Be sure able to prepare Final account with adjustment

1. Final Account
with adjustment
generlly three accounts prepared in final account
1. Trading Account
2. Profit & Loss Account
3. Balance Sheet

2. Trading Account .The account which is prepared to determine
the gross profit or gross loss of a business concern is called trading
account
Trading Account
as on 31 december 2013
Particular Amount Particular Amount
Direct Expenses Direct revenue
To opening stock By Sales
To purchases Less; Sales Return
Expenses those are related just
purchases
By closing Stock
Transport in
carraige
Wages
Gross Profit C/D (p&l a/c) Gross loss C/D (p&l a/c)
Total Total

3. Features of Trading account
• It is the first stage of final accounts of a trading concern.
• It is prepared on the last day of an accounting period.
• Only direct revenue and direct expenses are considered in it.
• Direct expenses are recorded on its debit side and direct revenue on its credit side.
• All items of direct expenses and direct revenue concerning current year are taken into account but no item relating
to past or next year is considered in it.
• If its credit side exceeds it represents gross profit and if debit side exceeds it shows gross loss.

4. Direct and indirect Expenses
• Direct Expenses:
• Expenses connected with purchases of goods are known as direct expenses.
For example, freight, insurance, of goods in transit, carriage, wages, custom
duty, import duty, octroi duty etc. Without incurring these expenses, it is not
possible to bring the goods from the purchase point to the godown of the
business. such expenses are collectively known as direct expenses.
• Indirect Expenses:
• All expenses other than direct expenses are assumed as indirect expenses.
Such expenses have no relationship with purchase of goods. Examples of
indirect expenses include rent of building, salaries to employees, legal
charges, insurance of building, depreciation, printing charges etc. So

5. Examples of direct and indirect Expenses

6. Profit and loss Account. The account through which annual net
profit or loss of a business is ascertained, is called profit and loss account.
Profit & loss A/c
as on 31 december 2013
Particular Amount Particular Amount
Indirect Expenses indirect Revenues
By Gross loss B/D T A/c By Gross Profit B/D T A/c
Rent of building Other Revenue of business
Salaries of emplyee
Utility bill
electriciy bill
Net profit C/D balance sheet Net loss C/D balance sheet
Total Total

7. Features of Profit and Loss Account:
• This account is prepared on the last day of an account year in order
to determine the net result of the business.
• It is second stage of the final accounts.
• Only indirect expenses and indirect revenues are shown in this
account.
• It starts with the closing balance of the trading account i.e. gross
profit or gross loss.
• All items of revenue concerning current year - whether received in
cash or not - and all items of expenses - whether paid in cash or not -
are considered in this account. But no item relating to past or next
year is included in it.

8. Balance sheet. "It is a statement which discloses total assets, total
liabilities and total capital (owner's equity) of a concern on a particular date"
Balance Sheet
Liabilities & Capital Amount Assets Amount
Capital non current assets
Add: Net profit Cash , bank , inventory , Accrued
Expenses , etc
less: Net loss non current assets
less: Drawings building, furniture, fixture , saving bank
a/c land , plant , machinary
Current liabilities
Non Current libilities
Total Total

9. Adjustment
• 1 Expenditure incurred whether paid or not if related to succeeding
year are excluded
• 2 Income earned whether received or not if related to succeeding
year are record excluded

10. Adjustment appearing out side the trail balance
• 1 closing Stock
Trading Account Balance Sheet
Credit side Asset side

11. Adjustment appearing out side the trail balance
• 2. Out standing Expenses/ Due Expenses / incurred =
Trading Account / Profit & loss a/c Balance Sheet
Related Expenses
Add: Out Standing Expenses
Laibility Side

12. Adjustment appearing out side the trail balance
• 3. Prepaid Expenses / Unexpired Expenses
Trading Account / Profit & loss a/c Balance Sheet
Related Expenses
Less: Prepaid Expenses
Asset side

13. Adjustment appearing out side the trail balance
• 4. Accrued Income/ Income earned but not yet received
Trading Account / Profit & loss a/c Balance Sheet
Related income
Add: Accrued income
Asset side

14. Adjustment appearing out side the trail balance
• 1 closing Stock
Trading Account Balance Sheet
Credit side Asset side