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FINAL ACCOUNTS

and
Reports to be Annexure
` By: Dhirender Kumar
Rakesh Kumar
Devender Kumar
Manish Kumar
Fanish Kumar
Ajay Kumar
Final Accounts

A formal records of business


transactions in order to have an
overview of the Companies profitability
and financial condition at the end of the
year.
Requirement
Money is invested in a business with the primary
aim of earning profit. For knowing this, it is
necessary that the Accountant must measure and
accumulate accounting data in such a manner that
a amount of profit earned or loss suffered by the
business may be determined and reported.
For the purpose of determining the profit or loss
figure and financial position at the end of year a
statement knows as Final Account is prepared at
the end of accounting year which include all the
figures in details income, expenditure, assets and
liabilities of the Firm .
Need of Final Account

 To know profitability
 For decision making
 To measure growth
 To control over expenses
Users of Financial statements

 Management of Company.
 Shareholder & Potential Investors
 Lenders and Creditors
 Employees and Trade Unions
 Government
 Stock Exchange
Guide lines regarding Final
Accounts under Indian Company Act
1956
Section 210 of Indian Companies Act 1956
provide that at the Annual General Meeting, the
Board of Directors of the Co. have to present
Financial Statement before the members.

Such Balance Sheet and Profit & Loss Account


shall be prepared as per schedule VI to the
Companies Act 1956.
Cont..
The schedule VI has four parts:
Part I : It gives the details format of a Balance
Sheet. As per Part I the Balance Sheet
can be prepared either in Horizontal form
or Vertical form.
Part I I : It gives the guide lines for Profit & Loss
Account such as quantitative details of
some items must have. It does not
specified any format for Profit & Loss
Account.
Cont..
Part III : It gives the interpretation of certain
terms used in part I & II.

Part IV : It deals with Balance Sheet abstract


and the Company's general business
profile.
Components of Final Account for
Trading Firm

Final Account

Trading Account Profit & Loss


Balance Sheet
Account
Components of Final Account for
manufacturing Firm

Final Account

Manufacturing
Account

Profit & Loss


Trading Account Balance Sheet
Account
Manufacturing Account

It is prepared with the intention to disclose


cost of the goods manufactured during a
particular period.
Features of Manufacturing
Account
 It is part of Trading Account.
 It is prepared by only manufacturing companies
in addition to Trading Account.
 In case of manufacturing more than one product
then it prepares separate account for each.
 It contains direct cost of production.
 It is prepared to ascertain the cost of
manufacturing the goods.
 The cost of manufacturing goods is transferred
to Trading Account.
Content of Manufacturing
Account
 Direct Material
 Direct Labour
 Direct Expenses
 Manufacturing Overhead
 Closing Stock of Raw Material
Pro-forma of Manufacturing Account
………………. (Name of the Firm)
Manufacturing Account
Dr. for the year ending …… Cr.
Particular Amount Particular Amount
To Direct Material : By Closing Stock of Raw
Opening Stock of Raw Material WIP ..........
Material WIP .......... By Cost of goods transferred
Purchases of Raw to trading account ..........
Material WIP ..........
Carriage inwards .......... ..........

To Direct Labour : ..........


Factory wages
To Direct Expenses :
Factory rent ..........
Fuel, power, gas ..........
Factory insurance ..........
Depreciation on factory
Building and ..........
machinery .......... ..........
To manufacturing overhead

.......... ..........
Trading Account

A trading a/c is a part of the financial


statement which determines the gross
profit or gross loss during an accounting
year.
Features Trading Account
 Trading Account gives the overall result of
trading, i.e. gross profit or gross loss.
 The equation of trading Account is as:
Gross profit / loss = Sales – Cost of goods
sold
 Debit side of account contains all direct
expenses, purchases and opening stock etc.
 Credit side of account is contains sales and
closing stock etc.
 The Gross Profit / Gross Loss is transferred to
Profit & Loss account.
Content of Trading A/c
 Opening stock
 Purchases & Returns
 Direct Expense
 Sales & Returns
 Closing stock
Pro-forma of Trading Account in
absence of Manufacturing Account
………………. (Name of the Firm)
Trading Account
Dr. for the year ending …… Cr.
Particular Amount Particular Amount
To Opening Stock ………. By Sales ……….
To Purchases ………. Less: Returns ………. ……….
Less: Returns ………. ………. ……….
To ………. By Closing Stock ……….
Direct expenses By Gross Loss c/d
……….
To Gross Profit c/d

………. ……….
Pro-forma of Trading Account in
presence of Manufacturing Account
………………. (Name of the Firm)
Trading Account
Dr. for the year ending …… Cr.
Particular Amount Particular Amount
To Opening Stock of finished By Sales ………
goods ………. Less: Returns ……... ……….
To Cost of production of By Closing Stock of finished
finished goods transferred goods ……….
from Manufacturing Account ………. By Gross Loss c/d ……….
To Purchases of
finished goods ………
Less: Returns ……...
To Carriage ……….
To Gross Profit c/d ……….

