Learning Objectives

• Final accounts and its preparation.

• Trading, profit & loss, balance
sheet.
• Format of accounts.
• Adjustment and its dual aspect.
• Problem and Solution.

Dr. Sharon Sophia, VIT

 Companies Act
All sums of money received and spent by the
company and the money in respect of which the
receipt and expenditure take place.

All sale and purchases of goods by the company.

The assets and liabilities of the company. The books

of accounts and the relevant vouchers to any entry
relating to period of at least eight immediately
preceding the current must be preserved.

Dr. Sharon Sophia, VIT

Standards for Financial Statement
Schedule III of Companies Act 2013

Ind AS and IFRS

Comparison of Financial Statement

Accrual Concept

Double Entry System, True and Fair

Books of Accounts in Electronic Mode.

BOD should approve by signing the Financial Statements.

Audited Financial Statement to be adopted by AGM

Dr. Sharon Sophia, VIT
Compliance for Financial Statement
Time period of adopting in AGM is 60
days.

The Financial Statement to be reported

in ROC (Registrar of Companies).

Time period is 30 days to file in ROC in

Form AOC 4.

Then the Financial Statement can be

viewed by any stake holders.
Dr. Sharon Sophia, VIT
Financial Statements
A financial statement
is the combination of
the three major
reports on a
business.
It contains of: Cash Flow
Statement, Income
Statement and Balance
Sheet of business

All three together produce an overall

picture of the health of the business.

Dr. Sharon Sophia, VIT

 Final Accounts
Final accounts are the accounts which are
prepared at the end of an accounting year.

It highlights both the financial position and

profits of a business, can be used by any
investors or internal bodies for various
reasons.

The final trial balance comprises of all of the

journal entries that are used to close the
books, such as payroll tax accruals and wage..

Dr. Sharon Sophia, VIT

PURPOSE OF FINAL ACCOUNTS

As per
Final Accounts Companies Act
can be reviewed 2013 Schedule III
by all and the it is mandatory
firm’s position to prepare final
can be assessed. accounts.

These reports help

the shareholders, the
owners of the
company to identify
the firm’s
performance in the
financial year.

Dr. Sharon Sophia, VIT

Financial Statement
Income
Statement

Balance Sheet
Statement

Cash Flow Statement

Dr. Sharon Sophia, VIT

 Manufacturing A/C
It is the cycle of
Manufacturing requirement of
cost of Goods in an goods for the
accounting period. purpose of
manufacturing.

Raw Material, WIP,

Direct Material,
Direct labour and It is the sum total
Expenses and of Purchase of RM
Manufacturing in a company
Overheads are
included.

Dr. Sharon Sophia, VIT

 Trading A/C
Trading activity –
Purchase and Sale

Includes direct
revenue and
expenses.
The trading activity of
a company is
recorded.
Helps in processing
other accounts

Trade related profit

and loss is indicated.

Dr. Sharon Sophia, VIT

Profit & Loss A/C
Financial records and financial
performance of the company over
the period of time.

Expenses, Income and Profit are

recorded.

Information about return on

investment, movement of funds and
the payments and income are
clearly structured.

Dr. Sharon Sophia, VIT

 Balance Sheet
Asset and its
market value.
Repayment
and Issue of
Identifying Capital
the future
Evaluation of prospect of
the net the company.
Asset = worth of the
Liabilities + company.
Statement of Shareholders
Financial fund.
position.

Dr. Sharon Sophia, VIT

Usefulness of Statements
Evaluating past performance.

Predicting future performance

Risk and Uncertainty in future cash flow.

Value of business at a particular point of time.

The future of the company.

The Net worth of the company in case of crises

Dr. Sharon Sophia, VIT

 Practical Application
• Three types of Statement
_________.
• Difference between Manufacturing
account and Trading account
_______.
• Time period of Accounting
_________.
• List of beneficiaries in Financial
Statement ______________.
Dr. Sharon Sophia, VIT
 Adjustments

Dr. Sharon Sophia, VIT

Cycle of Adjustments
End of the
accounting
period

Revenues
are recorded
Identification in the period
of profit. in which
they are
earned

Expenses are
Completenes recognized in
s of the period
accounts. which they
are incurred.

