Final Accounts of Sole

Proprietorship

1
 Unit II

Final Accounts of Sole Proprietorship

Final Accounts of Sole Proprietorship Concern. (without Manufacturing Account and

Commission on Profit but with Advanced adjustments)
Adjustments related with the fundamental concepts should be covered in the following order.
(a) Adjustments of Trading Account only
(b) Adjustments of Trading and P&L Account only
(c) Adjustments of Trading and Balance Sheet only.
(d) Adjustment of P&L Account only.
(e) Adjustments of Trading and P&L Account &Balance Sheet
(f) Adjustment of P&L Account and Balance Sheet.
(g) Adjustment of Balance Sheet only

Introduction: Sole proprietors are traders who run the business alone without engaging in
any partnership, he/she gets the entire profit as well as are solely liable for losses suffered by
such a business. Final accounts of sole proprietors help the sole owner to understand profits
and losses incurred by the business. Final accounts meaning, as the name suggests, is the last
step of accounting in a business. The final account’s meaning and process incorporate three
major elements-trading accounts, the profit loss account, and the balance sheet account.
However, at times final accounts with adjustments are made to provide accurate profitability
measures to the owner, by overcoming errors.

Elements of Final Accounts of a Sole Proprietorship

After all the transactions regarding the business are recorded in a journal, it is then transferred
to a ledger. At year-end, the ledger balances are transferred to the trial balance. This is the
step before building the final accounts.

The final accounts involve several elements: –

1. Trading account- It derives the gross profit of the business. To develop a trading
account, the purchase and sale of goods are considered along with the direct expenses.
The equation of gross profit stands as, Gross profit = Net sales – Cost of sold goods.

2. Profit and loss account- All losses, gains, incomes, and expenses are considered to
arrive at the net profit of the business. The equation of net profit stands as, Net profit
= Gross profit + Other Income – Expenses.

3. Balance sheet- It is made to identify the assets (properties and related resources of the
business) and liabilities of an enterprise. Capital invested by a sole proprietor in
his/her own business is also seen as the liability of the business along with liability
towards other creditors, investors, etc. It is important that the totals of the balance
sheet match. The equation stands as Assets = Liabilities + Capital.

2
The trading account combined with the profit and loss account constitutes the income
statement of the business. The statement shows the incomes and expenditures of the business.
While the trading, as well as the profit and loss account, helps one to understand the
performance of the business, the balance sheet establishes the position of such a business.

Final Accounts with Adjustments

Final accounts with adjustments incorporate the changes in entries before it becomes final.
Without incorporating these entries, the balance sheet would not yield the correct measures of
profits and losses. Adjustment of closing stock is a part of this. Closing stock refers to the
inventory of the firm. It is important to analyze and record the cost of goods unsold. This
process involves physical verification of such stocks, which is quite a time-taking process and
thus cannot be involved in the trial balance. Hence, this adjustment needs to be incorporated
into the process of final accounts.

Moreover, adjustment of outstanding expenses also needs to be incorporated into final

accounts. The outstanding expenses refer to the costs of business incurred in a certain period
that needs to be paid soon. The costs of this period should be added to the balance sheet to
present a more accurate picture through accounting.

Other than these, depreciation, outstanding income (have been earned but not received within
the period of accounting) and expenses paid in advance for the upcoming year are also to be
incorporated through adjustments in the final accounts of a sole proprietorship.

Presentation Methods of Final Accounts of a Sole Proprietorship

1. Horizontal form: This format of financial statement uses additional columns, a T-

shaped form. Assets are mentioned in the right column while liabilities are shown in
the left column. The horizontal form includes account data for the current year only.

2. Vertical form- The information is spread from the top to the bottom of the sheet. The
information is provided in such a manner that the sheet can incorporate the account
data of the previous year as well. This provides the strategic advantage of comparing
the current year’s accounts with the previous year’s one.

Trading Account

Meaning:

 It is the first stage of the final accounts so prepared.

 It records the transactions related to the buying and selling of goods and/or services
during an accounting period.
 It has 2 sides where the left-hand side is known as debit side and the right-hand side is
called the credit side. The debit side records items like opening stock, purchases net
off returns and direct expenses and the credit side records items like sales or services
rendered and closing stock.

3
  It totals the debit and credit sides to determine if there is any difference. If the debit
side total is greater than the credit side total then it is termed as Gross Loss and if the
credit side total is greater than the debit side total then it is termed as Gross Profit.

