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Final Account

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Published in: Accounts
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A Presentation On Final Account.

AnytimeStudies / Surat

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Teaches: EVS, History, Mathematics, Science, Biology, Chemistry, Physics, Social Studies, Bank Clerical, Bank PO, IBPS, SSC Exams, IIT JEE Advanced, IIT JEE Mains, NEET

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  1. Final Accounts 0000 000
  2. Trail Balance to Balance Sheet e There are accounts: Trading A/c O Profit and Loss A/c O Balance Sheet O components of 0000 0000 0000 000 oo final o All the incomes and expenses are transferred to trading and P & L A/c. e All the assets and liabilities are transferred to balance sheet.
  3. Trading A/c 0000 0000 0000 000 oo e Under the trading account all incomes and expenses relating to goods and production of good are recorded. e The profit or loss found out from trading A/c is called gross profit or gross loss respectively. e The gross profit or gross loss is transferred to P & I A/c.
  4. Profit and loss A/c 0000 0000 0000 000 oo e All the incomes and expenses relating to office or administration, sales and distribution and interest are recorded in P &L A/c. e The profit or loss found out from P & L A/c is called net profit or net loss respectively. e The net profit / loss is transferred to the balance sheet by adding / deducting it from the capital of the owner.
  5. 0000 0000 0000 000 oo Understanding a Few Important Concepts
  6. Capital and Revenue Expenses oco 0000 and Receipts 0000 000 oo Capital expenditure means those expenses whose benefit accrues over a long period of time i.e. is more than a year. eg: expenses made on fixed assets. Revenue expenses are those whose benefit expires within a year. eg: purchase Similarly there are capital receipts and revenue receipts. eg: loans, capital, etc. are capital receipts & sales is a revenue receipt.
  7. Mercantile system of accounting 0000 0000 0000 000 oo e All transactions are recognized at the time of their occurrence i.e. when they accrue & not when they are paid or received. e Thus they are recorded in the financial statements in the corresponding period of occurrence.
  8. Outstanding Expenditure 0000 0000 0000 000 oo e If an expenditure is outstanding for the given year, then it will be added to the given years expenditure in the P & L A/c. e Such outstanding expense is a liability and thus would be recorded as liability in the balance sheet.
  9. 0000 0000 0000 Expenses made in advance 000 oo e If some expense is made for next year in advance, then it would be deducted from the given year's expense in the P & L A/c. e Such advance expenses are an asset for the firm and recorded so in the balance sheet.
  10. 0000 0000 0000 Income due but not received 000 oo e If some income is due in the given year but not yet received, then it is added to the given year's income in P & L A/c. e Such income yet to be received is an asset & recorded so in the balance sheet.
  11. 0000 0000 0000 Income received in advance 000 oo e If some income for next year is received in the given year, then it is deducted from that year's income in the P & L A/c. e Income received in advance is a liability & recorded so in the balance sheet.
  12. Interest on Capital & Interest on Drawings 0000 0000 0000 000 oo e A business enterprise is a separate legal entity from its owners. e Thus, the business enterprise pays interest on capital to the owner for using its capital. e Similarly, the business enterprise charges interest on drawings from the owner for reducing capital to that extent.
  13. Interest on Capital & Interest on Drawings 0000 0000 0000 000 oo , Interest on capital Expense Debit of P & L Interest on Drawings Income Credit of P
  14. Effect on Balance Sheet: "000 0000 0000 000 oo Liabilities Capital + Int on Capital -Drawings - Int on Drawings Assets
  15. Bad Debts 0000 0000 0000 000 oo When a debtor becomes insolvent or is unable to pay his dues, it is known as bad-debts. , Bad-Debts (BD) Expense P & L A/c debit Bad Debts Reserve (BDR) is a provision that is created in anticipation for bad debts in future. Corresponding effect of BD & BDR are to be made in debtors in the balance sheet.
  16. Bad Debts in P & L A/c To, B D (old) + B D (new) + B D R (new) -B D R (old) 0000 0000 0000 000 oo
  17. Depreciation 0000 0000 0000 000 oo e Depreciation is the loss in value of asset because of use, passage of time & obsolescence. Depreciation Expense P & L A/c debit. Corresponding effect of depreciation is made in the asset A/c in the balance sheet.

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