dr.
To Provision for bad and doubtful debts A/c
Two fold effect:
1. It will be shown on the debit side of the profit and loss account by way of
addition to the bad debts as new provision for bad and doubtful debts.
2. Shown on the assets side of the Balance Sheet by way of deduction from
the Sundry Debtors
11. Provision for discount on debtors:
If sales are made by the merchant on the condition that if the amount of
sales is paid within a certain period, he will allow a certain percentage of
discount.
Adjusting Entry:
Profit and loss account Dr.
To Provision for discount on debtors A/c
Two fold effect:
1. It will be shown on the debit side of the profit and loss account.
2. It will be shown in the assets side of the Balance Sheet by way of
deduction from the sundry debtors.
12. Provision for discount on creditors:
If the payment is made within the scheduled period. Such discount on
creditors is anticipated profit and therefore reserve for discount on creditors
will be made. Such provision will be calculated on the amount of creditors.
Adjusting Entry:
Provision for discount on creditors A/c Dr.
To Profit and Loss Account
Two fold Effect:
1. It is shown on the credit side of the profit and loss account.
2. Shown on the liability side of the balance sheet by way of deduction
from sundry debtors.
13. Deferred Revenue Expenditure:
The expenditure done in the initial stage but the benefit of which will also
be available in subsequent years is called deferred revenue expenditure.
Pert of such expenditure will be written off in each year and the rest will be
capitalised.
Adjusting entry:
Profit and loss A/c Dr.
To Advertisement A/c
Two fold effect:
1. It is shown on the debit side of the profit and loss account.
2. Is shown on the assets side by way of deduction from capitalised
expenses.
14. Loss of stock by fire:
In business, the loss of stock may occur due to fire. The position of the
business may be;
a) All the stock is fully insured
b) The stock is partly insured
c) The stock is not insured at all
Treatment:
a) All the stock is fully insured:
Adjusting Entry:
Insurance A/c Dr.
To Trading Account
Two fold Effect:
1. It will be shown on the credit side of the trading Account.
2. Is shown on the assets side of the Balance Sheet.
b) The stock is partly insured:
Adjusting Entry:
Insurance A/C Dr. [Amount received from the Insurance Company]
Profit and Loss A/c Dr. [Difference]
To Trading Account [Total value of loss of stock]
Two fold effect:
1. It will be shown on the credit side of the trading Account.
2. Shown on the debit side of the profit and loss account [value of
uninsured] and assets side of the Balance Sheet [amount received from
the insurance company]
c) The stock is not insured at all:
Adjusting Entry:
Profit and loss A/c Dr.
To Trading Account
Two fold effect:
1. It is shown on the credit side of the Trading Account.
2. Is shown on the debit side of the Profit and Loss Account.
15. Reserve Fund:
Reserve is created out of profit and thus is an appropriation of net profit for
strengthening the financial position of the business.
Adjusting Entry:
Profit and Loss A/c Dr.
To Reserve Fund A/c
Two fold Effect:
1. It is shown on the debit side of the Profit and Loss Account.
2. It is shown on the liability side of the Balance Sheet as Reserve Fund.
16. Goods distributed as free sample:
Some time in order to promote the sale of goods, some of the produce
product or goods are distributed as free samples.
Adjusting Entry:
Advertisement A/c Dr.
To Trading Account or Purchases A/c
Two fold Effect:
1. It is shown on the credit side of the Trading Account or deducted from
the purchase Account.
2. Is shown on the debit side of the Profit and Loss Account.
17. Goods taken by the Proprietor for his personal use:
Some time the proprietor can take goods for his personal use form the goods
purchased for the business.
Adjusting Entry:
Drawings Account Dr.
To Purchase Account
Twofold Effect:
1. It is shown on the credit side of the Trading Account or deducted from
the purchase Account.
2. Is shown on the liability side of the Balance Sheet by way of deduction
from the capital as drawings.
18. Hidden Adjustment:
There are certain items given in the trial balance and require adjustment
through specially no adjustment is given relating to such items.
Example: Interest on loan.
Adjusting Entry:
Interest on loan A/c Dr.
To Loan Account
Two fold Effect:
1. It will be shown on the debit side of the Profit and Loss Account by way
of addition to the interest on loan.
2. Is shown on the liability side of the Balance Sheet by way of addition to
the loan account.
4. Classification of Assets and liabilities:
Assets:
Assets includes possessions and properties of the business. Assets are
classified as follows:
• Tangible
• Intangible
• Fictitious
Tangible:
Assets which have some physical existence are known as tangible assets.
This can be touched and felt. Example – Plant and Machinery.
Tangible assets are classified into:
• Fixed Assets – Permanent in nature
• Current assets – Floating assets
Intangible Assets:
The assets which have no physical existence and cannot seen or felt.
Example: Goodwill, Patent and trade marks.
Fictitious Assets:
These assets are nothing but unwritten of losses or non recoupable
expenses. They are really not assets but are worthless items.
Example: Preliminary Expenses, Expenses on issue of shares and debenture
etc.
5. Classification of liabilities:
The amount which a business owes to others is liabilities. Liabilities are
classify as follows:
• Long –Term liabilities – Repayable after long period of time – Example:
Capital, Long term loans etc.
• Current Liabilities – Repayable within a year – Example: Creditors, Bills
payable , bank Over draft etc.
• Contingent Liabilities – It is a anticipated liability which may or may not
arise in future. It will not appear in the balance sheet. But shown as foot
note.
Example: Liability arising for bills discounted.
Solved Problems:
1. From the following Trial balance of Thiru M. Sabarish as on 31-3.2017.
Prepare Trading and Profit and Loss account and Balance Sheet.
Debit Balances Rs. Credit Balances Rs.