Features:

 Records trading transactions only: It records net sales and costs directly related to the
trading activities.
 Computation of Gross Profit or Loss: It records all the net sales and costs directly
related to the trading activities in order to determine the Gross Profit or Loss from
such activities.
 Transfer of Gross Profit or Loss: Such Gross Profit or Loss computed in the Trading
Account is to be transferred to the Profit and Loss Account.
 First Stage in preparation of final accounts: Computation of such Gross Profit or Loss
is the first stage in the preparation of final accounts for a trading entity.

Contents:

o Debit side contents:

i. Opening Stock : It is the stock or inventory of the previous year, which is entered as
Opening Stock of the new financial year through an opening entry. Therefore, in the first year
if the business there will be no Opening Stock. Such opening stock can be of finished goods,
raw materials or work-in-process and is shown as the first item on the debit side of the
Trading Account.

4
ii. Purchases and Returns Outwards:

Purchases: It means the purchase of goods and materials for the purpose of resale or to be
used in manufacturing and includes both cash and credit purchases. Such Purchase Account
will always have a debit balance and will not include purchase of assets which are meant for
use in business.

Return Outwards or Purchases Returns: It shows the returns of goods or materials to the
suppliers from whom these goods were purchased. These amounts are shown as deduction
from the balance of Purchase Account while recording the amount in the Trading Account.

Adjusted Purchases:

Normally, closing stock is given outside the Trial Balance as an adjustment. However, it is
possible that adjustment of closing stock has already been made against the opening stock
and purchases. In such cases, adjusted purchases are shown in the Trading Account and the
amount of closing stock is shown on the asset side of the Balance Sheet.

Adjusted Purchases = Opening Stock + Purchases (Net) – Closing Stock

iii. Direct Expenses: These are the expenses incurred on the goods purchased till the time
they are brought to the place of business. It includes expenses like insurance, customs duty,
freight and carriage, loading and unloading charges, etc. It also includes expenses incurred
for the purpose of production like wages, fuel, factory rent, consumable stores, etc.

o Credit side contents:

i. Sales and Returns Inwards:

Sales: This account shows the amount of total sales of the goods during the year and will
always have a credit balance.

Returns Inwards or Sales Returns: This account shows the amount of goods returned by
the customers and always has a debit balance. These amounts are shown as a deduction from
sales on the credit side of the Trading Account as Net Sales, where

Net Sales = Sales – Sales Return.

ii. Closing Stock: It is the amount of stock of unsold goods, i.e., raw material, semi finished,
finished goods or goods traded in at the end of the current accounting period. It is taken and
valued at the year end and is shown on the credit side of the Trading Account. It is valued as
per the Convention of Conservatism, according to which it is valued at cost or Net Realisable
Value whichever is less.

Balancing of Trading Account:

o Once all the above items are recorded in the Trading Account, balance is calculated to
determine the Gross Profit or Gross Loss.

5
o When the credit side total is more than the debit side total, the difference is termed as Gross

Profit and when the debit side total is more than the credit side total, the difference is termed
as Gross Loss.

o Such Gross Profit or Loss is then transferred to the Profit and Loss Account where Gross
Profit is transferred to the credit side and the Gross Loss is transferred to the debit side of the
Profit and Loss Account.

Closing Journal Entries passed in Journal Proper:

o For items on the debit side:

Trading A/c …Dr.

To Opening Stock A/c

To Purchases A/c (Net)

To Direct Expenses A/c

o For items on the credit side:

Sales A/c (Net) …Dr.

Closing Stock A/c …Dr.

To Trading A/c

o For Gross Profit:

Trading A/c …Dr.

To Profit and Loss A/c

o For Gross Loss:

Profit and Loss A/c …Dr.

To Trading A/c

Profit and Loss Account

Meaning:

o It is prepared after preparing the Trading Account for a particular period.

o It determines the net profit earned or loss incurred by the business during an accounting
period.

o It starts with the Gross Profit or Gross Loss that is computed by balancing the Trading
Account.

6
o All the indirect incomes and gains are credited to the Profit and Loss Account and all the

indirect expenses and losses are debited to the Profit and Loss Account. Difference between

the debit and credit side determines the Net Profit or Net Loss.

