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39 viewsAccounts Imp
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© © All Rights Reserved
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/ 19
11, FINAL ACCOUNTS OF \
| ______A PROPRIETARY CONCERN
After studying this chapter you will learn:
* Preparation of Trading Account
* Preparation of Profit and Loss Account
* Preparation of Balance Sheet
* Effect of following adjustments in the final acco
(1) Closing Stack
(2) Depreciation
(3) Bad and Doubtful debts
(4) Provision for discount on debtors and creditors
S)_ Outstandi
(6) Prepaid expenses
(7) Accrued incomes
(8) Income received in advance
(9) Drawings
(10) Goods distributed as free sample
‘penses
Every business organisation prepares two important financial statements viz. in
statements and statement of financial position to find out the result of business done
the accounting year and to find out financial position in the form of assets owned
liabilities payable to outsiders. In income statements Trading Account and Profit
Loss Accounts are prepared and in the statement of financial position Balance Sheet i
prepared. Thus, final account refers to the group of Trading Account, Profit and
Account and Balance Sheet. Final Accounts are prepared on the basis of trial bal:
and additional information called adjustments at the end of every accounting year.
Final Accounts may be defined as “the statements prepared at the end of
accounting year to disclose the financial position and performance of a busi
concern”.
Final Accounts include Trading Ac Account, Pro Profit and and Loss Account and Balance Shi
2. OBJECTIVES OF FINA
(1) To know the amount of Profit earned or loss if any suffered during
accounting period.
(2) To know the amount of assets and liabilities in the business on a particular
date.
(3) To know the amount of capital in the business.
(4) To know the amount receivable from various debtors and the amount payable t0.
various creditors.
(5) To know the Trading (Gross) profit, Operating (Net) profit and abnormal gains
and losses.
{6) To enable the trader to compare the result and financial position of the business
with other similar business.
(7) To find out or ascertain the amount of taxes, i.e, Income tax, Sales tax, Wealth
tax, etc. payable to the government.
(324) ,
ing & Accountancy ~ XI
yt Keep" ¥ 325
calculate the iil
(8) To Sts Various ratios for the purpose of financial analysis.
0) To enable the trader to take necessary policy decisions regarding future b
activities. Ty policy ions regarding future business
MP JRTANCE OF FINAL ACCOUNTS:
$7) Wil hy Fi
a) gop tf id of final accounts businessman can find out gross result. i.e. gross
pro or gross loss suffered during the accounting period
3) Final Accounts helps to find out cost of goods sold.
(3) Current year’s stock can be compared with the previous year’s stock.
Net Profit or Net Loss can be easily ascertain.
(6) Ratio of Net Profit to Net Sales can be easily calculated.
(6) Ratio of ssepenaes to Net Sales can be ascertained.
Comparison of actual performance with desired performance can be easily done.
(8) Financial position of the business can be ascertained.
Proprietor’s equity can be ascertained.
oma the accountant to check arithmetical accuracy of the accounting
records.
“TRADING ACCOUNT : _ ee
Trading Account is a part of final accounts which is prepared on the basis ‘of direct
ses and direct incomes of business to ascertain the gross result of the business,
jn the accounting year. Preparation of Trading Account is the first step in
ation of final accounts. Trading Account is prepared by considering only direct
s and direct incomes of the business. Expenses and incomes which have a direct
jon with production are called direct expenses and direct incomes, ¢.g, power
pd fuel, cost of raw materials, wages etc. are called direct expenses, and sales proceeds
called direct incomes. Thus, the Trading Account shows gross result of trading or
iness activities carried out in the particular accounting year. It is prepared with the
wsic objective of ascertaining how much gross profit is earned or loss suffered as a
esult of manufacturing goods or services or buying and selling of goods. Service
sdustries like banks, insurance companies, medical and education institutions never
Trading Account. They prepare revenue account, instead of trading account On
te debit side of Trading Account, direct expenses, opening stock and purchases are
eorded and on the credit side of account direct income, closing stock and sales are
corded. This account is also credited if goods are lost on account of fire or theft and
pods distributed as free samples..
