Final Accounts

7

Reporting and Preparing Financial Statements

Exh. 3.1

The Accounting Period Annual 1

2

Semiannual 1

2

3

4

Quarter 1

2

3

4

5

6

7

Month

8

9

10

11

12

Transactions and Events Exchanges of economic consideration between two parties.

External Transactions occur between the organization and an outside party.

Internal Transactions occur within the organization.

Recognizing Revenues and Expenses 

Revenue Recognition We have delivered the product to our customer, so I think we should record the revenue earned.

Recognizing Revenues and Expenses  

Revenue Recognition Matching Summary of Expenses Rent Rs.1,000 Gasoline 500 Advertising 2,000 Salaries 3,000 Utilities 450 and . . . . ....

Now that we have recognized the revenue, let’s see what expenses we incurred to generate that revenue.

Accrual Basis Vs. Cash Basis Accrual Basis

Cash Basis

Revenues are recognized when earned and expenses are recognized when incurred.

Revenues are recognized when cash is received and expenses recorded when cash is paid.

Not GAAP

GAAP Accounting

FINANCIAL STATEMENTS 

 



Financial Statements are organized summary of detailed information about the financial position and performance of an enterprise. Two Basic Statements are: BALANCE SHEET (OR POSITION STATEMENT) TRADING AND PROFIT & LOSS ACCOUNT (OR INCOME STATEMENT)

TRADING ACCOUNT 



Trading Account is one of the financial statements which shows the result of buying and selling of goods / and or services during an accounting period. It is prepared to know the gross profit or gross loss during the accounting period.

FORMAT OF TRADING ACCOUNT Dr.

Trading Account of…………for the period ending on……

Particulars To Opening Stock To Purchases xxx Less: Purchase Return xxx To Direct Expenses To Wages and Salaries To Freight Inwards To Carriage Inwards To Gross Profit transferred to P& L A/c

Cr.

Rs.

Particulars xxxxBy Sales xxxx Less: Sales Return xxx xxxxBy Closing Stock xxxxBy Abnormal Loss of Stock xxxxBy Gross Loss transferred to xxxxP& L A/c xxxx xxxx

Rs. xxxx xxxx xxxx xxxx

xxxx

xxxxx

xxxxx

PROFIT AND LOSS ACCOUNT 



It shows the net result of the business operations during an accounting period. It is prepared to ascertain the Net Profit earned or Net Loss incurred by the business entity as a result of business operations during an accounting period.

FORMAT OF PROFIT & LOSSACCOUNT Dr.

Profit & Loss Account of…………for the period ending on……

Particulars To Gross Loss b/d To Salaries & Wages To Rent, Rates & Taxes To Fire Insurance Premium To Repairs & Maintenance To Depreciation To Audit Fees To Bank Charges To Legal Charges To Discount Allowed To Carriage Outwards To Commission to Salesman To Sales Promotion Expenses To Traveling Expenses To Advertising To Bad Debts To Net Profit transferred to Capital Account

Cr.

Rs.

Particulars xxxxBy Gross Profit b/d xxxxBy Interest Earned xxxxBy Commission Earned xxxxBy Rent Earned xxxxBy Profit on sale of fixed assets xxxxBy Income from Investments xxxxBy Sale of Scrap xxxxBy Miscellaneous Incomes xxxxBy Net Loss transferred to Capital Account xxxx xxxx xxxx xxxx xxxx xxxx xxxx

Rs. xxxx xxxx xxxx xxxx xxxx

xxxx

xxxxx

xxxxx

BALANCE SHEET 



A Balance Sheet is a statement of assets and liabilities of an enterprise at a given date. It is called a Balance Sheet because it is a sheet of those ledger balances which have not been closed till the preparation of the Trading and P&L A/c.

CHARACTERISTICS OF BALANCE SHEET 







It is a statement NOT AN ACCOUNT. It has no Debit and Credit side. The headings of two sides are LIABILITIES and ASSETS. is a A Balance Sheet is prepared at a particular point of time and not for a particular period. A Balance Sheet summary of balances of those ledger accounts which have not been closed by transferring to Trading and Profit and Loss A/c. A Balance Sheet shows the nature and value of assets and the nature and the amount of liabilities at a given date.