Features:

o It is prepared for particular accounting period and follows accrual basis of accounting.

o It is credited with the gross profit and income from other sources and debited with indirect
expenses and losses. The difference between the debit and credit side total is determined. If
the debit side total is more than the credit side total, then the difference is termed as Net Loss
and if the credit side total is more than the debit side total, then the difference is termed as
Net Profit

o Such Net Profit or Loss is transferred to the capital account where, net profit will increase
the capital and net loss will reduce the capital.

o Computation of Net Profit or Loss from Profit and Loss Account is the second stage in the
preparation of the final accounts.

Purpose/Objectives: It is prepared:

o To measure the profitability of the business in terms of net profit.

o To measure the rationality of indirect expenses incurred.

o To facilitate the comparison of the current year’s actual performance with the desired and

planned performance.

o To provide for various provisions and reserves for unforeseen future conditions which will

strengthen the financial position of the business.

7
Contents:

o Debit side contents:

i. Salaries: It is the amount of consideration to the employees for the services rendered by
them. Some salaries like salaries to Factory Manager, Purchase Manager, Wages and Salaries
Account, etc. are directly related to manufacturing/trading and therefore, debited to the
Trading Account. On the other hand, Salaries and Wages Account is debited to Profit and
Loss Account considering it as an indirect expense.

ii. Office Rent and Electricity: These are the expenses which are not directly related to
manufacturing/trading but incurred for the purposes of administration and sale and therefore,
considered as indirect expenses.

iii. Printing and Stationery: It is that expense which is related more with administration and
sale rather than manufacturing or trading and therefore, considered as an indirect expense.

iv. Freight and Carriage on Sales (Carriage Outward): It is related to sale and therefore,

considered as an indirect expense.

v. Insurance: It is the amount of insurance premium paid for insuring the assets, goods, etc.

and therefore, considered as an indirect expense.

vi. Advertising: It is the expense incurred towards advertisement for advertising goods or
recruiting staff and therefore, considered as an indirect expense.

vii. Discount Allowed: It is the concession or discount allowed to the debtors for timely
payments made by them and therefore, considered as an indirect expense.

8
viii. Bad Debt: It is considered as an indirect expense as it is that part of the debtors which
has become irrecoverable.

ix. Depreciation: It is the cost of assets written off over their useful life. It is also referred as
to the fall in the value of the assets on account of wear or tear, use or lapse of time. It is

therefore, considered as an indirect expense.

x. Loss by fire or theft or damage: It is the loss to the business on account of fire, theft or
any other type of damage and is therefore, debited to the Profit and Loss Account. If the
goods are insured, insurance company account is debited and if the goods are not insured,
amount of loss is debited to the Profit and Loss Account.

xi. Miscellaneous expenses: This amount involves all those expenses which are small in
amounts and being not material are clubbed together into one account.

o Credit side contents: It is that side of the Profit and Loss Account which records all the
other Incomes which are earned from the use of firm’s resources other than the main business
of the firm and includes the following items:

i. Rent received

ii. Interest on fixed deposits

iii. Interest on drawings

iv. Cash discount

v. Bad debts recovered

vi. Gain on sale of fixed assets

Balancing of Profit and Loss Account:

o Once all the above items are recorded in the Profit and Loss Account, balance is calculated
to determine the Net Profit or Net Loss.

o When the credit side total is more than the debit side total, the difference is termed as Net
Profit and when the debit side total is more than the credit side total, the difference is termed
as Net Loss.

o Such Net Profit or Loss is then transferred to the Capital Account of the proprietor.

Closing Entries in the Profit and Loss Account:

o For closing all the Indirect expenses or losses by transferring their balances to the
debit of the Profit and Loss Account:

Profit and Loss A/c …Dr.

To Salaries A/c

9
To Rent A/c

To Interest A/c

To Advertising A/c

To Miscellaneous Expenses A/c

o For closing all the Indirect incomes or gains by transferring their balances to the
credit of the Profit and Loss Account:

Interest Received A/c …Dr.

Discount Received A/c …Dr.

Bad Debts Recovered A/c …Dr.

Miscellaneous Income A/c …Dr.

To Profit and Loss A/c

o For Net Profit:

Profit and Loss A/c …Dr.

To Capital A/c

o For Net Loss:

Capital A/c …Dr.

To Profit and Loss A/c

Balance Sheet

Meaning:

o It is a statement prepared to determine the financial position of a business entity on a

particular date.

o It comprises of all the assets and liabilities of the business along with the capital of the
entity.

Capital is usually referred to as excess of assets over the liabilities of the business.

o As per Francis R. Stead, “Balance Sheet is a screen picture of the financial position of a
going business at a particular point of time and comprises only of Real and Personal
Accounts.”