Debit balance of this accoun'
count indicates gross profit. Results shown by this
poss loss is carried forward to the Profit and Loss Account.
t indicates gross loss and credit balance of this
account i.e. either gross profit or
Return Outwards: | = — By Goods Destroyed by _
Carriage Inward / Carriage = :
oCanage ‘as Reliable Serieg
To Wages By Drawings
To age & Salanes (Goods withdrawn by proprietor)
To Freight / Freight Inward By Advertisement <
Tobey Exe Marana a sc sam)
To Power & Fuel By Closing Stock
To Royalties By Gross Loss c/d
To Oetroi (if difference appears)
To Custom Duty
To Factory Lighting
To Factory Rent
(Transferred to Profit & Loss A/c)
i
To Factory Insurance
To Manufacturing Expenses
To Gross Profit cfd
(Tranasferred to Profit & Loss A/c)
(1) Gross Profit = Net Sales - Cost of goods sold
(2} Gross Loss = Cost of goods sold - Net Sales
(3) Net Sales= Total Sales ~ Sales Returns (Return Inwards)
(4) Total Sales = Cash Sales + Credit Sales
(5) Cost of Goods Sold
= Opening Stock + Net Purchases + Direct expenses ~ Unsold goods
(6) Net Purchases = Total Purchases - Purchase Returns (Return Outward)
(7) Total Purchases = Cash Purchases + Credit Purchases
Unsold goods at the end of the accounting year ref
7. JOURNAL ENTRIES 3 FOR PREP. PREPARATION OFT
(1) For transfer of direct expenses and Opening Stock —
Trading A/c .. . Dr.
To Opening Stock A/c
To Purchases A/c
To Sales Return A/c
To Direct Expenses A/c
(2) For transfer of Sales and Purchase Returns
Sales A/c .. Dr.
Purchase Returns A/c .
To Trading A/c
(3) For transfer to Closing Stock
Closing Stock A/c .
To Trading A/c
(4) For transfer of credit balance i
Trading A/c .....
To Profit and Loss A/c
(5) For transfer of debit balance i
Profit & Loss A/c
To Trading A/c
|
Gross Profit to Profit & Loss A/c
.. Dr,
.€. Gross Loss to Profit & Loss A/c
o- Dr.
i i nee eerienti “Accountancy ~ XI
Loss account: ich i
Ad Loas Account is a part of final accounts which is
Tse
Isiness NS°* nd indirect incomes of the business to as
business, done in the accounting year) On completion of Tradin
epared by considering only indirect expenses and iP
mses and incomes which have no direct relation with P!
© not affect production, are called indirect expenses Oe UO
Ties, interest, rent, cost of stationery etc] Indirect expenses Aare reels
si the Profit and Loss Account and indirect incomes are show? 7 1
Profit and Loss Account. Indirect expenses of business are ¢
aa eapetiees
i) Office expenses (they are also called administrative expenses.) (ii) Selling expe
(Gil) Distribution expenses,
Indirect incomes ang
d, rent received etc.
Debit balance of Profi
id credit balance of Pro;
~ Hite accounting year,
Net profit is then carried forward and added to the capital where net loss is adjusted
the capita! account of the pre
prepared on the basis of
certain the net result of
ding Account, Profit and
.d indirect incomes of
fh production and
and indirect
. oe interest
Bains include discount received, commission earned,
t and Loss Account indicates net loss incurred in the ee
fit and Loss Account shows net profit earned in the busine:
“oprietor. {
(CIMEN FORM OF PROFIT AND LOSS ACCOUNT: H :
Profit and Loss Account for the year ended 31st
rticulars Amt. ¢ <. a
Amt, & Particulars
By Gross Profit bid
By Rent (received)
By Interest (earned)
~ By Commission (cared) |
By Discount (earned) |
| By Miscellaneous Receipts |
j ~ By Income from Investments |
| ~ By Interest on Drawings
| By Net Loss e/d
| (if difference appears) |
By RBDD. Ale.
