Final Account 1

FINAL ACCOUNTS and Reports to be Annexure ` By: Dhirender Kumar Rakesh Kumar Devender Kumar Manish Kumar Fanish Kumar Ajay Kumar

Final Accounts A formal records of business transactions in order to have an overview of the Companies profitability and financial condition at the end of the year.

Requirement Money is invested in a business with the primary aim of earning profit. For knowing this, it is necessary that the Accountant must measure and accumulate accounting data in such a manner that a amount of profit earned or loss suffered by the business may be determined and reported. For the purpose of determining the profit or loss figure and financial position at the end of year a statement knows as Final Account is prepared at the end of accounting year which include all the figures in details income, expenditure, assets and liabilities of the Firm .

Need of Final Account  To know profitability  For decision making  To measure growth  To control over expenses

Users of Financial statements  Management of Company.  Shareholder & Potential Investors  Lenders and Creditors  Employees and Trade Unions  Government  Stock Exchange

Guide lines regarding Final Accounts under Indian Company Act 1956 Section 210 of Indian Companies Act 1956 provide that at the Annual General Meeting, the Board of Directors of the Co. have to present Financial Statement before the members. Such Balance Sheet and Profit & Loss Account shall be prepared as per schedule VI to the Companies Act 1956. Cont..

The schedule VI has four parts: Part I : It gives the details format of a Balance Sheet. As per Part I the Balance Sheet can be prepared either in Horizontal form or Vertical form. Part I I : It gives the guide lines for Profit & Loss Account such as quantitative details of some items must have. It does not specified any format for Profit & Loss Account. Cont..

Part III : It gives the interpretation of certain terms used in part I & II. Part IV : It deals with Balance Sheet abstract and the Company's general business profile.

Components of Final Account for Trading Firm Final Account

Trading Account

Profit & Loss Account

Balance Sheet

Components of Final Account for manufacturing Firm Final Account

Manufacturing Account

Trading Account

Profit & Loss Account

Balance Sheet

Manufacturing Account It is prepared with the intention to disclose cost of the goods manufactured during a particular period.

Features of Manufacturing Account      

It is part of Trading Account. It is prepared by only manufacturing companies in addition to Trading Account. In case of manufacturing more than one product then it prepares separate account for each. It contains direct cost of production. It is prepared to ascertain the cost of manufacturing the goods. The cost of manufacturing goods is transferred to Trading Account.

Content of Manufacturing Account  Direct Material  Direct Labour  Direct Expenses  Manufacturing Overhead  Closing Stock of Raw Material

Pro-forma of Manufacturing Account Dr. Particular To Direct Material : Opening Stock of Raw Material WIP .......... Purchases of Raw Material WIP .......... Carriage inwards .......... To Direct Labour : Factory wages To Direct Expenses : Factory rent .......... Fuel, power, gas .......... Factory insurance .......... Depreciation on factory Building and machinery .......... To manufacturing overhead

………………. (Name of the Firm) Manufacturing Account for the year ending …… Amount Particular By Closing Stock of Raw Material WIP By Cost of goods transferred to trading account

Cr. Amount .......... ..........

.......... ..........

.......... ..........

..........

..........

Trading Account A trading a/c is a part of the financial statement which determines the gross profit or gross loss during an accounting year.

Features Trading Account Trading Account gives the overall result of trading, i.e. gross profit or gross loss.  The equation of trading Account is as: Gross profit / loss = Sales – Cost of goods sold  Debit side of account contains all direct expenses, purchases and opening stock etc.  Credit side of account is contains sales and closing stock etc.  The Gross Profit / Gross Loss is transferred to Profit & Loss account. 

Content of Trading A/c  Opening

stock  Purchases & Returns  Direct Expense  Sales & Returns  Closing stock

Pro-forma of Trading Account in absence of Manufacturing Account ………………. (Name of the Firm) Trading Account for the year ending ……

Dr. Particular To Opening Stock To Purchases Less: Returns Direct expenses To Gross Profit c/d

Amount ………. ………. ………. To

………. ………. ……….

……….

Cr.

Particular By Sales Less: Returns By Closing Stock By Gross Loss c/d

Amount ………. ……….