Purpose: It is prepared:

o To help in determining the nature and book value of various assets.

10
o To ascertain the nature and amount of various liabilities.

o To disclose important information related to the additional capital invested, drawings of the
owners etc.

o To help in assessing the solvency of a business.

o To reveal the true financial position of a business.

o To have a base for Opening entry for the next accounting year.

Format of Balance Sheet

Liabilities Amount Assets Amount

Capital Fixed Assets:
Add: Int. on capital Machinery
Less: Drawings Less: Depreciation
Add: Net Profit Furniture
Less: Depreciation
Long Term Current Assets:
Liabilities: Debtors
Loan Less: Provision for BD
Closing Stock
Current Liabilities: Fictitious assets
Creditors
Total
(a) Capital: This indicates the initial amount the owner or owners of the business
contributed. This contribution could be at the time of starting business or even at a later stage
to satisfy requirements of funds for expansion, diversification etc. As per business entity
concept, owners and business are distinct entities, and thus, any contribution by owners by
way of capital is liability.

(b) Reserves and Surplus: The business is a going concern and will keep making profit or
loss year by year. The accumulation of these profit or loss figures (called as surpluses) will
keep on increasing or decreasing owners’ equity. In case of non-corporate forms of business,
the profits or losses are added to the capital A/c and not shown separately in the balance sheet
of the business.

(c) Long Term or Non-Current Liabilities: These are obligations which are to be settled
over a longer period of time say 5-10 years. These funds are raised by way of loans from
banks and financial institutions. Such borrowed funds are to be repaid in instalments during
the tenure of the loan as agreed. Such funds are usually raised to meet financial requirements
to procure fixed assets. These funds should not (d) Short Term or Current Liabilities: A
liability shall be classified as Current when it satisfies any of the following :

• It is expected to be settled in the organisation’s normal Operating Cycle,

11
• It is held primarily for the purpose of being traded,

• It is due to be settled within 12 months after the Reporting Date, or

• The organization does not have an unconditional right to defer settlement of the liability for
at least 12 months after the reporting date (Terms of a Liability that could, at the option of the
counterparty, result in its settlement by the issue of Equity Instruments do not affect its
classification)

Current liabilities comprise of :

(i) Sundry Creditors - Amounts payable to suppliers against purchase of goods. This is
usually settled within 30-180 days.

(ii) Advances from customers – At times customer may pay advance i.e. before they get
delivery of goods. Till the business supplies goods to them, it has an obligation to pay back
the advance in case of failure to supply. Hence, such advances are treated as liability till the
time they get converted to sales.

(iii) Outstanding Expenses: These represent services procured but not paid for. These are
usually settled within 30–60 days e.g. phone bill of Sept is normally paid in Oct.

(iv) Bills Payable: There are times when suppliers do not give clean credit. They supply
goods against a promissory note to be signed as a promise to pay after or on a particular date.
These are called as bills payable or notes payable.

(v) Bank Overdrafts: Banks may give fund facilities like overdraft whereby, business is
permitted to issue cheques up to a certain limit. The bank will honour these cheques and will
recover this money from business. This is a short term obligation.

B. Assets

In accounting language, all debit balances in personal and real accounts are called as assets.

Assets are broadly classified into fixed assets and current assets.

(a) Fixed Assets: These represent the facilities or resources owned by the business for a
longer period of time. The basic purpose of these resources is not to buy and sell them, but to
use for future earnings. The benefit from use of these assets is spread over a very long period.

The fixed assets could be in tangible form such as buildings, machinery, vehicles, computers
etc, whereas some could be in intangible form viz. patents, trademarks, goodwill etc. The
fixed assets are subject to wear and tear which is called as depreciation. In the balance sheet,
fixed assets are always shown as “original cost less depreciation”.

(b) Investments: These are funds invested outside the business on a temporary basis. At
times, when the business has surplus funds, and they are not immediately required for
business purpose, it is prudent to invest it outside business e.g. in mutual funds or fixed
deposit. The purpose if to earn a reasonable return on this money instead of keeping them

12
idle. These are assets shown separately in balance sheet. Investments can be classified into
Current Investments and Non-current Investments. on-current Investments are investments
which are restricted beyond the current period as to sale or disposal.

Whereas, current investments are investments that are by their nature readily realizable and is
intended to be held for not more than one year from the date on which such investment is
made.