= | (excess reserve)
(FOR is greater than Bid | |
| + FB/d + N/R). |
es Reliable Ser
328
To Discount A/c (allowed)
To Commission A/c (allowed)
To Carriage Outward
To Insurance
To Unproducitve Wages
To Entertainment Expenses | | -
To Royalties on Sales | | -
To Net Profit (c/fd)
bat a
Note: R.B.D.D. A/c. stands for Reserve for Bad
N/R stands for New Reserve
O/R stands for Old Reserve
F/B/D stands for Further Bad Debts. x
(10. JOURNAL ENTRIES RELATING TO PROFIT AND I
(1) For transfer of indirect expenses
Profit and Loss A/c ..
To Salaries A/c
To Printing & Stationery A/c
To Rent A/c
To Travelling expenses A/c
To Audit fees A/c
(2) For transfer of indirect incomes
Interest A/c
Commission A/c
Discount A/c
Dividend A/c.
To Profit & Loss A/c
(3) For transfer of credit balance
Profit and Loss A/c ..
To Capital A/c
(4) For transfer of debit balance i.e. Net Loss.
Capital A/c... Dr.
To Profit & Loss A/c
‘and Doubtful Debts Account.
II
. Net Profit to Capital A/c.
Dr.
“(an accounting statement which shows the financial position of all as
liabilities of the business as on particular date is called the Balance Sheet. Balan
is not an account but a positional statement showing financial position of a
concern as on a particular date) On the left hand side of this statement liabi
various types are systematically recorded and on the right hand of this stat
types of business assets are shown systematically.(Business liabilities include s
liabilities like sundry creditors, bank overdraft, bills payable, outstanding
and long term liabilities like bank loan, capital, loan etc. Business assets are
nels assets, tangible assets, intangible assets, current or circulating assets and
According to Palmer, “The Balance Sheet
one side the trader's property and possession
is @ statement at a given date
and on the other side his liabilities.” 929
BALANCE SHEET:
fe not an account but it is a statement
position of the business as on a particular date
istially e end of eve 1 ¢. on Bist March
z i id of accounting period, i.e. on
EVE Year UMUally at th of every
‘* Prsatalsncen Of ledger accounts which are not transferred to Trading A/e and
18) Balance Loss A/c are ultimately transferred to Balance Sheet ;
f Real A/es and Personal A/cs are transferred to Balance Sheet
OF BALANCE SHEET:
Balance Sheet as at 31st March, ......20.-.-
4 Comm Assets Puasa] f
Land & Building |
Plant & Machinery
Interest on Drawings Furniture & Fixtures |
| |Movor Car |
i Investment
oo Sae Deposits
oR Goodwill
Patents
= 4 ‘Trade Marks ~
| Loose Tools
| ~ [Bills Receivable
| “Sundry Debtors | |
| | = {Closing Stock |
| ~ [Prepaid Expenses |
| | = |Income Receivable |
{ | = [cash in Hana |
Cash at Bank |
|< —_|Loan (given)
- I
al business information provided after completion of trial balance for
of final accounts are known as adjustments. To get a clear view and real
ts of business done in the trading year, some other business information, which do
ce in the trial balance, are required to be considered, while preparing final
adjustment items are required to be given proper effects in the final
every adjustment item, double effects (i.e. debit and credit) are given in
ts, €.g. outstanding wages are first added to wages on the debit side of
and ae outstanding wages are shown separately on the liability
sheet.
