10 & 11 final account

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10 & 11 final account

  1. 1. FINAL ACCOUNT DEFINE FINAL ACCOUNT / FINANCIAL STATEMENTS. It means statements which are prepared to show the profit or loss and a financial position at the end of period  Trading Profit & Loss Account  Balance Sheet WHAT IS TRADING ACCOUNT? It is an account which is prepared to calculate the gross profit or gross loss. DEFINE GROSS PROFIT. It is the amount ascertained by the difference between the costs of goods sold and net sales. GROSS PROFIT = NET SALES - COST OF GOODS SOLD DEFINE DIRECT EXPENSES. Expenses connected with the purchase of goods or Manufacturing of Goods or to bring the goods in resale condition are known as direct expenses. e.g. purchases, wages, carriage in etc DEFINE INDIRECT EXPENSES. All expenses other than direct expenses are called indirect expenses e.g. Salaries. Rent etc EXPLAIN PROFIT AND LOSS ACCOUNT. It is an account which is prepared to calculate the net profit or net loss. WHAT IS NET PROFIT? It is an amount ascertained by deducting all indirect expenses from the gross profit. NET PROFIT = GROSS PROFIT – ALL INDIRECT EXPENSES DEFINE BALANCE SHEET. It is the statement of assets and liabilities which shows financial position of the business. DEFINE THE TERM MARSHALLING. An arrangement in which assets and liabilities are shown in balance sheet.  Permanency Method  Liquidity Method  Mixed Method DEFINE ASSETS. Valuable things possess by the business are called assets e.g. Building, Machinery and Furniture etc. DEFINE REAL ASSETS. Assets which have some market value are called real assets e.g. Building, Machinery, Furniture etc. DEFINE FIXED ASSETS. An asset that is not consumed or sold during the normal course of business, such as Building, Machinery etc DEFINE TANGIBLE ASSETS. Assets which have physically existence e.g. Building, Machinery, Furniture etc.PUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 1
  2. 2. FINAL ACCOUNT DEFINE INTANGIBLE ASSETS. Assets which have no physically existence e.g. Good will, Trade mark. Patent etc DEFINE CURRENT ASSETS / FLOATING ASSETS /CIRCULATING ASSET.). Asset which can be converted into cash within one year are called current asset e.g. Cash, Bank, Debtors etc DEFINE LIQUID ASSETS / QUICK ASSETS. An asset which can be converted into cash very quickly e.g. Debtors, Cash, Bank etc DEFINE FICTITIOUS ASSETS (DEFFERED COST). Assets which have no market value are called fictitious assets e.g. preliminary expenses etc DEFINE WASTING ASSETS. Natural resource such as coal, gas, oil that diminishes in value due to depletion are called wasting assets. DEFINE CONTINGENT ASSETS. Assets which come into existence upon the happening of a certain event are called contingent assets. DEFINE LIABILITIES Outsider contribution in business assets are called liabilities or These are the amounts payable by the business e.g. bank loans and creditor DEFINE EXTERNAL LIABILITIES. The total amount payable by a business to outsiders (other than owner) are called external liabilities e.g. Creditors, Bills payable etc EXPLAIN INTERNAL LIABILITIES. The total amount payable by a business to its owner is called internal liabilities. DEFINE FIXED LIABILITIES. Liabilities which are payable after a long period of time are called fixed liabilities e.g. Debentures EXPLAIN CURRENT LIABILITIES. Liabilities which are payable within a year are called current liabilities e.g. creditors, Overdraft, bills payable etc EXPLAIN LIQUID OR QUICK LIABILITIES. Liabilities which are payable within a month are called liquid or quick liabilities e.g. Outstanding Expenses, Creditors, Overdraft etc EXPLAIN CONTINGENT LIABILITIES. Liabilities which come into existence upon the happening of a certain event are called contingent liabilities e.g. Bill Receivable discounted with bank DEFINE CAPITAL. The amount of cash or the value of goods or both invested by the owner in establishing his business are called capital.PUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 2
  3. 3. FINAL ACCOUNT DEFINE TRADING CAPITAL. The portion of business fund which is represented by fixed assets and floating assets is called trading capital. DEFINE FIXED CAPITAL. The portion of business fund which is represented by fixed assets is called fixed capital. DEFINE CIRCULATING CAPITAL. The portion of business fund which is represented by floating assets is called circulating capital. DEFINE WORKING CAPITAL. The excess of current assets over current liabilities is called working capital. WORKING CAPITAL = CURRENT ASSET – CURRENT LIABILITIES DEFINE BAD DEBTS. The debts which are irrecoverable form debtors are called bad debts. DEFINE DOUBTFUL DEBTS. The debt whose recovery is doubtful is called doubtful debts. EXPLAIN BAD DEBTS RECOVERED. Debts which are written off as bad, if recovered in future are called bad debts recovered. DEFINE DEBT. Amount due from debtor is called debt DEFINE PROVISION. Amount set aside out of profit for a possible loss or liability is called provision DEFINE COST OF GOODS SOLD. It represents the sum of the cost of all goods sold Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock DEFINE ADJUSTMENTS. It means to adjust the incomes or expenses according to current year. EXPLAIN OUTSTANDING EXPENSES. Expenses of the current year which are still payable are called outstanding expenses ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Expenses account XXX To outstanding expense account XXX EXPLAIN PRE-PAID EXPENSE. Expenses of the next year paid in current year as an advance payment are called prepaid expenses ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Pre-paid Expenses account XXX To Expense account XXXPUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 3
  4. 4. FINAL ACCOUNT EXPLAIN OUTSTANDING INCOME. Income of the current year which are still receivable are called outstanding income ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Outstanding Income account XXX To Income account XXX EXPLAIN UNEARNED INCOME. Income of the next year received in current year as an advance receipt are called unearned income ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Income account XXX To Unearned Income account XXX EXPLAIN DEPRECIATION. Gradual and permanent decrease in the value of fixed asset is known as depreciation ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Depreciation account XXX To Asset account XXX WHAT IS PROVISION FOR DOUBTFUL DEBTS / ALLOWANCES FOR UNCOLLECTABL? Provision which is created for doubtful debts are called provision for doubtful debts ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Profit & Loss a/c XXX To Provision for doubtful debts a/c XXX WHAT IS PROVISION FOR DISCOUNT ON DEBTOR? Provision which is created for estimated amount of discount to debtors ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Profit & Loss a/c XXX To Provision for discount on debtor a/c XXX WHAT IS PROVISION FOR DISCOUNT ON CEDITOR? Provision which is created for estimated amount of discount from creditors ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Provision for discount on creditor a/c XXX To Profit & Loss a/c XXX ADJUSTING ENTRY FOR INTEREST ON CAPITAL? ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Interest on capital account XXX To Capital account XXXPUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 4
  5. 5. FINAL ACCOUNT WHAT IS ADJUSTING ENTRY FOR INTEREST ON DRAWINGS? ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Drawings account XXX To Interest on drawings account XXX ADJUSTING ENTRY FOR CLOSING STOCK? ADJUSTING ENTRY DATE PARTICULAR L.F DEBIT (RS) CREDIT(RS) Closing stock account XXX To Trading account XXX DEFINE INCOME STATEMENT. A statement which is prepared to calculate net income or net loss of the business DEFINE OPERATING EXPENSES. Expenses which are incurred for the generation of income are called operating expenses. DEFINE SELLING EXPENSES. Expenses which are incurred for the sale of goods are called selling expenses. DEFINE ADMINISTRATIVE EXPENSES. Expenses which are connected with the office are called administrative expensesPUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 5

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