(c) Current Assets: An asset shall be classified as Current when it satisfies any of the
following:

• It is expected to be realised in, or is intended for sale or consumption in the organisation’s

normal Operating Cycle,

• It is held primarily for the purpose of being traded,

• It is due to be realised within 12 months after the Reporting Date, or

• It is Cash or Cash Equivalent unless it is restricted from being exchanged or used to settle a
Liability for at least 12 months after the Reporting Date.

Current assets comprise of:

(i) Stocks: This includes stock of raw material, semi-finished goods or WIP, and finished
goods. Stocks are shown at lesser of the cost or market price. Provision for obsolescence, if
any, is also reduced. Generally, stocks are physically counted and compared with book stocks
to ensure that there are no discrepancies. In case of discrepancies, the same are adjusted to
P& L A/c and stock figures are shown as net of this adjustment.

(ii) Debtors: They represent customer balances which are not paid. The bad debts or a
provision for bad debt is reduced from debtors and net figure is shown in balance sheet.

(iii) Bills receivables: Credit to customers may be given based on a bill to be signed by them
payable to the business at an agreed date in future. At the end of accounting period, the bills
accepted but not yet paid are shown as bills receivables.

(iv) Cash in Hand: This represents cash actually held by the business on the balance sheet
date. This cash may be held at various offices, locations or sites from where the business
activity is carried out. Cash at all locations is physically counted and verified with the book
balance. Discrepancies if any are adjusted.

(v) Cash at Bank: Dealing through banks is quite common. Funds held as balances with
bank are also treated as current asset, as it is to be applied for paying to suppliers. The
balance at bank as per books of accounts is always reconciled with the balance as per bank
statement, the reasons for differences are identified and required entries are passed.

(vi) Prepaid Expenses: They represent payments made against which services are expected
to be received in a very short period.

13
(vii) Advances to suppliers: When amounts are paid to suppliers in advance and goods or
services are not received till the balance sheet date, they are to be shown as current assets.

14
 Sums for Practice

Sum : 1 Rajesh shows the following balances. Prepare his Trading and Profit and Loss
Account for the year ended 31st March 2023 and Balance Sheet as on that date.

Particulars Debit Rs. Credit Rs.

Opening Stock 15,000
Purchases 13,000
Sales 30,000
Carriage Inwards 200
Salaries 5,000
Printing and Stationery 800
Drawings 1,700
Creditors 2,000
Debtors 18,000
Furniture 1,000
Capital 25,000
Postage 750
Interest 550
Machinery 4,000
Loan 3,000
60,000 60,000
Adjustments:

1. Depreciate machinery by 10% and furniture by 5%.

2. Allow interest on capital at 5%.
3. Provide 5% for provision on bad and doubtful debts on debtors.
4. Stock on 31/03/23 Rs. 12,000.

Sum: 2 From the following Trial Balance prepare the Trading and Profit and Loss account
for the year ended 31 December, 2022 and a Balance Sheet as on that date.
st

Trial Balance of Shyam as on 31.12.2022

Particulars Debit Rs. Credit Rs.

Capital 40,000
Sales 25,000
Purchases 15,000
Salaries 2,000
Rent 1,500
Insurance 300
Drawings 5,000
Machinery 28,000
Bank 4,500

15
 Cash 2,000
Opening Stock 5,200
Debtors 2,500
Creditors 1,000
66,000 66,000
Adjustments required:

1. Closing stock on hand Rs. 4,000

2. Salaries outstanding Rs. 300
3. Rent paid in advance Rs. 200
4. Insurance paid in advance Rs. 90
5. Depreciate machinery by 10%
6. During December Shyam took Rs. 100 in goods for his own use.

Sum: 3 From the following trial balance of Kashyap Shah, prepare Trading and Profit &
Loss account for the year ending 31 March, 2023 and Balance Sheet as on that date:
st

Trial Balance as on 31-3-2023

Debit balances Rs Credit Balances Rs

Opening stock (1-4-22) 40800 Capital 240000
Purchases 230640 Creditors 133440
Wages 17760 Sales 412800
Carriage inward 12960 Rent 5760
Carriage outward 4800
Salary 14400
Buildings 192000
Furniture 11040
Depreciation on fur 1200
Debtors 194400
Insurance premium 3840
Printing & stationery 6000
Sundry expenses 10560
Repairs 2400
Cash on hand 30000
Drawings 19200
792000 792000

Adjustments:

1. Value of closing stock was Rs 18240.

2. Rs 2880 was outstanding for salaries

16
 3. Depreciation building by 5%.
4. Insurance paid in advance Rs 240
5. Building rent received in advance was Rs 720
6. Credit purchase Rs 1680 was not recorded in books of accounts.