Value of stock in hand at the end of the accounting period is
d closing stock. If closing stock is given in the list of adjustments, the same
be recorded twice as -
effect: It is to be recorded separately on the eredit side of the Trading
unt. 330 Reliable &
ely on the aaset wide of the Ratan,
feet: Same is to be shown sey
Sheet as it is shown below
a ket price whiche
[Note: Closing Stock is a price or market p hichever §
ways valued at cost
less,]
Balance Sheet
Dr. ‘Trading Account Cr
. Asset rv
Particulars Amt, Amt, Particulars Amt. Amt. Liabilities Amt, Amt Rain seks Amt, Ame]
By Closing
Stock
Outstanding Expenses: Expenses which are not paid or remains unpaid
\/ end of year, are called outstanding expenses, ¢-8- outstanding wag
outstanding rent, outstanding salaries ete. If outstanding expense is included j
the trial balance, it is to be recorded only on the liability side of the Balan
Sheet. If outstanding expense is given in the list of adjustments, the same ig
be treated as: E.g. Outstanding Salaries.
Ist Effect: Add to Salary on the debit side of the Profit and Loss A/c.
2nd Effect: Show separately on liability side of the Balance Sheet.
Dr. P&L Ale cr. Balance Sheet
: Ps
Particulars Amt! Amt. Particulars |Amt.|Amt.| Liabilities Amt. Amt. Assets "Amt. Ame)
To Salaries xx | Oustanding ad
Add: Out- | | Salaries
standing Lox I
(iii) Income Receivable OR (Income earned but not received): Income which ig
not received when it is due, is called as income receivable e.g. outstandi
interest (receivable). If income receivable is included in trial balance, than it is
be shown only on the assets side of the Balance Shect separately. If it is given in
the adjustment list, same is to be shown as below : E.g. Interest Receivable,
Ist effect : Add to interest received on the eredit side of the Profit and
Account.
2nd effect : Show separately on the asset side of the Balance Sheet.
= P&L Ale cr. Balance Sheet
varticulars Amt.
(Particulars | Amt. | Amt. | Liabitities | Amt. Amt.| Assets Amt, Amt
| By Interest. | xx | | | ‘Interest xx
Add: Interest) | | | | Receivable
n __\receivable | xy | xe! | L
iC) Expenses Paid in Advance (Prepaid Expenses: When any expense is
before it is due, the same is called as prepaid expense, e.g. prepaid insurant
prepaid rent etc. If it is given in the trial balance, the same is to be shown on
the assets side of the Balance Sheet. If prepaid expenses are given in the list
adjustments same is to be be shown as below. E.g. Prepaid Insurance.
Ast effect: Deduct prepaid insurance from the insurance premium paid if
Profit & Loss A/c on debit side.
2nd effect: Show prepaid insurance on the asset side of the Balance Sheet:
Dr. P&L Ale Cr,
Beiae yf ___ Balance Sheet
Particulars Amt. Amt. Particulars Amt. Amt. | Liabilities | Amt, ‘Amt. ‘Assets Amt.
To Insurance xx i [prepa
Less: Prepaid
\fetrance ~ Gx) Insurance
w & Accountancy ~ xr esi
ine: Income which is received before v ni
"ved in advance e.g, rent received in advan
's to be recorded on the liability side of the F
me received in advance is given in the list of
in the trial balance, it
only. If an item of inco
adjustments
2nd effect: Show rent
: ide of the
er Teceived in advance separately on the liability s
PAL Ale cr. Balance Sheet _
Ami Art Partials [Amt[amt.) | Linbiies TAmi:| Amt Assets [Amt Amt
By Bene wm] | (Rentreceived | ax} > |
Less: Rent | |in advance |
received in | el |
‘advance ml ox| | |
means reduction in the value of fixed asset due to
Wear and tear or any other similar cause. Depreciation is
ets like land & buildings, plant & machinery, furniture and
eciation item is provided in the trial balance it is to be debited
to Profit and Loss Account only. If depreciation on fixed assets is given in the list
of adjustments, the same is to be shown in final accounts as follows:
E.g. Depreciation on Plant & Machinery.
Ast effect: Record depreciation separately on the debit side of Profit & Loss
Ale.
