Topic 9 final accounts

Final Accounts of Sole Proprietorship form of Business

Lecture by Srinivas M. Final Accounts of Sole Proprietorship form of Business1

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Objectives

Learner will be able to prepare final statement of a business - Profit and loss account and Balance Sheet

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The process of Accounting Cycle ends with the preparation of Final Accounts .So Let us begin understanding various steps to compile final accountsAccounting Cycle : JournalLedgerTrial BalanceFinal Accounts3

ProceduresAsk the students what the meaning of Accounting cycle.Divide the class into groups, and have each group meet to brainstorm a list of items which can be incorporated in the final statements. Think of closing entries.Next, have students do research to find closing entries necessary to compile final statements. Handouts on the format of Trading and Profit and loss account and Balance sheet to be shared.Invite students to compare in the intergroup outcome of their research.

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Final Statements of Sole Proprietor comprise of preparing the following statementsTrading and Profit and loss account Balance Sheet

Before we move further, let me elaborate on some of the new terms and their meaning4

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To Opening StockTo PurchasesLess Purchase returnTO Direct expenses

To Gross Profit

Rs..

..

..

?By Sales ..Less Sales return By Closing StockRs...

..

Trading Account5

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Prepare a trading account of Mr.Devan for the year ended 31st March 2015.Opening stock 5,700Purchases 1,58,000Purchases returns 900Sales 2,62,000Sales returns 600Closing stock was valued at Rs.8,600.

[Answer : Gross profit Rs. 1,07,200]7

The following are some of the balances extracted from the ledger of Mr. Sundaram as on 31st December 2015. Prepare a trading account.Particulars Debit Rs.CreditRs.Stock 1.1.2015 12,500Purchases 1,00,000Sales 1,50,000Returns outwards 5,000Returns inwards 10,000Salaries 4,400Wages 7,500Rent 2,750Carriage inwards 2,500Carriage outwards 750Power, coal, gas 1,000Stock on 31.12.2015 was valued at Rs.14,000.(Answer : Gross profit Rs. 35,500)8

Now Let us move further to the second part of the income statement; i.e Profit and loss AccountTo Indirect Expenses and lossesOffice and Administration Expense Selling and Distribution Expenses Financial ExpensesDepreciation and RepairsAny other loss etc.

To Net Profit

Rs..

..

..

?By Gross Profit By Income Discount ReceivedCommission receivedInterest Received etc.Rs...

..

Profit and Loss Account9

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Examples of Office and Administration Expenses ; Salaries, Rent, stationery, Telephone Charges, legal expense , postage etc

Selling and Distribution Charges : Advertisement, Carriage outwards, Commission, showroom rent, etcFinancial Expenses Bank charges, interest on loan and on capital Depreciation and Repairs on Fixed Assets Other losses like Bad Debts, loss of goods by fire etc. 10

Prepare profit and loss account of Mrs. Nandini for the year ended 31st Dec. 2001 from the following.

Gross profit 1,25,000 Discount paid 600Salaries 15,000Discount received 1,000Rent 5,000Interest paid 500Carriage outwards 1,000Interest received 700Selling expenses 500 Commission earned 2,000Income from investment1,500

[Answer : Net profit Rs.1,07,600]12

The following balances are taken from the books of M/s. RGV Ltd. Prepare profit and loss account for the year ended 31st March 2012.

Gross profit5,25,000 Salaries & wages 1,00,000Rent 10,000 Depreciation 5,000Interest on loan 5,000 Office expenses 1,500Distribution charges 2,500 Salesman salary 8,000Bad debts2,200 Stationery and printing 500Commission received 3,000Discount received 2,000Interest received 5,000 Advertising 9,000Taxes and insurance 2,000

[Answer : Net profit Rs. 3,89,300]13

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Balance sheet is a statement prepared to know the financial position of the business at the end of the year ( that is balances of Assets and Liabilities)Balance Sheet

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Fixed Assets are long term assets which are not for sale in the ordinary course business.

Current Assets are short term assets, which keep changing from one form to another within a short period of 12 months

Have a wonderful day!!!

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