Sum: 4 From the following Trial balance of Mr. Ratanji Prepare final accounts as on 31 st

March 2023.

Particulars Debit Credit

Stock (1-4-2022) 1,25,000
Purchase and sales 3,50,000 5,90,000
Returns 10,000 15,000
Sundry debtors and creditors 1,03,000 55,000
Furniture 25,000
Freight and duty 10,000
Carriage inwards 2,500
Insurance 17,500
Advertising exp. 7,000
Bad debts 4,000
Office expenses 2,000
Postage and telegram 4,000
Provision for Bad debts 2,000
Discounts 5,000 3,000
Office salaries 36,500
Wages 70,000
Plant and machinery 1,25,000
Cash in hand 6,000
Cash at bank 1,27,500
Drawings and capital 80,000 4,50,000
Depreciation on furniture 5,000
11,15,000 11,15,000

Adjustments:

1. Stock on 31 march 2023 was Rs 1,68,540.

st

2. Provide depreciation on plant and machinery @10%

3. Insurance prepaid Rs 1,000.
4. Write off Rs 3000 as bad debts and create provisions for bad debts at 5% on sundry
debtors.
5. Goods destroyed by fire Rs 1,0000. Insurance company accepted the full claim.

17
Sum: 5 From the following trial balance of Ashok Sheth, prepare Trading and Profit & Loss
account for the year ending 31 March, 2023 and balance sheet as on that date:
st

Trial Balance

Debit balances Rs Credit Balances Rs

Opening stock (1-4-22) 34,000 Capital 2,00,000
Purchases 1,92,200 Creditors 1,11,200
Wages 14,800 Sales 3,44,000
Carriage inward 10,800 Rent 4,800
Carriage outward 4,000
Salary 12,000
Buildings 1,60,000
Furniture 9,200
Depreciation on furniture 1,000
Debtors 1,62,000
Insurance premium 3,200
Printing & stationery 5,000
Sundry expenses 8,800
Repairs 2,000
Cash on hand 25,000
Drawings 16,000
6,60,000 6,60,000
Adjustments:

1. Value of closing stock was Rs 15200.

2. Rs 2400 was outstanding for salaries
3. Depreciation building by 5%.
4. Insurance paid in advance Rs 200
5. Rent received in advance was Rs 600
6. Credit purchase Rs 1400 was not recorded in books of accounts.
(Ans. Gross Profit – Rs. 1,06,000, Net Profit – Rs. 64,000, Balance Sheet Total –
3,63,600)

Sum: 6. Following is the trial balance of Ms. Diya on 31 December 2022.

st

Particulars Dr (Rs) Cr. (Rs)

Cash in hand 3,000
Cash at bank 15,000
Purchases 2,46,000
General expenses 18,000
Insurance 6,000
Capital 4,50,000
Drawing 30,000

18
 Debtors and creditors 90,000 39,000
Sales 6,00,000
Returns 3,000 6,000
Wages 63,000
Fuel and power 30,000
Carriage outward 18,000
Carriage inward 12,000
Stock (1-1-22) 36,000
Building 1,80,000
Investment 60,000
Machinery 1,20,000
Salaries 90,000
Furniture 75,000
10,95,000 10,95,000

Additional information:

1. Stock in hand on 31 December 2022 was Rs 45000

st

2. Salaries for the month of December 2022 Rs 9000 were unpaid

3. Insurance include Rs 1500 for next year.

(Ans. Gross Profit – Rs. 2,61,000, Net Profit – Rs. 1,21,500, Balance Sheet Total – Rs.
5,89,500)

Sum: 7 On December 31 2022 the following trial balance was prepared from the books of
st

Mr. Bhagat Singh.