2nd effect: Deduct the amount of depreciation from the related asset on asset
side of the Balance Sheet.
preciation: Depreciation
its continuous use,
charged on fixed ass
fixtures etc. If dep
LES to eet dit oben thee |___|Less: Dep. MB) x
pital : If interest on capital is provided, it is an expense‘for the
business and an income for the proprietor. Adjustment effects of interest on
capital are given below.
Ist effect: Interest on capital is to be shown on the debit side of Profit and
Loss Account separately.
2nd effect: Same amount of interest is to be added to the capital of proprietor,
on the liability side of the Balance Sheet.
Balance Sheet
Liabilities | Amt. Amt Assets Amt. | Amt,
xx
xx cere Cap. | xx x
Interest on Drawings: Interest
charged on the drawings is an income to the
business and an expense for the proprietor. Adjustment effects of interest on
rawings are given below:
Ist effect : Interest on drawings is to be shown on the eredit side of Profit
and Loss Account separately. i Reliable
2nd effect : Deduct the same amount of interest from the eapital of propriety
on liability side of the Balance Sheet.
Dr. PRL Alc G Balance Sheet
ars : | Assets | Am
Particulars Amé. Amt. Particulars Amt.| Amt, Liabilities _ Amt. Amt mt. Amel
By Interest on Capital Ae. |XX
] Deawing ood Less: Int. on
Drawing mi x
(ix) Interest on loan taken : Loan taken is a liability of the business. Interes;
loan taken is an expense of the business. Adjustment effects of interest on
taken is shown as below:
Ist effect: Show interest on loan separately on the debit side of the P & L ay
2nd effect: Add this amount of interest to loan taken on the liability side of
shown below:
1st effect: Show interest on loan separately on the credit side of the P & L a/
2nd effect: Add this amount of interest to loan taken on the asset side of
Amt. Assets Amt,! An
‘TLoan given | ax
Add: Int. on
Less: Further
1 Bad debts.
Add: F/B/D | xx , | . lebt: x
na . a x
tenn, | "| | ree | BNote: Bad
(ag) 1 fc fo) |debis given in
‘ ax] | ' (Trial balance
pena, Ohl } is never "
fax Dp, ~|° Yor | fea
(7B) a Debtor] e ® Accountancy x1
: F/B
Nore pp nds for further bad debts:
Old Res. Diy” Stand for New Reserve for
RBD.D. Ap. 1 for Old Reserve for Do
Adj. . » stand for Reserve for Bad and
IF Bad debts + jp,” Sands for Adjustment & TB. stands OT
Beis Profan Log, « Y/R) » OU Raaarve the mat 4
If Old Reserve > (py eCUnt » shown on credit sid
and Loss Accoun/> * F/B/D + N/R, the result is to be s
Doubtful Debts
yubtful Debts
1 Doubtful Debt Account
ds for Trial Balance
shown on the debi
ie of
. Debtors.
ve sae 4 on Sundry
unt on Debtors A/c : It is calculated on WT ors
r Di
“Accounting treatin
Lueht and adjustment effects of Reserve sal
Revere eres, ike adjustment effects of RB.D.D. A/c. Adjustment effects of
‘eserve for Discount on Debtors are shown below:
sete ___ Balance Sheet aie
{Amt Amt.) [Liab [Amt.| Amt. Assets Amt. Amt
re] TT [Sandry Debtors | xx
| | Less: New
| |
| | | Bad Debts x
| ead | lagi
| | ne neray xx
| | | | (tests New
| | oS le xx
x | | | x
}
| | | | | Less: Further
| {Discount
aX | | (Adj) XX
x | x
| | | ae Less: New
| [0° dere fa
| | }o © [Dis onde}
| | | (adj. xx | xx
wx | xx \ \
ra fd 1
: R.D.D. A/c > stands for Reserve for Discount on Debtors Account.