Dr. Sharon Sophia, VIT

Outstanding Expenses
Accrued expense is an expense which has
been incurred by not yet paid. Expenses
must be recorded in the year in which it is
incurred rather than the year in which it is
actually paid.

Example salary expenses for the month of

March 2020 recorded in F Y 19-20 itself
even though it may be actually paid in April
2020 in the FY 20-21.

Dr. Sharon Sophia, VIT

Prepaid Expenses
It is future expenses that have been
paid in advance but the actual services
received in subsequent period.

This is treated as current asset in

balance sheet.

Example: Insurance premium paid in

advance for the next one year.

Dr. Sharon Sophia, VIT

 Advance Income
The funds received from customer in advance
prior to supply of goods or provision of service.

It is considered as liability until the goods has been

delivered or service has been provided, therefore
it is shown as current liabilities in Balance Sheet.

Example: Advance money received from customer.

Dr. Sharon Sophia, VIT

 Accrued Income
Accrued income is income which has been earned but
not yet received.

Income must be recorded in the accounting year in

which it is earned.

Therefore it must be recognized in the year in which it is

earned irrespective of the year in which it is received
subsequently.

Example: Rental income for the month of March 2020 is

earned and recorded in the F Y 19-20 even though it
may be received in April 2020 that is in FY 20-21.
Dr. Sharon Sophia, VIT
Practical Application
• Outstanding Expenses
__________.
• Prepaid Expenses _________.
• Accrued Income _________.
• Advance Income ________.

Dr. Sharon Sophia, VIT

Additional Adjustment
Depreciation – Fixed Asset

Interest on Capital – Capital

Interest of Drawing – Drawing

Bad Debts, Provision, Additional Bad Debts – Debtor

Commission - Net Profit

Closing Stock – Dual Aspect

Dr. Sharon Sophia, VIT
Treatment of Adjustment
Given in
1 Closing Stock Closing Stock Trading A/c (Cr) Adjustment
Given in
Closing Stock B/S Current Asset (Dr) Adjustment

2 Outstanding Rent Rent Given in Problem

Liability - Current Liability Given in
(+) Oustanding Rent (Cr) Adjustment
Rent P&L A/c (Dr.)

3 Prepaid Salary Salary Given in Problem

Given in
(-) Prepaid Salary Asset - Current Asset (Dr) Adjustment
Salary P&L A/c (Dr)

Interest on
4 Accrued Interest Investment Given in Problem
Given in
(+) Accrued Interest Asset - Current Asset (Dr) Adjustment
Interest on
Investment P&L A/c (Cr)

Dr. Sharon Sophia, VIT

Treatment of Adjustment
5 Advance Dividend Dividend on Shares Given in Problem

(-) Advance Liability - Current Given in

Dividend Liability (Cr) Adjustment
Dividend on Shares P&L A/c (Cr)

6 Depreciation Land & Building Given in Problem

10% of Given in
Depreciation P&L A/c (Dr) Adjustment
Land & Building Asset - Fixed Asset (Dr)

7 Depreciation Plant & Machinery Given in Problem

(-)20% Given in
Depreciation P&L A/c (Dr) Adjustment
Plant & Machinery Asset - Fixed Asset (Dr)
Dr. Sharon Sophia, VIT
Treatment of Adjustments
Provision for Bad
8 Debts Debtors Given in Problem
(-) Provision for Given in
Bad Debts P&L A/c (Dr) Adjustment
Asset - Current Asset
Debtors (Dr)

Interest on
9 Drawing Drawing Given in Problem
(+) 10% Interest on Given in
Drawing P&L A/c (Cr) Adjustment
Drawing Liability - Capital (Cr)

10 Interest on Capital Capital Given in Problem

(+) 10% Interest on Given in
Capital P&L A/c (Dr) Adjustment
Liability - Capital (Cr)
(-) Drawing
(-) Interest on
Drawing
Capital Liability - Capital (Cr)