Particulars Rs Particulars Rs
Sundry debtors 3,20,000 Sundry creditors 2,40,000
Bills and receivables 2,40,000 Bills payable 3,20,000
Plant and machinery 6,40,000 Loan 5,60,000
Land and building 11,20,000 Sales 5,92,000
Purchases 5,20,000 Provision for doubtful debts 48,000
Salaries 96,000 Capital 20,80,000
Wages 1,28,000 Rent received 32,000
Carriage 16,000 Commission 40,000
Bad debts 24,000 Outstanding interest 16,000
Printing charges 32,000
Postage 8,000
Opening stock 3,60,000
Office expenses 80,000
Cash in hand 1,60,000
Cash at bank 16,000

19
 Rent paid 48,000
Drawings 56,000
Prepaid insurance 64,000
39,28,000 39,28,000

The following adjustments are required to be carried out at the end of the year:

1. Closing stock valued at Rs 4,40,000.

2. Interest at the rate of 12% and 9% are provided on capital and drawings respectively.
3. Rs 20,000 is further to be provided for bad debts and a provision for bad and doubtful
debts at 5% on sundry debtors is to be made.
4. Depreciate plant and machinery and Land & Buildings at 10% pa and 15% pa
respectively.
5. Goods worth Rs 48,000 withdrawn by Mr. Bhagat Singh for self-use.

(Ans. Gross Profit – Rs. 56000, Net Profit – Rs. 6,26,080, Balance Sheet Total – Rs.
27,33,000

Sum 8: From the following trial balance of Shri Ashish Gandhi, prepare trading account and
profit & loss account for the year ending 31st March, 2023 and the balance sheet as on that
date:
Debit balances Rs. Credit balances Rs.
Opening stock(1-4-2022) 17,000 Capital 1,00,000
Purchases 96,100 Creditors 55,600
Wages 7400 Sales 1,72,000
Carriage inward 5400 Rent 2400
Carriage outward 2000
Salary 6000
Building 80,000
Furniture 4600
Depreciation on furniture 500
Debtors 81,000
Insurance premium 1600
Printing and stationery 2500
Sundry expenses 4400
Repairs 1000
Cash on hand 12,500
Drawings 8000
3,30,000 3,30,000
Adjustments:
a. Value of closing stock was Rs. 7600.
b. Rs. 1200 was outstanding for salaries.
c. Depreciate building by 5%.
d. Insurance paid in advance Rs. 100.
e. Building rent received in advance was Rs. 300.

20
 Sum 9: From the following Trial balance, prepare trading, profit & loss account and
balance sheet as on 31st December 2022.
Particulars Dr. (Rs.) Cr. (Rs.)
Capital 1,50,000
Loans 30,000
Sales 2,10,000
Account payable 24,000
Bills payable 30,000
Purchase return 12,000
Dividends received 18,000
Plant and machinery 78,000
Buildings 1,02,000
Receivables 57,900
Purchases 1,08,000
Discount allowed 7200
Wages 42,000
Salaries 18,000
Travelling expenses 4500
Freight 1200
Insurance 1800
Commission paid 600
Cash in hand 600
Bank 9600
Repairs 3000
Interest on loans 3600
Opening inventory 36,000
4,74,000 4,74,000
Additional Data:
1. Closing inventory Rs. 48,000.
2. Depreciation on plant and machinery at 15% and on building at 10%.
3. Provision for bad debts Rs. 3000.
4. Insurance prepaid Rs. 300.
5. Outstanding rent Rs. 600.

Sum. 10: The following is the Trial Balance of Nimesh Patel as on 31-3-2023. Prepare Final
Accounts.
Names of Account Debit(Rs.) Credit(Rs.)
Drawings- Capital 3000 45,000
Purchases –Sales 82,000 1,20,000
Goods return 2100 1700
Provident Fund Investments and Provident Fund 12,000 13,000
Contribution to PF 1100
Stock(1-4-2022) 18,000
Furniture and fixtures 5000
Building 40,000
Debtors and creditors 30,360 41,000
Discount 500 300
Stationery 200
General expenses 11,200

21
Salary 18,000
Scooter 10,000
Carriage inward 300
Goods withdrawn - 500
Bad debt-Provision for bad debt 240 2500
15% Pratik’s loan 10,000
2,34,000 2,34,000
Adjustments:
a. Value of closing stock is Rs. 35,000 and its market value is Rs. 30,000.
b. Calculate interest on capital at 5%.
c. Depreciate building at 2.5% and furniture and fixtures at 5%.
d. Stock of stationery on 31-3-2021 is Rs. 20.
e. Of the debtors Rs. 360 is to be written off as bad debts and provision at 5% on
debtors is to be made for doubtful debts.
f. Calculate interest on Pratik’s loan for whole year.