If (Discount + F/Discount + New Reserve) > Old Reserve, result is to be shown on
side of Profit & Loss account.
If Old Reserve > (Discount + F/Discount + New Reserve), the result is to be shown on
it side of Profit & Loss Account.
it on debtors is to be carried out after completion of adjustment effects of
for bad and doubtful debts.
Provision for Discount on Creditors Account: It is calculated on Sundry
Creditors. Accounting treatment and adjustment effects for provision for
discount on creditors are given below : al =
334 a
Reliable Seri
De, _ PRL Ave Cr. Balance Sheet
i Mars Amit. Amt, Particulars |Amt, Amt,| | Liabilities Amt Amt Assets Am
ee ™ BYRD. We Suty ‘?
Ne fi excess | Discount Creditors xx
jreom | (received) xx Less: Further
; vB) Discount
‘Adds Further x (aa) x
{em lpeniee es
t ved Less: New
| (ad Reserve(Adi) | xx | XX
| Add: New | ret
| TReserve (Adi) x
tT xX
Less: Old
Laempmmmeene(T) | xx} yx} | |
Where: R.D.C. A/c stands for Reserve for Discount on Creditors Account
If (Discount + Further Discount + New Reserve) > Old Reserve, the result is to
shown on credit side of Profit and Loss Account.
If Old Reserve > (Discount + Further Discount + New Reserve), the result is to
shown on debit side of Profit and Loss Account.
(xiv) Goods Distributed as Free Samples : Newly established firms and even
established firms distribute samples of new product free of charge in the near}
areas to increase their sale. Adjustment effects of free samples are shown below:
Ist effect : Show separately as “Goods distributed as free samples” on
credit side of Trading Account or deduct the amount of free sample fro
purchases on debit side of Trading Account.
2nd effect : Show separately on the debit side of Profit and Loss Acco
under the heading “Advertisement Account.”
(xv) Loss of Goods by Fire or Theft: Adjustment effects of goods lost by fire or th
are shown below:
(A) If goods are insured :
Ist effect: Show separately, on the eredit side of Trading Account, the full value
of goods lost.
2nd effect: Show separately on debit side of Profit and Loss Account, the
difference between value of goods lost and insurance claim receivable i.e. net loss by fire
or theft.
3rd effect: Show the insurance claim admitted by the insurance company on the
asset side of the Balance Sheet. This is shown as below:
cial Trading Ae Balance Sheet
| Particulars Amt, Amt. Particulars Amt __Liabilities Amt. Amt, Assets Amt, Amt:
By Goods lost | | | Insurance
| by fire theft he Jocicl Claim
Acc (ull x Receivable
{ value) oe
Particulars |Amt. Amt. Particulars | Amt, Amt.
To Net loss
by fie / thet
Ale x a
335
If goods are not insured ;
effect : Show separately o
, on the a
Jost by fire or theft gee tetiag econ
d effect : Show separate!
ds lost by fire or theft
is is shown as below.
on debit side of Profit & Loss Account the full value
‘Trading A/e
cr.
