Final account accounts are prepared only after the preparation of the trial balance. Final account are prepared to determine the profit and loss made by the business during the year and its financial position at the end of the year. The important statements involved in the final account are the trading account, Profit and loss account, Profit and loss appropriation account, and balance sheet. The preparation of these statements depends upon the nature of the business being carried on by the business concern.
Preparation of Final Accounts
The final account is the final
accounting process of a company and it is prepared at the end of accounting
year. For sole trading business, it is common practice and convenient to split
the final accounts into:
· Trading accounts
· Profit and Loss account
· Profit and Loss appropriation account
· Balance Sheet
Trading account
Trading account is maintained by
a company to find out the gross profit or gross loss as a result of the
business activities. It show the result of buying and selling of goods for a
particular period.
Trading account record the amount
of purchase and also expenses relating to the manufacturing of goods or
expenses (Expenses used in the factory such as wages, custom duty, and other
factory expenses).
Trading account format
….Company Ltd.
Trading Account
For the year Ended….
|
Particular |
Amount |
Particular |
Amount |
|
To opening stock |
- - - - - - |
By sales (-) Sales return / Return inward |
- - - - - - |
|
To purchase…. (-) Purchase return / Return outward |
- - - - - - |
||
|
To carriage / freight in ward |
- - - - - - |
By closing stock |
|
|
To Direct wages |
- - - - - - |
|
|
|
To Stores consumed |
- - - - - - |
|
|
|
To Custom duty |
- - - - - - |
|
|
|
To Royalty |
- - - - - - |
|
|
|
To Factory rent |
- - - - - - |
|
|
|
To Factory insurance |
- - - - - - |
|
|
|
To Lighting and heating |
- - - - - - |
|
|
|
To Power and fuel |
- - - - - - |
|
|
|
To Import duty |
- - - - - - |
|
|
|
To Direct expenses |
- - - - - - |
|
|
|
To Chargeable expenses |
|
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|
|
To gross profit |
|
|
|
Profit and loss a/c
Profit and loss account is the
second step in final accounts as it is prepared after trading account is
closed. It is prepared to ascertain the amount of net profit or net loss as a
result of business operation during a certain period.
All the expenses which are
generate revenue are shown in debit side of profit and loss account whether
this expenses are paid in cash or not.
And all the revenue incomes
weather received or to be received are shown in the credit side of profit and
loss account.
Format of Profit and loss account
….company Ltd.
Profit and Loss Account
For the year ended…………
|
Particular |
Amount |
Particular |
Amount |
|
To gross Loss |
- - - - - - |
By gross profit |
- - - - - - |
|
To salaries & wages |
- - - - - - |
By discount received |
- - - - - - |
|
To indirect / unproductive wages |
- - - - - - |
By commission earned |
- - - - - - |
|
To rent, rates, & tax |
- - - - - - |
By interest earned |
- - - - - - |
|
To printing and stationary |
- - - - - - |
By Rent earned |
- - - - - - |
|
To insurance |
- - - - - - |
By compensation received |
- - - - - - |
|
To repair and maintenance |
- - - - - - |
By Dividend received |
- - - - - - |
|
To Depreciation |
- - - - - - |
By transfer fees received |
- - - - - - |
|
To Audit fees |
- - - - - - |
By appreciation on fixed assets |
- - - - - - |
|
To legal fees |
- - - - - - |
By sales of scarps |
- - - - - - |
|
To miscellaneous expenses |
- - - - - - |
By profit on sales of fixed assets |
- - - - - - |
|
To discount allowed |
- - - - - - |
By bad debts recovered |
- - - - - - |
|
To carriage on sale or carriage outward |
- - - - - - |
By net loss |
- - - - - - |
|
To commission |
- - - - - - |
|
|
|
To interest on loan |
- - - - - - |
|
|
|
To Goodwill written off |
- - - - - - |
|
|
|
To Advertising |
- - - - - - |
|
|
|
To telephone charge |
- - - - - - |
|
|
|
To Loss by fire |
- - - - - - |
|
|
|
To bad debt |
- - - - - - |
|
|
|
To Trade expenses |
- - - - - - |
|
|
|
To donation and charities |
- - - - - - |
|
|
|
To loss on sales of assets |
- - - - - - |
|
|
|
To directors fees |
- - - - - - |
|
|
|
To entertainment expenses |
- - - - - - |
|
|
|
To provision for bad debt |
- - - - - - |
|
|
|
To export duty |
- - - - - - |
|
|
|
To Royalty on sales |
- - - - - - |
|
|
|
To bank charges |
- - - - - - |
|
|
|
To establishment expenses |
- - - - - - |
|
|
|
To bank charges |
- - - - - - |
|
|
|
To travelling expenses |
- - - - - - |
|
|
|
To preliminary expenses written off |
- - - - - - |
|
|
|
To provided fund expenses |
- - - - - - |
|
|
|
To provision for tax |
- - - - - - |
|
|
|
To net profit |
- - - - - - |
|
|
|
|
- - - - - - |
|
- - - - - - |
Profit and loss
appropriation account
Profit and appropriation account
is prepared after profit and loss account. It is develop to shown profit
distribution among the partner.