………. ……….
Profit & Loss Account

Prof. Carter : “A Profit & Loss Account is an


account into which all gains & losses are
collected in order to ascertain the excess of gains
over losses or vice a versa.
Features Profit & Loss Account
 Profit & Loss Account is prepared to
calculate Net Profit or Net Loss of the firm.
 It follows Accrual accounting concept.
 Debit side of account contains the all
indirect expenses, losses and Gross Loss.
 Credit side of account contains the all
incomes, gain and Gross Profit.
 Net Profit / Net Loss is transferred to
Capital Account.
Content of Profit & Loss
Account
 Office & Administration expenses
 Selling & Distribution expenses
 Financial expenses
 Abnormal losses
 Income from main business
 Financial income
Pro-forma of Profit & Loss
Account
…………….(Name of Firm)
Profit & Loss Account
Dr. for the year ending …….. Cr.
Particulars Amount Particulars Amount
To Gross Loss b/d ………. By Gross Profit b/d ……….
To Salaries ………. By Net Loss ……….
To Rent ……….
To Commission ……….
To Advertisement ……….
To Bad ……….
To Net Profit ……….

………. ……….
Balance Sheet
A statement which sets out the asset and
liabilities of a firm or an institution as on a
certain date.

Francis R Stead – “A balance sheet is a


screen picture of the financial position of a
going business at a certain moment.”
Features Balance Sheet
 It is a statement prepared with the aim to
know the exact financial position of
business at last date of the financial year.
 It is a T shape statement. On the left hand
side ‘Liabilities’ and on right hand side
‘Assets’ of the business shown.
 A balance sheet is prepared from the Real
a/c and Personal a/c only.
 The equation of Balance Sheet is as:
Assets = Capital + Liabilities
Marshalling of Balance Sheet

The arrangement of the items in Balance


Sheet in proper way is know as Marshalling
of Balance Sheet. There is two type of
Marshalling of Balance Sheet:
 Liquidity order
 Permanence order
Liquidity Order
In Case of Liquidity Order Marshalling more
liquid Assets are shown first and then less
liquid and so on. Similarly on the liability
side, current liabilities in order to payment
are shown first, then long term and lastly
the capital of proprietor.
Pro-forma of Balance Sheet in
Liquidity Order
……………….(Name of the Firm)
Balance Sheet
As on …………
Liabilities Amount Assets Amount
Current Liabilities Current Assets
Creditors ………. Cash in hand ……….
Bills Payable ………. Cash at Bank ……….
Bank Overdraft ………. Stock in trade ……….
Outstanding Expenses ………. Bills Receivable ……….
Income received in advance ………. Prepaid Expenses ……….
Fixed Liabilities Investments ……….
Loan ………. Fixed Assets
Mortgage ………. Furniture & Fixtures ……….
Capital ………. Plant & Machinery ……….
Building ……….
Land ……….
Goodwill ……….

Total ………. Total ……….


Permanence Order
In Case of Permanence Order Marshalling
more permanent Assets are shown first and
then less permanent and so on. Similarly
on the liability side, permanent liabilities in
order to payment are shown first, then long
term liabilities as on.
Pro-forma of Balance Sheet in
Permanence Order
……………….(Name of the Firm)
Balance Sheet
As on …………
Liabilities Amount Assets Amount
Capital ………. Fixed Assets
Fixed Liabilities Furniture & Fixtures ……….
Loan ………. Plant & Machinery ……….
Mortgage ………. Building ……….
Current Liabilities Land ……….
Creditors ………. Goodwill ……….
Bills Payable ………. Investments ……….
Bank Overdraft ………. Current Assets
Outstanding Expenses ………. Cash in hand ……….
Income received in advance ………. Cash at Bank ……….
Stock in trade ……….
Bills Receivable ……….
Prepaid Expenses ……….

Total ………. Total ……….