G Profit & Loss Ale
ulars | Amt. | Ame. P; ;
ce janet jarani Amt. Amt.| | Particulars | Amt. Amt. Particulars, Amt. Amt
[By Goods lo To Loss by
[by firethert | xx | [Fitethent x
| (full value)
| FORM OF FINAL Accounts WITH ADJUSTMENTS:
cee Account & Profit & Loss Account
for the year ended 31st
| Less: Sales Returns a a
| |By Drawings (Goods a
XX |” withdrawn for self use) |
By Goods lost by fire or theft as
XX _| By Goods distributed as sik
free samples
By Closing Stock
By Gross Loss (c/d) ee
(if difference appears |
| oncredit side) | \ \
les
es
PLLELLE
XXX
XX [By Gross Profit (bid) loss
By Commission XX
my XX Add: Commission Received xX XX
|By Discount Received |
|By Interest Received |
| By Dividend Received |
[F ca0% ByRBDD. Alc. |
| (excess reserve)
|By Provision for Discount \ Xx
|” on Creditors
By Miscellaneous Receipts Xx
By Income from Investment j XX
By Net Loss (c/d) ws
i
aR RHEE Changes
Travelling Expenses
‘To Commission
| To Trade Expenses
“To Repairs & Renewals
To Interest on Loan
Add: Outstanding
To General Expenses
“To Net Loss by Fire
| To Net Loss by Theft
To Carriage Outward
To Allowances to Salesman
To Packing Charges
To Advertisement
To Free samples / Advertisement
ToRBD.D/Alc:
Bad Debts
‘Add: Further Bad debts
Add: New Reserve
Less: Old Reserve
To Discount A/c
To Provision for Discount
on Debtors
To Loss on sale of Fixed
| Assets
| To Depreciation Ale:
| Plant & Machinery
—*
Bees
BakEs
sae
RS
RERnEREES Se
Bo
Sedans
Reliable Sey
Less: Net Loss (if any)
Bank Overdraft
nha abt ube
k Less: Depreciation XX
XX lana toe : xX
XX_ Less: Depreciation XX XX
XX_ Goodwill XX
XX _ Investments XX
Sundry Debtors XX
x Less: Further Bad debts xx
xx XX
XX XX | Less: New Reserve XX
XX XX
Less: Provision for Discount on
Debtors XX Xx
Loan (given) XX
| Bills Recervable pox
: Closing Stock XX
Cash in Hand xx
| Cash at Bank XX
Insurance Claim Receivable XX
} Prepaid Insurance } XX
| Prepaid Advertisement | xx
| XXX
|
Q.1. Answer the following questions in one sentence each.
*(1) What is meant by Final Accounts?
Ans: Final accounts are the group of Trading Account, Profit and Loss Account and
Sheet prepared on the basis of trial balance and adjustments to find out working
of the business for a given period and financial status as on a particular date.
*(2) Why is Trading Account prepared?
‘Ans: To find out gross result of the business done in the accounting year i.e. gross
or gross loss of the business trading account is prepared.
*(3) What is gross profit?
Ans: When the total of credit side of Trading Account is greater than the total of debit
it indicates credit balance, which is called as gross profit.
*(4) Why is Profit and Loss Account prepared?
Ans: Profit and Loss Account is prepared to find out net result of the business i.e
profit earned or net Joss incurred in the business.
*(5) What do you mean by Net Profit?
Ans: When the total of credit side of Profit and Loss Account is greater than the total
side, it indicates credit balance which is known as net profit
Explain the term net purchases.
emer of total purchases minus return outward is called net purchases.
do you mean by prepaid expenses?
ee which are paid in advance before they are due for payment are
: income?
mean by prereceived
ae is tsi before it is due for receipt is called pre-received Reliable
398
*(9) Explain the term aecrued income
Ans: Income which is due and accumulated but not
current accounting year is called accrued income
*(10) What do you mean by bad debts?
Ans: The debts which are not recoverable inspite of repeated
same are called Bad debts
*(11) What is Capital?
Ans: Amount contributed or invested by the proprietor from his own property
the business from time to time is called capital
*(12) State the meaning of Current assets.
Ans: Assets which are purchased with the intention of converting them into
during the operating year are called current assets, ¢.g. stock on goods
(13) State the meaning of outstanding expenses.
Ans: The expenses which are incurred in the current year, but not paid partly
fully during the current accounting year, are termed as outstanding expenses
(14) What is depreciation?
Ans: Depreciation means continuous reduction in the value of property or asset
to wear and tear, accident, fall in market price, passage of time, etc.
(15) What is a Trading Account?
Ans: An account which is prepared on the basis of direct expenses and
incomes to ascertain or find out gross profit or gross loss made in the business done.
the accounting year is called a Trading Account.
(16) What do you mean by Profit and Loss Account?