Need for the Preparation of Balance Sheet 





To ascertain the nature and value of assets of a business. To ascertain the nature and amount of liabilities of a business. To find out the financial solvency of an enterprise. An enterprise is considered to be a solvent if its exceed its external liabilities.

ASSETS AND LIABILITIES 

   

  

ASSETS :refers to tangible objects or intangible rights owned by an enterprise and carrying probable future benefits. Following items are included in the Assets: Fixed Assets Investments Current Assets LIABILITIES: refers to financial obligations of an enterprise other than owner’s funds. Following items are included in liabilities: Capital Long-term Liability Current Liability

Contingent Asset & Contingent Liability 



Contingent Asset: An asset the existence, value and ownership of which depend upon the occurrence or non-occurrence of a specific event or upon the performance or non-performance of a specified act; contrasts with contingent liability, often growing out of such liability. Contingent Liability: A contingent liability is one which is not an actual liability but which will become one on the happening of some event which is uncertain. Contingent Liability has two characteristics: uncertainty as to whether the amount will be payable at all and uncertainty about the amount involved.

Grouping and Marshalling of Assets and Liabilities 



Grouping means putting together items of a similar nature under a common heading. Marshalling refers to the order in which the various assets and liabilities are shown in the Balance Sheet.

Balance Sheet in the Order of Permanence Balance Sheet of…………. Liabilities Capital: Opening Balance Add: Net Profit (Less: Net Loss) Less: Drawings Long-term Liabilities Loan Current Liabilities: Income received in advance Sundry Creditors Outstanding Expenses Bills Payable Bank Overdraft

Rs. Assets As at……………… xxxx xxxx xxxx xxxx xxxx

Fixed Assets: Goodwill Land Building Plant & Machinery xxxx Furniture & Fixture Investments xxxxCurrent Assets: Closing Stock xxxx Accrued Income xxxx Prepaid Expenses xxxx Sundry Debtors xxxx Bills Receivable xxxx Cash at Bank Cash in Hand xxxx

Rs. xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

ILLUSTRATION 1: The following is the Trial Balance of Shri Ram as at 31st March, 2008:

Particulars Land and Building Plant & Machinery Furniture & Fixture Motor Vehicles Stock (1.4.2007) Purchases / Sales Returns Carriage Inward Carriage Outward Wages & Salaries Salaries & Wages Discount Commission Interest Rent, Rates & Taxes Repairs

Dr.(Rs.) 1,42,500 42,500 47,500 47,500 75,000 5,25,000 10,000 1,000 2,000 4,000 20,000 2,000 1,500 2,500 3,000 600

Cr. (Rs.)

6,30,000 5,000

1,000 2,000 3,000

ILLUSTRATION 1 contd…………… The following is the Trial Balance of Shri Ram as at 31st March, 2008:

Particulars Insurance Printing & Stationery Water & Electricity Postage & Telegrams Traveling Expenses Conveyance Charges Entertainment Expenses Staff Welfare Expenses Sales Promotion Expenses Bad Debts Depreciation Miscellaneous Expenses / Incomes Debtors / Creditors Bills Receivables / Bills Payables 12% Investments ( purchased on 1.10.2007)

Dr.(Rs.) 3,600 600 1,200 500 1,600 1,200 1,200 1,200 2,400 1,000 20,000 1,000 2,05,000 10,000 50,000

Cr. (Rs.)

1,500 50,000 1,600

ILLUSTRATION 1 contd…………… The following is the Trial Balance of Shri Ram as at 31st March, 2008:

Particulars Loan from Bank (long-term) Cash in Hand Cash at Bank Drawings Sales Tax Collected Capital Account

Dr.(Rs.)

Cr. (Rs.) 54,000

5,000 10,000 10,000 4,000 5,00,000 12,52,100

12,52,100

Additional Information : Closing Stock as on 31.03.2008 was Rs.42,000/Required: Prepare the Trading & Profit & Loss A/c for the year ending on 31st March, 2008 and Balance Sheet as on that date.