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Final Accounts

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  • Dr. A

    • Delhi
    • 16 Years of Experience
    • Qualification: Ph.D, M.Com, MBA/PGDM, B.Com
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Explains the Process of Preparing the Financial Statements i.e. Manufacturing A/c, Trading and Profit & Loss A/c and Balance Sheet.

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    Final Accounts
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    Objectives of Final Accounts ' Final accounts refer to the various accounts and statements that provide information related to the progress of the business. These are prepared from the Trial Balance. They provide the following information: — Profit earned or loss suffered by the business during a particular accounting period — Financial position of the business 1/10/2018 Dr, Amit Gupta
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    Accounts and Statements Comprising Final Accounts ' Final accounts with respect to a particular business are: — Trading account — Profit and Loss account — Balance Sheet Trading account and Profit and Loss account are together known as income statements. ' Income statements are the final summary of the accounts that affect the profit and loss position of the business. 1/10/2018 Dr, Amit Gupta
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    Trading Account ' It shows the overall results of purchasing and selling of goods. ' It includes all the direct expenses incurred in the business. ' It provides gross profit earned by the business, if total sales is greater than total purchases. ' It provides gross loss suffered by the business, if total sales is less than total purchases. 1/10/2018 Dr, Amit Gupta
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    Format of Trading Account Trading Account or the eriod ended Particulars To enin stock To Purchases Less: Purchases returns Towa es To Customs and im ort dut To Carriage expenses ToRo alt To Manufacturing expenses To Packin ex enses Total To gross profit transferred to rofit and loss account 1/10/2018 Amount B B Particulars Sales Less: Sales returns Closin stock Total By gross loss transferred to rofit and loss account Dr. Amit Gupta Cr. Amount 5
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    Items on Debit Side of Trading Account Opening stock: It refers to the total cost of goods left unsold at the beginning of the current accounting period. ' Purchases: It refers to the total cost of goods purchased, both in cash and credit. In case of purchases returns, first net purchases is computed by deducting purchases returns from purchases and the result is then debited to the Trading account. Wages: It refers to the amount paid to the workers for manufacturing, loading and unloading of goods. ' Customs and import duty: It refers to the amount paid as customs and import duty when the goods are purchased from outside the country. 1/10/2018 Dr, Amit Gupta
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    Items on Debit Side of Trading Account (cont...) ' Carriage expenses: It refers to the direct expenses that are incurred while transferring the purchased goods from vendor to the factory. These expenses are also known as freight in, carriage in or cartage. ' Royalty: It refers to the amount paid to the owner for using his rights. Manufacturing expenses: It refers to the expenses spent on gas, electricity, water and fuel, which are required to run the factory. Packing expenses: It refers to the amount spent in packing the purchased goods to bring them to factory. 1/10/2018 Dr, Amit Gupta
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    Items on Credit Side of Trading Account ' Closing stock: It refers to the total cost of the goods that are left unsold at the end of the accounting period. ' Sales: It refers to the total cost of goods sold, both in cash and credit. In case of sales returns, first the net sales is computed by deducting the sales returns from total sales and the result is then credited to the Trading account. 1/10/2018 Dr, Amit Gupta
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    Profit and Loss Account ' Profit and Loss account shows all incomes and indirect expenses related to business. ' Indirect expenses include those expenses such as administrative, selling and distribution expenses that are required for the operation of business. ' Profit and Loss account provides net profit earned or net loss suffered by the business. 1/10/2018 Dr, Amit Gupta
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    Format of Profit and Loss Account Profit and Loss Account For the eriod ended Dr. Particulars To Gross loss b/d To Salaries To Rent To Commission To Advertisements To Bad debts To Discount To Net profit transferred to Ca ital Account Total 1/10/2018 Amount Particulars B Gross rofit b/d B Interest received B Commission received B Discount received To Net loss transferred to Ca ital Account Total Dr. Amit Gupta Cr. Amount 10
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    Items on Debit Side of Profit and Loss Account Gross loss: It is transferred from the Trading account. ' Salaries: It refers to the amount paid to the employees as their salaries. ' Interest paid: It refers to the amount paid as interest on loans. Commission paid: It refers to the amount paid as commission to the agents. Trade expenses: It refers to the amount spent on various number of small but important expenses related to business. 1/10/2018 Dr, Amit Gupta
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    Items on Debit Side of Profit and Loss Account (cont...) Printing and stationary: It refers to the amount spent on printing of bills, invoices, registers, files and letter heads. Advertisements: It refers to the amount spent for attracting customers to buy the products. ' Bad debts: It refers to the amount, which is not paid by the debtors to whom the goods were sold on credit. Discount: It refers to the amount, which is reduced from the list price of goods. 1/10/2018 Dr, Amit Gupta
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    Items on Credit Side of Profit and Loss Account Gross profit: It is transferred from the Trading account. ' Interest received: It refers to the amount received as interest on investments. ' Commission received: It refers to the commission earned by the business for giving business to others. 1/10/2018 Dr, Amit Gupta 13
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    Manufacturing Account ' It is a special account, which is prepared only when the business is engaged in manufacturing of goods. ' It provides the cost of goods manufactured during a given accounting period. ' In case of manufacturer, the manufacturing account should be prepared prior to the preparation of Trading account and Profit and Loss account. 1/10/2018 Dr, Amit Gupta 14
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    Format of Manufacturing Account articulars Manufacturing Account For the eriod ended AmountParticulars o Work-in ro ss O enin ) o Raw materials consumed: Opening stock dd: Purchase of raw materials ess: Closing stock of raw aterials o direct wages o facto overheads 1/10/2018 B Work-in ro ess Closin B Sale of scra By Cost of production of finished oods Dr. Amit Gupta Cr. mount 15
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    Balance Sheet ' It is a financial statement that states the financial position of the business. ' It lists the assets and liabilities of a business on a particular date. The assets and liabilities on a Balance Sheet are listed in either of the following two orders: — Liquidity order — Permanency order 1/10/2018 Dr, Amit Gupta 16
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    Format of Balance Sheet Liabilities Bank overdraft Outstandin ex enses Bills a able Sun creditors Lon -terms loans Ca ital Total 1/10/2018 Balance Sheet (As on Amoun Assets t Cash in Hand Cash at bank Pre aid ex enses Bills receivables Sun debtors Closin stock Raw materials Work-in-progress Finished goods Plant and machine Total Dr. Amit Gupta Amount 17
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    MEANING OF ADJUSTMENT Those transactions which relate to the accounting period For which financial statements are being prepared but are not included in the trail balance because these transaction have not yet been recorded in the books of accounts are called "ADJUSTMENTS". In addition to it , those transactions which have been recoded in the books of accounts but they do not relate to the accounting period for which accounts are being prepared are also called "ADJUSTMENTS
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    LIST OF IMPORTANT ADJUSTMENTS (I) Closing Stock (n) Outstanding Expenses (m) Prepaid Expenses (IV) Accrued Income (V) Income received in advance (vn) Interest on capital (vm) Interest on Drawings (X) Provision for Bad Debts Provision for discount on Debtors UI) Goods withdrawn for domeü use (Xm)Goods used in Business (free samples, charity or Gifts) UV) Goods sent on sale or approval basis

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