Dr. Sharon Sophia, VIT

Treatment of Adjustments
Given in
11 Accidental Loss Accidental Loss Trading A/c (Cr) Adjustment

Given in
(-)Insurance Claim Asset - CA - (Dr) Adjustment

Difference is
Loss on Goods P&L A/c (Dr) Loss

Dr. Sharon Sophia, VIT

Debtors Classification

Good Doubtful
Debtors Debtors

Bad
debtors

Dr. Sharon Sophia, VIT

 Suspense Account
It’s a general ledger account in which amounts are
temporarily recorded.

It is used because the appropriate general ledger

account could not be determined at the time of
transaction was recorded.

Example: Advance paid to employee for business trip

is recorded in suspense account at the time of
payment.

Later when the employee settles the advance it is

recorded in the appropriate ledger accounts based on
actual expenses like travel, accommodation, food etc.
Dr. Sharon Sophia, VIT
 Practical Application
• Name the adjustment for Debtors
______.
• Goods lost by fire will be posted
_________.
• Posting of Outstanding and Prepaid
expenses _________.
• Posting of Accrued and Advance
Income __________.
Dr. Sharon Sophia, VIT
 Trading A/C Trading Account
for the year ended ……..
PARTICULARS (Dr.) Rs PARTICULARS (Cr.) Rs
To Opening Stock By Sales
To Purchases Less: Return inwards
Less Return Onwards ByClosing Stock
To Freight Onwards By Gross Loss c/d
To Customs and Insurance
To Wages
To Gas Water and Fuel
To Factory/trading Expenses
To Royalty on Production
To Cargo Expenses
To shipping Expenses
To Import Duty
To Customs Duty
To Dock Charges
To Octroi
To Commission on Purchases
To Gross Profit c/d
Total Total
Dr. Sharon Sophia, VIT
 Profit & Loss A/C
Profit and Loss Account of ….
For the year ending…
Particulars (Dr.) Amt Rs. Particulars (Cr.) Amt Rs.
To Gross loss b/d By Gross Profit b/d
To Sales Commission By Rent received a/c
To Selling and disturbing
expenses By Misc received
To Postage and Telegram By Interest received
To Insurance By Discount received
By Compensation
To Electricity Charges received
To Telephone Charges By Commission received
To General/Operations By Profit on sale of fixed
Expenses assets
To Legal Charges By bad debt recovered
To Discount allowed By Apprentice Premium
To Audit Fee By Net Loss c/d
Dr. Sharon Sophia, VIT
 Profit & Loss A/C
To Bank Charges
To Interest
To Free Sample Distritution
To Office and Adminstrative
Expenses
To Entertainment Expenses
To Donation and charities
To Sales Tax
To Good lost by fire/theft
To Loss on sale of fixed asset
To Carriage outward
To Printing and Stationery
To Rent and rates taxes
To depreciation on fixed asset
To Other Expenses
To Bad Debts
To Net Profits a/c
Dr. Sharon Sophia, VIT
 Balance Sheet
Balance Sheet as at 31 March 2020
LIABILITIES
I EQUITIES AND LIABILITIES
(1) Share Holders Funds
(a) Share Capital
(b)Profit for the year
(c ) Money received against Share
Warrants
(2) Reserves & Surplus
(3) Long Term Liabilities
(a) Long Term Borrowings
(b) Defered Tax Liabilities (Net)
(c ) Other Long Term Liabilities
(d) Long Term Provision
(4) Current Liabilities
(a) Short-Term Borrowings
(b) Trade Payables
(c ) Other Current Liabilities
(d) Short Term Provisions
TOTAL Dr. Sharon Sophia, VIT
Amount ASSET Amount
I ASSETS
(1) Non Current Assets
(a) Fixed Assets
(i) Tangible Assets
(ii) Intangible Assets
(iii) Capital Work in Progress
(iv) Intangible assets under
development
(b) Non Current Investments
(c ) Deferred Tax assets (net)
(d ) Long Term Loans and advances
(e ) Other Non Current Assets
(2) Current Assets
(a) Current Investments
(b) Investments
(c ) Trade Receivables
(d) Cash and Cash Equivalents
(e ) Short Term Loans and Advances
(f) Other Current Assets
TOTAL
 Practical Exercise
• Sales ________
• Purchase _________
• Carriage Inward _________
• Carriage Outward ________
• Current Asset _________
• Fixed Asset _______
• Reserves and Surplus _______
• Capital _______
• Drawings ________
• Closing Stock _________
• Expenses _________
• Income ________
Dr. Sharon Sophia, VIT
 Problem
• Prepare Final Accounts for the year ended
March
Particulars (Dr.) 2020. Amount Particulars Amount (Cr.)
Opening Stock 100000 Sales 500000
Purchase 200000 Purchase Return 5000
Wages 10000 Discount Received 5000
Carriage Inward 1000 Interest on Investment 4000
Frieght Expenses 2000 Profit on Sale of Investment 10000
Trading Expenses 3000 Dividend on Shares 5000
Salary 10000 Commission Received 1000
Rent 5000 Share Capital 800000
Insurance 2000 Reserves & Surplus 100000
EB Bills 8000 Loan & Borrowing 50000
Dividend Paid 2000 Creditors 30000
Discount Allowed 5000 Bills Payable 20000
Carriage Outward 5000
Selling & Distribution Expenses 6000
Salesman Commision 4000
Dr. Sharon Sophia, VIT
 Problem Cont.
Office Expenses 10000
Office Managers Salary 50000
Production Manager Salary 40000
Stationary 5000
Bad Debts 2000
Commision Paid 1000
Land & Billing 200000
Plant & Machinery 500000
Furniture & Fixtures 200000
Debtors 50000
Bill Receivable 80000
Cash in Hand 10000
Cash at Bank 10000
Sales Return 5000
Drawings 4000
1530000 1530000

