Final Accounts of a Proprietary Concern

Presented To Mrs. Manjeet Kaur

Our Team Members
Every group member has put in a lot of effort in gathering
information as well as suggesting ideas to each other.

 Shivam Mutkule 5191 (PPT & Slight

Information)
 Amar 5189 (Information)
 Aarya 819 (Information)
 Aman 2535 (Information)
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 Final Accounts is a set of Trading Account, Profit and
Loss Account and Balance Sheet.
 Final Accounts shows the true and correct financial
position of business.
About the lesson
 It informs the operating results and exact financial Final Accounts is the meaningful
position of the business to the stake holders to take representation to determine Gross
financial decisions. Profit/Gross Loss and Net Profit or Net Loss
of the business during the financial year.
 It enables to control financial activities of business
effectively.
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 Final Accounts are the basis on which management or businessmen decides
business policies and take financial decisions.

 Final Accounts gives a true picture of the financial status of business for the
Importance of
financial year.
Final Accounts
 Final Accounts are useful for accurate accounting records.
Discussing the significance and
 Transparency in business dealings are possible due to financial statements. importance of Final Accounts in
Accounting
 Financial Accounts help to get a clear break-up of amounts payable to
government as various taxes, e.g. Income Tax, GST, etc.

 It is a mandatory requirement to maintain records of financial state of any

business establishment.
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Preparation of Final Accounts
A brief knowledge about how Final Accounts are prepared?

Every time a business transaction takes place, the details Final Accounts include
of it is made in Primary books. These entries are then
posted to the ledger. At the end of a financial year the A. Trading Account
ledger accounts are balanced and closing balance of B. Profit and Loss Account
each ledger account is determined. There may be a debit
or credit balance. With the help of all these balances, a C. Balance Sheet
Trial Balance is prepared. This in turn helps in preparing
Trading Account, Profit and Loss Account and Balance
Sheet, which is known as Final Accounts. This • Trading Account: It is an account which gives the overall preview
accounting process can be represented as follows: of all trading activities. The expenses and losses related to trading
activities are debited to this account and all outward movements
of goods and stock of goods at the end of the year are recorded to
Business Transactions
the credit side of this account. Trading Account is prepared to
ascertain Gross Profit or Gross Loss for a given period of time.
Journal Entries • Profit & Loss Account: It is an account which gives the final
working of business prepared on the basis of indirect expenses
and indirect incomes of the business concern.
Ledger Posting
• Balance Sheet: The balance statement demonstrates the financial
position of a business on a specific date. The financial position of a
Balancing the Ledger business is found by tabulating its assets and liabilities on a
particular date. The excess of assets over liabilities represents
the capital sunk into the business and reflects the financial
Final Accounts at the end of every year soundness of a company.
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Trading Account
A trading account shows the results of the buying and selling of goods. This sheet is prepared to demonstrate the
difference between the selling price and the cost price. The trading account is prepared to show the trading results of
the business, e.g. gross profit earned or gross loss sustained by the business. It records the direct expenses of a
business firm.

Format Of
Trading
Account

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Profit And Loss Account
Profit and Loss Account is prepared to ascertain the net profit/loss and expenses of a business during an accounting
year. It records the indirect expenses of a business firm, like rent, salaries, and advertising expenses. Profit and loss
a/c includes expenses and losses as well as income and gains, which have occurred in business other than the
production of goods and services.

Format Of
Profit and Loss
Account

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Balance Sheet
The balance statement demonstrates the financial position of a business on a specific date. The financial position of a
business is found by tabulating its assets and liabilities on a particular date. The excess of assets over liabilities
represents the capital sunk into the business and reflects the financial soundness of a company. Now it is known as
the statement of financial position of the company.