Format of profit and loss appropriation account
Profit and Loss appropriation of ….company
For the year ending…
|
Particular |
Amount |
Particular |
Amount |
|
To General reserve |
- - - - - - |
By balance b/d |
- - - - - - |
|
To dividend: Stock dividend Interim dividend Proposed dividend Cash dividend |
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - |
By Net profit |
- - - - - - |
|
By Provision (Provision no longer required) |
- - - - - - |
||
|
By provision for tax (Last year) |
- - - - - - |
||
|
To tax paid (Last year) |
- - - - - - |
By balance c/d |
|
|
To balance c/d |
- - - - - - |
|
|
|
|
- - - - - - |
|
- - - - - - |
Balance Sheet
Balance sheet is a statement
prepared to know the financial position of a business organization at a given
date. IT is mirror which reflects the true position of the assets and
liabilities on particular date. So balance sheet is also known as statement of financial
position. It is prepared at the end of an accounting period and after
completing the preparation of trading and profit and loss account.
Format of balance sheet
|
Capital
and liabilities |
Amount |
Assets |
Amount |
|
1. share
capital |
|
Fixed
assets |
|
|
i. Authorized capital |
- - - - - - |
Good will |
- - - - - - |
|
Share @
Rs .. each |
|
Land and building |
- - - - - - |
|
ii. Issued capital |
- - - - - - |
Furniture |
- - - - - - |
|
Shares @
Rs. .. each |
|
Plant and machinery |
- - - - - - |
|
iii. Subscribed capital Share @
Rs. .. each |
- - - - - - |
|
|
|
Iv called
up capital |
|
Vehicles |
- - - - - - |
|
Shares @
Rs. .. each |
- - - - - - |
Patent and trademark design |
- - - - - - |
|
v. Paid up
capital |
|
Investment
|
|
|
Total called up capital- - Less: Calls in arrears |
- - - - - - |
Investment on government securities |
- - - - - - |
|
Reserve and surplus |
|
Investment in share and debenture |
- - - - - - |
|
Share premium |
- - - - - - |
Current
assets |
|
|
P/L appr. a/c |
- - - - - - |
Cash in hand |
- - - - - - |
|
Capital reserve |
- - - - - - |
Bank |
- - - - - - |
|
General reserve |
- - - - - - |
Debtors |
- - - - - - |
|
Debenture premium |
- - - - - - |
Bill / account / note receivable |
- - - - - - |
|
Sinking fund |
- - - - - - |
||
|
Oher reserve |
- - - - - - |
Stock in trade / closing stock |
- - - - - - |
|
Secured
Loans |
|
||
|
Debentures |
- - - - - - |
Loan and
advance |
|
|
Loan and advance |
- - - - - - |
Prepaid expenses |
- - - - - - |
|
Bond |
- - - - - - |
Advance tax paid |
- - - - - - |
|
Oher secured loans |
- - - - - - |
Advances and loan to subsidiaries |
- - - - - - |
|
Current
liabilities |
|
||
|
Bills / account / note payable |
- - - - - - |
Miscellaneous
Expenditure |
|
|
Sundry creditors |
- - - - - - |
Preliminary expenses |
- - - - - - |
|
Bank overdraft Income received in advance |
- - - - - - |
Underwriting commission |
- - - - - - |
|
- - - - - - |
|||
|
Unclaimed dividend |
- - - - - - |
Brokerage |
- - - - - - |
|
Premium on redemption of debenture |
- - - - - - |
Discount on issue of share |
- - - - - - |
|
Outstanding expenses |
- - - - - - |
Loss on issue of debenture |
- - - - - - |
|
Provisions |
|
|
|
|
Provision for tax |
- - - - - - |
||
|
Proposed divided |
- - - - - - |
||
|
Provision for employees provident fund |
- - - - - - |
||
|
Pension fund |
- - - - - - |
||
|
Bonus payable to employees |
- - - - - - |
||
|
Others provision |
- - - - - - |
||
|
|
- - - - - - |
|
- - - - - - |
Adjustments
Closing stock
- Credit side of Trading
- Balance sheet Assets side under the heading Current asset
Trading a/c
|
Particular |
Amount |
Particular |
Amount |
|
|
|
By closing stock |
- - - - - - |
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Current assets Closing stock |
- - -
- - - |