Example of Final Account
 Prepare the final account from given trail balance and other information.
Balance as on 31-03-2009 are as follows:
Particular Debit Amount Credit Amount
Opening Stock 25000 -
Capital - 225000
Debtors and Creditors 30000 17500
Purchase and sales 200000 350000
Returns 7500 5000
Wages and Salaries 16500 -
Commission - 6500
Machinery & Furniture 50000 -
Bad Debts 4000 -
Provision for debt & doubtful debts - 5000
Bills Receivable & Bills Payable 15000 3500
Land & Building 200000 -
Insurance 14500 -
Cash and Bank 25000 -
Drawing 25000 -
Additional information:
 Value of closing stock as on 31-03-2009 is Rs. 20000.
 Wages and salaries outstanding Rs. 500.
 Insurance prepaid Rs. 2000.
 Provision for doubtful debts on Debtors @ 5%.
 Depreciation on machinery and Furniture @ 10%.
 Goods costing Rs. 1200 were sold on approval basis for Rs. 15000. These goods
were not approved by customer as yet.
Solution:
Trading Account
Dr. For year ending 31-03-2009 Cr.
Particular Amount Particular Amount
To Opening Stock 25000 By Sales 350000
To Purchases 200000 Less: Returns 7500
Less: Returns 5000 195000 Less: Goods sold to
To Approval basis 15000 327500
Wages & Salaries 16500 17000 By Closing Stock 20000
Add:O/S wags & salaries 500 122500 Add: Goods sold to
To Gross Profit c/d Approval basis 12000 32000
359500
359500
Profit & Loss Account
Dr. for the year ending 31-03-2009 Cr.
Particulars Amount Particulars Amount
To Bad debts 4000 By Gross Profit b/d 122500
Add: New provision 1500 By Commission 6500
Less : Old provision 5000 500
To Insurance 14500
Less: Prepaid 2000 12500
To Depreciation on Machinery
& furniture 5000
To Net Profit 111000

129000 129000
Balance Sheet
As on 31-03-2009
Liabilities Amount Assets Amount
Capital 225000 Fixed Assets
Less: Drawing 25000 Land & Building 200000
Add: Net Profit 111000 311000Machinery & Furniture 50000
Current Liabilities Less: Depreciation 5000 45000
Bills Payable 3500Current Assets
Creditors 17500Bills Receivable 15000
Outstanding wages & salaries 500Debtors 30000
Less: Sales on
approval basis 15000
Less: Provision for
bad debts 1500 13500
Cash and Bank 25000
Prepaid Insurance 2000
Stock in trade 20000
Add: Sales on
approval Basis 12000 32000

Total 332500 Total 332500


Report to be Annexure
At the end of every accounting period each
company comes out with Financial Statement. The
following reports are annexure with Financial
Statement.
 Report from director
 Auditor’s Report
 Corporate Governance Report
 Financial Statistics
 Major Accounting Policies
Director’s Report
It is a report prepared by Directors of Company
regarding overall performance of company. The
contents of a Director’s reports are as below :

 Highlights of Financial Result.


 An overview of performance of the Co.
during the year.
 Future Projects in hand or expected.
Cont..
 Future expansion programme.
 About appointment / reappointment of Auditors.
 About retirement / appointment / reappointment
of Directors.
Auditor’s Report
An Auditor’s Report is formal opinion whether the
auditee's financial statements have been
prepared in accordance with Generally Accepted
Accounting Principles (GAAP), whether they are
free of material misstatement (e.g. free of
important and significant errors), and whether
they show a true and fair view of the operating
results, financial position and cash flows of the
auditee.
Type of Auditor’s Report

Unmodified Opinion report
 Qualified Opinion report
 Adverse Opinion report

Disclaimer of Opinion report
Corporate Governance Report

It is report prepared by Board of Directors


of Co. It is represent that governance of
company is how fair & good. Usually CG
report have following contents:
 Board of Directors
 Audit Committee
 Shareholder Committee
 Managerial remuneration
Financial Statistics

It contents the past record such as annual


turnover, profit , debts of company and
total wealth of the company and
comparative time series analysis of these
records to show the growth trend of
company
Major Accounting Policies
 Accounting policies refers to the specific
accounting principal and methods for
applying those principles adopted by the
Co.
 According to AS - 1 of ICAI, a Co. is free
to formulate its own accounting policies.
 These policies have to disclosed with
Financial Statement.
Any Question