Land and Building 42,000 Capital 62,000

Machinery 20,000 Sales 98,780
Patents 7,500 Return outwards 500
Stock 1-4-16 5,760 Sundry Creditors 6,300
Sundry debtors 14,500 Bills Payable 9,000
Purchases 40,675
Cash in hand 540
Cash at bank 2,630
Particulars Rs. Particulars Rs.

Return Inwards 680

Wages 8,480
Fuel and power 4,730
Carriage outwards 3,200
Carriage inwards 2,040
Salaries 15,000
General Expenses 3,000
Insurance 600
Drawings 5,245
Total 1,76,580 Total 1,76,580
Adjustments:
1. Stock on 31-3-2017 was Rs. 6,800.
2. Salary outstanding Rs. 1,500.
3. Insurance Prepaid Rs. 150.
4. Depreciate Machinery @ 10% and patents @ 20%.
5. Create a provision of 2% on debtors for bad debts.
Solution:
Trading and Profit & Loss Account for the year ended 31.3.2017
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 5,760 By Sales 98,780
To Purchase 40,675 Less: Return inwards 680 98,100
Less: Return outwards 500 40,175 By Closing stock 6,800
To Wages 8,480
To Carriage inwards 2040
To Power and fuel 4,730
To Gross Profit c/d 43,715
Total 1,04,900 Total 1,04,900
Particulars Rs. Rs. Particulars Rs. Rs.
To Salaries 15,000 By Gross profit b/d 43,715
Add: Outstanding 1,500 16,500
To General Expenses 3,000
To Insurance 600
Less: Prepaid 150 450
To Carriage outwards 3,200
To Depreciation:
Machinery @10% 2,000
Patents @20% 1,500 3,500
To Provision for bad debts 290
To Net Profit (B/S) 16,775
Total 43,715 Total 43.715
Balance Sheet as on 31.3.2017
Liabilities Rs. Rs. Assets Rs. Rs.
Sundry Creditors 6,300 Cash in hand 540
Bills Payable 9,000 Cash at bank 2,630
Outstanding Salary 1500 Sundry debtors 14,500
Capital 62,000 Less: Provision for BD 290 14,210
Add: Net profit 16,775 Closing stock 6,800
78,775 Prepaid Insurance 150
Less: Drawings 5,245 73,530 Land and Building 42,000
Machinery 20,000
Less: Depreciation 2,000 18,000
Patents 7,500
Less; Depreciation 1,500 6,000
Total 90,330 Total 90,330
2. From the following are the balances extracted from the books of Ganesh
as on 31-3-2017. Prepare Trading and Profit and Loss account for the year
ending 31-3-2017 and a Balance Sheet as on that date.
Debit Balances Rs. Credit Balances Rs.

Drawings 4,000 Capital 20,000

Cash in hand 6,500 Sales 16,000
Cash at bank 1,700 Sundry Creditors 4,500
Wages 1,000
Purchases 2,000
Stock 1-4-2016 6,000
Buildings 10,000
Sundry Debtors 4,400
Bills receivable 2,900
Debit Balances Rs. Credit Balances Rs.

Rent 450
Commission 250
General expenses 800
Furniture 500
Total 40,500 Total 40,500
The following adjustments are to be made:
1. Stock on 31-3-2017 was Rs. 4,000.
2. Interest on capital at 6% to be provided.
3. Interest on drawings at 5% to be provided.
4. Wages yet to be paid Rs. 100..
5. Rent prepaid Rs. 50.
Solution:
Trading and Profit and Loss Account for the year ended 31.3.2017
Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock 6,000 By sales 16,000

To Purchases 2,000 By Closing stock 4,000
To Wages 1,000
Add: Outstanding 100 1,100
To Gross Profit c/d 10,900
Total 20,000 Total 20,000
Particulars Rs. Rs. Particulars Rs. Rs.