Sum. 11: From the following trial balance of Moon Light and co. prepare trading,
profit and loss account and balance sheet. The following trial balance was extracted
from their books as 0n 31-12-2022.
Debit Rs. Credit Rs.
Cash in hand 15,000 Sales 25,00,000
Cash at bank 30,000 Return outwards 20,000
Purchases 11,00,000 Capital 5,60,000
Return inwards 15,000 Accounts payable 3,00,000
Wages 2,00,000
Power and fuel 80,000
Carriage outwards 60,000
Carriage inwards 50,000
Opening inventory 60,000
Land 1,00,000
Building 8,00,000
Machinery 3,00,000
Patents 1,50,000
Salaries 1,20,000
Sundry expenses 60,000
Insurance 10,000
Drawings 80,000
Accounts receivable 1,50,000
33,80,000 33,80,000
Adjustments are given below:
a. Closing inventory as at 31-12-2022 Rs. 2,00,000.
b. Provision for bad and doubtful receivable at 5% on debtors.
c. Outstanding salary Rs. 50,000, outstanding wages Rs. 30,000.
d. Depreciate 10% on assets.

Sum. 12: From the following Trial Balance of Shri Paresh, prepare trading and profit
& loss account for the year ending 31-3-2023 and the balance sheet as on that date:
Names of Account Dr. Cr.

22
 Sundry debtors 31,000
Sundry creditors 21,000
Purchases 70,000
Discount 3000
Capital 1,25,000
Productive wages 17,500
Sales 1,35,000
Motorcar 5000
Stock on hand (1-4-2022) 58,500
Salaries 12,000
Travelling expenses 5000
Carriage inward 2350
Insurance 5550
Commission 1425
Machinery 45,000
Building 20,000
6% loan (1-7-2022) 38,000
Rent and taxes 6000
Cash on hand 2500
Bank balance 24,170
Repairs 550
Sundry expenses 1955
Interest on 6% loan 1500
Advertisement exp. 6000
3,19,000 3,19,000
Adjustments:
a. Closing stock is valued at Rs. 80,000 on 31-3-2023.
b. Depreciate building and machinery at 10% and 20% respectively.
c. Goods destroyed in riots Rs. 10,000. Insurance company admitted a claim of Rs.
4000.
d. Pre paid insurance Rs. 550.

FORMAT OF FINAL ACCOUNTS

Trading account for the year ending on _______

Particulars Debit (Rs.) Particulars Credit (Rs.)

To opening stock By sales
(-) sales return
To Purchase By goods burnt by fire
(-) purchase return
To wages By goods stolen
To coal/oil/fuel/gas By goods given away as charity
To carriage inward By goods given as samples
To railway freight By goods drawn for personal
use
To excise duty By closing stock
To custom duty

23
To loading/unloading charges
To dock/port charges
To gross profit ? By gross loss ?
Total Total

Profit and Loss account for the year ending on _________

Particulars Debit (Rs.) Particulars Credit (Rs.)

To gross loss By gross profit
To salary By interest received
To interest By dividend received
To printing and stationery By rent received
To interest on capital By interest on drawings
To depreciation By discount received
To discount allowed By profit on sale of asset
To contribution to Provident By bad debt recovered
Fund
To loss on sale of asset By commission received
To insurance premium By sale of old newspapers
To general expenses
To advertisement
To sundry expenses
To bad debt (T)
(+) bad debt (A)
(+) bad debt reserve (A)
(-) bad debt reserve (T)
To carriage outward
To travelling expense
To loss by theft, charity or fire
To audit fee
To legal expenses
To postage and telegram
To net profit ? By net loss ?
Total Total

Balance-Sheet as on _________

Liabilities Rs. Rs. Assets Rs. Rs.

Capital - Fixed Assets
(+) Net Profit - Tangible Assets
(+) additional capital - Land and building
(+) interest on capital - Land on lease
(-) Net loss - Factory
(-) drawings - Plant and machinery
(-) interest on drawings - - Furniture and fittings
Long term liabilities/non- Vehicles

24
current liabilities
Bank loan Intangible Assets
Current liabilities Goodwill
Sundry creditors Patent
Bank overdaft Copyright
Unpaid expenses trademark
Income received in Closing stock
advance
Provident Fund Computer software
Investments
Investments in govt.
securities/shares or
debentures of other
companies
Current Assets/ loans and
advances
Closing stock
Stationery stock
Sundry debtors
Bills receivable
Loan given
Cash and bank balance
Pre-paid expense
Income due but not received
Deferred Revenue
Expenditure
Preliminary expense
Total - - Total - -

25