Dr. Sharon Sophia, VIT

 Adjustment
S.No Adjustments

1 Closing Stock - 5,00,000

2 Outstanding Rent - 1000, Prepaid Salary - 2000

3 Accrued Interest - 1000, Advance Dividend - 1,000

Depreciation - 10% on Land & Building, 20% on Plant &

4 Machinery

5 Provision for Bad Debts - 10%

6 Interest on Capital - 10%, Interest on Drawing 10%

Accidental Loss on Goods - 100000, recovered from Insurance

7 company 80000
Dr. Sharon Sophia, VIT
 Treatment of Adjustment
S.No Adjustment Amount Posting
Given in
1 Closing Stock Closing Stock 500000 Trading A/c (Cr) Adjustment
Given in
Closing Stock 500000 B/s Current Assest (Dr) Adjustment

2 Outstanding Rent Rent 5000 Given in Problem

Liability - Current Liability Given in
(+) Oustanding Rent 1000 (Cr) Adjustment
Rent 6000 P&L A/c (Dr.)

2 Prepaid Salary Salary 10000 Given in Problem

Given in
(-) Prepaid Salary 2000 Asset - Current Asset (Dr) Adjustment
Salary 8000 P&L A/c (Dr)

Interest on
3 Accrued Interest Investment 4000 Given in Problem
Given in
(+) Accrued Interest 1000 Asset - Current Asset (Dr) Adjustment
Interest on
Investment 5000 P&L A/c (Cr)
Dr. Sharon Sophia, VIT
Treatment of Adjustment
Advance Dividend on
4 Dividend Shares 5000 Given in Problem
(-) Advance Liability - Current Given in
Dividend 1000 Liability (Cr) Adjustment
Dividend on
Shares 4000 P&L A/c (Cr)

5 Depreciation Land & Building 200000 Given in Problem

10% of Given in
Depreciation 20000 P&L A/c (Dr) Adjustment

Land & Building 180000 Asset - Fixed Asset (Dr)