………. ………. ……….

……….

Pro-forma of Trading Account in presence of Manufacturing Account ………………. (Name of the Firm) Trading Account

Dr.

for the year ending …… Particular

To Opening Stock of finished goods To Cost of production of finished goods transferred from Manufacturing Account To Purchases of finished goods ……… Less: Returns ……... To Carriage To Gross Profit c/d

Amount ……….

……….

Particular By Sales ……… Less: Returns ……... By Closing Stock of finished goods By Gross Loss c/d

Cr. Amount ………. ………. ……….

………. ………. ……….

……….

Profit & Loss Account Prof. Carter : “A Profit & Loss Account is an account into which all gains & losses are collected in order to ascertain the excess of gains over losses or vice a versa.

Features Profit & Loss Account  Profit

& Loss Account is prepared to calculate Net Profit or Net Loss of the firm.  It follows Accrual accounting concept.  Debit side of account contains the all indirect expenses, losses and Gross Loss.  Credit side of account contains the all incomes, gain and Gross Profit.  Net Profit / Net Loss is transferred to Capital Account.

Content of Profit & Loss Account      

Office & Administration expenses Selling & Distribution expenses Financial expenses Abnormal losses Income from main business Financial income

Pro-forma of Profit & Loss Account …………….(Name of Firm) Profit & Loss Account Dr. Particulars To Gross Loss b/d To Salaries To Rent To Commission To Advertisement To Bad To Net Profit

for the year ending …….. Amount Particulars

Cr. Amount

………. By Gross Profit b/d ………. By Net Loss ………. ………. ………. ………. ……….

………. ……….

……….

……….

Balance Sheet A statement which sets out the asset and liabilities of a firm or an institution as on a certain date. Francis R Stead – “A balance sheet is a screen picture of the financial position of a going business at a certain moment.”

Features Balance Sheet It is a statement prepared with the aim to know the exact financial position of business at last date of the financial year.  It is a T shape statement. On the left hand side ‘Liabilities’ and on right hand side ‘Assets’ of the business shown.  A balance sheet is prepared from the Real a/c and Personal a/c only.  The equation of Balance Sheet is as: Assets = Capital + Liabilities 

Marshalling of Balance Sheet The arrangement of the items in Balance Sheet in proper way is know as Marshalling of Balance Sheet. There is two type of Marshalling of Balance Sheet:  Liquidity order  Permanence order

Liquidity Order In Case of Liquidity Order Marshalling more liquid Assets are shown first and then less liquid and so on. Similarly on the liability side, current liabilities in order to payment are shown first, then long term and lastly the capital of proprietor.

Pro-forma of Balance Sheet in Liquidity Order ……………….(Name of the Firm) Balance Sheet Liabilities Current Liabilities Creditors Bills Payable Bank Overdraft Outstanding Expenses Income received in advance Fixed Liabilities Loan Mortgage Capital

Total

As on ………… Amount ………. ………. ………. ………. ………. ………. ………. ……….

……….

Assets

Current Assets Cash in hand Cash at Bank Stock in trade Bills Receivable Prepaid Expenses Investments Fixed Assets Furniture & Fixtures Plant & Machinery Building Land Goodwill Total

Amount ………. ………. ………. ………. ………. ………. ………. ………. ………. ………. ………. ……….

Permanence Order In Case of Permanence Order Marshalling more permanent Assets are shown first and then less permanent and so on. Similarly on the liability side, permanent liabilities in order to payment are shown first, then long term liabilities as on.

Pro-forma of Balance Sheet in Permanence Order ……………….(Name of the Firm) Balance Sheet Liabilities Capital Fixed Liabilities Loan Mortgage Current Liabilities Creditors Bills Payable Bank Overdraft Outstanding Expenses Income received in advance

Total

As on ………… Amount ………. ………. ………. ………. ………. ………. ………. ……….

……….

Assets

Fixed Assets Furniture & Fixtures Plant & Machinery Building Land Goodwill Investments Current Assets Cash in hand Cash at Bank Stock in trade Bills Receivable Prepaid Expenses Total

Amount ………. ………. ………. ………. ………. ………. ………. ………. ………. ………. ………. ……….