Outstanding expenses / Expenses due
- Debit side of trading and p / L account add with expenses
- Liabilities side of balance sheet under Current liabilities heading
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
Salary 10000 (+) outstanding salary 2000 |
12000 |
|
|
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
Current liabilities Outstanding salary |
2000 |
|
|
Prepaid expenses
- Debit side deduced from the concerned expenses in trading and p/l account
- Assets side under heading Loan and advance on balance sheet
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
Salary 10000 (-) Prepaid salary 2000 |
10000 |
|
|
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Loan and advance Prepaid salary |
2000 |
Accrued income (Income earned but not received)
- Firstly, accrued income is added to concerned income in profit and loss account
- It shown on the assets side of balance sheet under Loan and advance
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
|
|
Commission received 6000 (+) Accrued income 2000 |
8000 |
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Loan and advance Accrued income |
2000 |
Advance income
- Deducted from the income concerned
- In balance sheet under the heading Current liabilities
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
|
|
Commission received 4000 (-) Advance 1000 |
3000 |
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
Loan and advance Advance commission |
1000 |
|
|
Depreciation
- It is firstly shown in the debit side of profit and loss account
- And it is deduced from concern assets in the balance sheets
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
Depreciation on machinery 10% |
10000 |
|
|
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Fixed assets Machinery 100000 (-) Depreciation 10000 |
90000 |
Fictitious and Intangible Assets written off (preliminary expenses, Miscellaneous expenses)
- It is firstly shown in the debit side of profit and loss account
- And it is deduced from concern assets in the balance sheets
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
Preliminary expenses written off |
10000 |
|
|
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Fixed assets Preliminary expenses 100000 (-) Written off 10000 |
90000 |
Appreciation
-
It is firstly shown in the credit side of profit
and loss account
-
And it is add with concern assets in the balance
sheets
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
|
|
Appreciation on machinery 10% |
10000 |
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Fixed assets Machinery 100000 (+) Appreciation 10000 |
110000 |
Bad debt and provision for bad debt
-
The bad debt written off is shown on the debit
side of profit and loss account
-
And it is deducted from sundry debtors in the
balance sheet.
·
The provision for bad debt given in adjustment
is debited to profit and loss account
·
It is deducted from debtors in balance sheet
Provision for bad debts is calculated after the bad debt is
reduced from the debtors
Example: Debtors 100000, bad debts 5% and provision for bad
debts 2.5%
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
Bad debt (5% 0f 100000) 5000 (+) provision for bad debt (2.5% of
95000) 2375 |
7375 |
|
|
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Current assets Debtors 100000 (-) bad debts 5000 (-) provision for bad debt 2375 |
92621 |
Provision for Discount on Debtors
- It shown on debit side of profit and loss account
- It is deducted from debtors in balance sheet
Profit and loss account
|
Particular |
Amount |
Particular |
Amount |
|
Discount on debtors |
5000 |
|
|
Balance sheet
|
Liabilities |
Amount |
Assets |
Amount |
|
|
|
Current assets Debtors 100000 (-) Discount on debtors 5000 |
95000 |