To Rent 450 By Gross Profit b/d 10,900

Les: Prepaid 50 400 By Interest on drawings 200
To Commission 250
To General Expenses 800
To Interest on capital 1,200
To Net profit {B/S} 8,450
Total 11,100 Total 11,100
Balance sheet as on 31.3.2017
Liabilities Rs. Rs. Assets Rs. Rs.

Sundry creditors 4,500 Cash in hand 6,500

Outstanding wages 100 Cash at bank 1,700
Capital 20,000 Sundry debtors 4,400
Add: Net profit 8,450 Closing stock 4,000
Add: Int. on Capital 1,100 Bills receivable 2,900
Less: Drawings 4,000 Prepaid rent 50
Less: Int. on drawings 100 25,450 Building 10,000
Furniture 500
Total 30,050 Total 30,050
3. The following are the balances attracted from the books of M/s Sabarish Traders
as on 31.3.2011. From the following information, prepare trading and profit and
loss account and balance sheet.
Particulars Rs. Rs.
Purchases 22,500
Wages 5,500
Sales 38,250
Salaries 1,500
Travelling expenses 600
Discount allowed 700
Office expenses 600
Commission 500
Interest 3,550
Trade Expenses 650
Building 25,000
Plant & machinery 22,000
Debtors 5,200
Creditors 9,500
Carriage on purchases 700
Capital 35,000
Cash in hand 900
Rent Received 1,850
Stock on 1.4.2010 6,200
Insurance paid 400
Bill payable 5,900
Bills receivable 4,800
Discount received 3,700
Total 97,750 97,750
The following adjustments are to be made:
• Closing stock ₹ 6,500.
• Allow 5% interest on capital.
• Outstanding Expenses: salaries - ₹500 and office expenses - ₹250.
• Depreciate building by 5% and machinery by 10%.
Solution:
Trading and Profit and Loss Account for the year ended 31.3.2011
Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock 6,200 By Sales 38,250

To Purchases 22,500 By Closing stock 6,500
To Wages 5,500
To Carriage on 700
purchases
To Trade expense 650
To Gross Profit c/d 9,200
Total 44,750 Total 44,750
Particulars Rs. Rs. Particulars Rs. Rs.
To Salaries 1,500 By Gross profit b/d 9,200
Add: Outstanding 500 2,000 By Interest received 3,550
To Travelling expenses 600 By Rent received 1,850
To Discount allowed 700 By Discount received 3,700
To Office expenses 600
Add: Outstanding 250 850
To Commission 500
To Insurance paid 400
To Depreciation:
Building @5% 1,250
Machinery @10 2,200 3,450
To Interest on capital 1,750
To Net Profit [B/S] 8,050
Total 18,300 Total 18,300
Balance Sheet as on 31.3.2011
Liabilities Rs. Rs. Assets Rs. Rs.

Creditors 9,500 Cash In hand 900

Bills payable 5,900 Debtors 5,200
Outstanding salary 500 Bills receivable 4,800
Outstanding office Exp 250 750 Closing stock 6,500
Capital 35,000 Building 25,000
Add: Int. on capital 1,750 Less: Depreciation 1,250 23,750
Add: Net profit 8,050 Plant and Machinery 22,000
44,800 Less: Depreciation 2,200 19,800
Less: Drawings Nil 44,800
Total 60,950 Total 60,950
4. Sanjay, your friend has joined as a Management trainee, in an accounting
firm where you work. He is an engineer, but an aspirant to pursue
professional courses. He has joined to undergo practical training in your firm.
He seeks your help in preparing the trading and profit and loss account for
Neel Ltd for the year ended 31/12/2022 with the following information.
Particulars Dr (Rs) Cr (Rs)

Cash 18,138
Accounts receivable 82,425
Inventory Beginning 1,09,807
Land 2,00,000
Building 85,400
Accounts Payable 30,975

Taxes Payable 24,345

Retained earnings 1,10,500
Sales 6,70,000
Purchases 4,25,000
Salaries 1,20,500
Wages 86,250
Insurance Expenses 4,500
Equity Capital 3,00,000
Advertising 3,800
Total 11,35,820 11,35,820
The following adjustments are required:
• Closing stock Rs 1, 60,000.
• Depreciation of land and building at 5% p.a.
• Salaries earned but not paid Rs 35,000.
• Interest outstanding during the year Rs 700.
Thank You