6 Depreciation Plant & Machinery 500000 Given in Problem

(-)20% Given in
Depreciation 100000 P&L A/c (Dr) Adjustment

Plant & Machinery 400000 Asset - Fixed Asset (Dr)

Dr. Sharon Sophia, VIT

Treatment of Adjustment
Provision for
7 Bad Debts Debtors 50000 Given in Problem
(-) Provision for Given in
Bad Debts 5000 P&L A/c (Dr) Adjustment
Debtors 45000 Asset - Current Asset (Dr)

Interest on
8 Drawing Drawing 4000 Given in Problem
(+) 10% Interest on Given in
Drawing 400 P&L A/c (Cr) Adjustment
Drawing 4400 Liability - Capital (Cr)

Interest on
9 Capital Capital 800000 Given in Problem
(+) 10% Interest on Given in
Capital 80000 P&L A/c (Dr) Adjustment
880000 Liability - Capital (Cr)
(-) Drawing 4000
(-) Interest on
Drawing 400
Capital 875600 Liability - Capital (Cr)

Dr. Sharon Sophia, VIT

Treatment of Adjustment
Given in
10 Accidental Loss Accidental Loss 100000 Trading A/c (Cr) Adjustment

Given in
(-)Insurance Claim 80000 Asset - CA - (Dr) Adjustment

Loss on Goods 20000 P&L A/c (Dr) Difference is Loss

Dr. Sharon Sophia, VIT

 Trading A/C
Amoun
Particulars (Dr .) t Particulars Amount (Cr.)

To Opening Stock 100000 By Sales 500000

To Purchase 200000 (-) Sales Return (5000) 495000

(-) Purchase Returns (5000) 195000 By Accidental Loss 100000

To Wages 10000 By Closing Stock 500000
To Carriage Inwards 1000
To Frieght 2000
To Trading Expenses 3000
To Gross Profit 784000
(Balancing Figure (B/f))
109500
Total 0 Total 1095000

Dr. Sharon Sophia, VIT

 Profit &Loss A/C
Profit & Loss A/c
Particulars (Dr.) Amount Particulars Amount (Dr.)
To Salary 8000 By Gross Profit 784000
To Rent 6000 By Interest on Drawings 400
To Insurance 2000 By Discount Received 5000
To EB 8000 By Interest on Investment 5000
To Carriage Outward 5000 By Profit on Sale of Investment 10000
To Depreciation By Dividend Received on Shares 4000
Land & Building 20000 By Commission Received 1000
Plant & Machinery 100000
To Bad Debts 2000
To Provision for Bad Debt 5000
To Dividend Paid 2000
To Discount Allowed 5000
To Production Managers Salary 40000
To Office Manager Salary 50000
To Stationary 5000
To Selling & Distribution Expenses 6000
To Salesman Commission 4000
To Loss on Scale of Goods due to
Accident 20000
To Interest on Capital 80000
To Office Expenses 10000
To Commission Paid 1000
To Net Profit (B/f) 430400
Total 809400 Total 809400
Dr. Sharon Sophia, VIT
 Balance Sheet
Balance Sheet As On 31st March
2020
Liabilities (Cr.) Amount Asset (Dr.) Amount
Share Capital Fixed Asset
Capital 875600Land & Building 180000
Net Profit 430400Plant & Machinery 400000
Reserves & Surplus Furniture & Fixture 200000
Reserves & Surplus 100000Current Asset
Loan & Borrowing Closing Stock 500000
Loan & Borrowing 50000Debtors 45000
Current Liabilities Bills Payable 80000
Creditors 30000Cash in Hand 10000
Bills Payable 20000Cash At Bank 10000
Outstanding Rent 1000Insurance Claim 80000
Advance Dividend 1000Prepaid Salary 2000
Accrued Interest 1000
Total 1508000Total 1508000
Dr. Sharon Sophia, VIT
 Summary
• Application and need of Final
Accounts.
• Benefits to the end users
• Preparation and Presentation of
Final Account.
• It’s impact in the companies

Dr. Sharon Sophia, VIT

THANK YOU

Dr. Sharon Sophia, VIT