Ans: A part of the final accounts which is prepared on the basis of indirect e:
and indirect incomes of the business concern to ascertain net result of the business
in the accounting year is called Profit and Loss Account.
(17) Why is Balance Sheet prepared?
Ans: Balance Sheet is prepared to ascertain the financial position of the business
on specific date usually at the end of the accounting year.
Q.2. Give one word / term or phrase for each of the following statements.
*(1) Statement showing the financial position of business.
*(2) Carriage paid on the sale of goods. *
*(3) Debit balance of Trading Account.
*(4) Credit balance of Profit & Loss Account.
*(5) An expenditure incurred for acquisition and possession of an asset.
*(6) Expenses paid for unexpected period.
*(7) Additional information provided after the completion of trial balance,
*(8) Reduction in the value of fixed assets due to its continuous use.
*(9) A debt which can not be recovered.
(10) Expenses paid before it is due.
{11)income due but not yet received,
{12)Statement of Assets and Liabilities,
(13) Account prepared to know net profit or net loss,
(14) Value of goods remaining unsold at the end of the year. & sed
(15) The provision made to compensate the loss on account of likely bad
(16) Carriage paid on purchases of goods,
efforts ¢
xi geopina ® Accountancy ~ XI i
ansatement of alances of various ledger accounts
wsyareuP of accounts which gives result of business activities.
the amount spent for providing the financial resources,
(ols amount withdrawn by a proprietor from business in cash or kind
pila debit balance of Profit and Loss Account
an additional information provided below the Trial Balance.
parse tee diferent accounts viz, trading account, profit and loss account and
Account prepared to find out gross profit or gross loss.
irrecoverable debts.
(Closing debit balance of Trading Account,
Closing credit balance of Trading Account.
Account prepared on the basis of direct expenses and direct income of the
"| business.
y Account prepared on the basis of indirect expenses and indirect incomes of the
| business,
{30} Expenses paid before it is due.
{a1) Expense remains unpaid.
{G2)Income received before it is due.
{33)Income due but not yet received.
(34) Total withdrawals made by a businessman for self use.
(1) Balance Sheet (2) Carriage outward (3) Gross Loss (4) Net Profit (5) Capital
Expenditure (6) Prepaid Expenses (7) Adjustments (8) Depreciation (9) Bad debts
{10) Prepaid expenses (11) Accrued income (12) Balance Sheet (13) Profit and
Loss A/c (14) Closing Stock (15) Provision for bad & doubtful debts (16) Carriage |
Inward (17) Trial Balance (18) Final Accounts (19) Financial Expenses
(20) Drawings (21) Net Loss (22) Adjustment (23) Final Accounts (24) Trading
Account (25) Bad debts (26) Gross Loss (27) Gross Profit (28) Trading Account
(29) Profit and Loss Account (30) Prepaid expenses (31) Outstanding expenses
(32) Pre-received income / Income received in advance (33) Income receivable |
(34) Drawings. : |
Q.3. Select the most appropriate alternative from those given below:
(1) A list of balances of all the accounts in ledger is called }
{a} Balance Sheet (b) Profit & Loss A/c (e) Trading A/c (¥yfrial Balance
*{2) Opening Stock is entered in a Trading A/c on the side.
{a) credit (&f debit (e) Assets (d) Liabilities
*(3) Drawing account is closed by transferring the balance to the
-{a) Drawing (b) Liabilities (c) Assets (Capital
Liabilities plus Capital is__.
{a} Net work pf Assets (e) Net Profit (4) Gross Profit,
Outstanding expenses isa account.
Real (byPersonal {e) Nominal (d) None of them
“(6) Dep: is always charged on __ Assets,
(a) Current (p) Bixed((e) Fictitious (4) Intangible
account. 340
*(7) Prereceived income is shown on ___ side of Balance Sheet.
fa) Assetsybf Liabilities (e) Credit (d) Debit
*(8) Royalty on production is a __ expenses:
{a}