Format Of
Balance Sheet

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Adjustments in Final Accounts

• The items that appear in the trial balance have a single effect in the final accounts but the transactions, which
appear outside the Trial Balance, have a dual effect. The transactions, which do not appear in the trial balance, are
noted as adjustments.
• The adjustment transactions represent such items of incomes and expenditures, which relate to the current year
and have not yet been brought into the book of accounts.
• Such financial transactions are adjusted after the preparation of trial balance. The adjustment helps to determine
the actual net profit and financial position of the business.
• Every adjustment has a dual effect. The possible effects are as follow:-
I. Trading Account and Balance Sheet
II. Profit & Loss Account and Balance Sheet or
III. Trading Account and Profit & Loss Account
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The following are some of the significant adjustment transactions and their effects on final account:-
S.No. Transactions Effect on Final Accounts Treatment in Final Accounts
1. Closing Stock Trading Account Credit Side
Balance Sheet Asset Side
2. Outstanding Expenses Trading Account or Profit & Loss Account Add to concerned A/C
Balance Sheet Liabilities Side
3. Accrued Incomes Profit & Loss Account Add to concerned income
Balance Sheet Asset Side
4. Prepaid Expenses Trading Account or Profit & Loss Account Less from concerned A/C
Balance Sheet Asset Side
5. Advance Incomes or Unearned Profit & Loss Account Less from concerned income
Income Balance Sheet Liabilities Side
6. Depreciation Profit & Loss Account Debit Side
Balance Sheet (on Assets) Less from concerned A/C in B/S
7. Further Bad Debts (FBD) Profit & Loss Account Debit Side
Balance Sheet (Asset Side) Deduct from Debtors
8. New Reserve/Provision for Profit & Loss Account Debit Side
Doubtful Debts (NRDD) Balance Sheet (Asset Side) Less from Debtors
9. Goods taken for personal use Trading Account Credit Side
Balance Sheet Drawings- Deduct from capital
10. Interest on Loan Profit and Loss Account Debit Side
Balance Sheet Liabilities Side

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 GLOSSARY
• Closing Stock: The unsold items of goods remained in the store at the end of the accounting year is called closing
stock. It is an asset of the business. It is shown on the asset side of the balance sheet and credit side of the trading
account.
• Outstanding Expenses: Expenses incurred but not yet paid are called outstanding expenses. They are the liabilities
of the business. These are shown on the liabilities of the business. These are shown on the liabilities side of the
balance sheet and added to the concerned item on the debit side of the trading or profit and loss account.
• Prepaid Incomes: Prepaid expenses are those expenses that are paid in advance. They are assets of the business.
These are shown on the assets side of the balance sheet and deducted from the concerned item on the debit side
of the trading or profit and loss account.
• Advance Incomes: The incomes, which are not earned but received in advance, are called advance incomes. They
are the liabilities of the business. These are shown on the liabilities side of the balance sheet and deducted from
the concerned item on the credit side of the profit and loss account.
• Depreciation: The permanent decrease in the value of fixed assets due to continuous use is called depreciation. It
is the loss of the business. It is deducted from the concerned asset on the asset side and shown on the debit side
of the profit and loss account.
• Further Bad Debts and New Reserve/Provision for Doubtful Debts: The uncollectible or irrecoverable amount of
debtors is known as bad debts. The amount of provision, which is created for uncollectible debtors is called
provision for bad and doubtful debts. These are losses of the business. It is deducted on the assets side of the
balance sheet and shown on the debit side of the profit and loss account.
• Interest on Loan: It is the amount of interest, which is allowed on the loan. It is an expense. It is shown on the
liabilities side of the balance sheet and debited to the profit and loss account. 11
Illustration
The following balances were extracted from the books of Thomas as on 31st March, 2018.

Adjustments :-
I. Closing Stock is Rs. 9000.
II. Provide depreciation @ 10% on machinery.
III. Interest accrued on investment Rs.  2,000.

Prepare trading account, profit and loss account and balance sheet.
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Solution

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 ThankYou
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found it useful and nice

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