Example of Final Account 

Prepare the final account from given trail Balance as on 31-03-2009 are as follows: Particular

Opening Stock Capital Debtors and Creditors Purchase and sales Returns Wages and Salaries Commission Machinery & Furniture Bad Debts Provision for debt & doubtful debts Bills Receivable & Bills Payable Land & Building Insurance Cash and Bank Drawing

balance and other information. Debit Amount

Credit Amount

25000 30000 200000 7500 16500 50000 4000 15000 200000 14500 25000 25000

225000 17500 350000 5000 6500 5000 3500 -

Additional information:  Value of closing stock as on 31-03-2009 is Rs. 20000.  Wages and salaries outstanding Rs. 500.  Insurance prepaid Rs. 2000.  Provision for doubtful debts on Debtors @ 5%.  Depreciation on machinery and Furniture @ 10%.  Goods costing Rs. 1200 were sold on approval basis for Rs. 15000. These goods were not approved by customer as yet. Solution: Trading Account Dr. For year ending 31-03-2009 Cr. Particular Amount Particular Amount To Opening Stock To Purchases Less: Returns

200000 5000 To Wages & Salaries 16500 Add:O/S wags & salaries 500 To Gross Profit c/d

25000 By Sales 350000 Less: Returns 7500 195000 Less: Goods sold to Approval basis 15000 17000 By Closing Stock 20000 122500 Add: Goods sold to Approval basis 12000 359500

327500

32000 359500

Profit & Loss Account Dr. Particulars

for the year ending 31-03-2009 Amount Particulars

To Bad debts 4000 Add: New provision 1500 Less : Old provision 5000 To Insurance 14500 Less: Prepaid 2000 To Depreciation on Machinery & furniture To Net Profit

By Gross Profit b/d By Commission 500

Cr. Amount 122500 6500

12500 5000 111000 129000

129000

Balance Sheet Liabilities Capital 225000 Less: Drawing 25000 Add: Net Profit 111000 Current Liabilities Bills Payable Creditors Outstanding wages & salaries

Total

As on 31-03-2009 Amount

Assets

Fixed Assets Land & Building 311000Machinery & Furniture 50000 Less: Depreciation 5000 3500Current Assets 17500Bills Receivable 500Debtors 30000 Less: Sales on approval basis 15000 Less: Provision for bad debts 1500 Cash and Bank Prepaid Insurance Stock in trade 20000 Add: Sales on approval Basis 12000

332500

Total

Amount 200000 45000 15000

13500 25000 2000

32000

332500

Report to be Annexure At the end of every accounting period each company comes out with Financial Statement. The following reports are annexure with Financial Statement.     

Report from director Auditor’s Report Corporate Governance Report Financial Statistics Major Accounting Policies

Director’s Report It is a report prepared by Directors of Company regarding overall performance of company. The contents of a Director’s reports are as below :   

Highlights of Financial Result. An overview of performance of the Co. during the year. Future Projects in hand or expected. Cont..

  

Future expansion programme. About appointment / reappointment of Auditors. About retirement / appointment / reappointment of Directors.

Auditor’s Report An Auditor’s Report is formal opinion whether the auditee's financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP), whether they are free of material misstatement (e.g. free of important and significant errors), and whether they show a true and fair view of the operating results, financial position and cash flows of the auditee.

Type of Auditor’s Report    

Unmodified Opinion report Qualified Opinion report Adverse Opinion report Disclaimer of Opinion report

Corporate Governance Report It is report prepared by Board of Directors of Co. It is represent that governance of company is how fair & good. Usually CG report have following contents:  Board of Directors  Audit Committee  Shareholder Committee  Managerial remuneration

Financial Statistics It contents the past record such as annual turnover, profit , debts of company and total wealth of the company and comparative time series analysis of these records to show the growth trend of company

Major Accounting Policies  Accounting policies refers to the specific

accounting principal and methods for applying those principles adopted by the Co.  According to AS - 1 of ICAI, a Co. is free to formulate its own accounting policies.  These policies have to disclosed with Financial Statement.

Any Question