0 évaluation0% ont trouvé ce document utile (0 vote)
84 vues53 pages
Transactions are recorded in a journal and posted to ledger accounts. The ledger contains account balances. A trial balance is prepared from the ledger balances to check the arithmetic accuracy of accounts. It lists debit and credit balances. Final accounts including the trading account and profit & loss account are prepared from the trial balance. The trading account shows the results of business operations like purchases, sales, expenses. The profit & loss account consists of income and expenses to determine the profit or loss for the period.
Transactions are recorded in a journal and posted to ledger accounts. The ledger contains account balances. A trial balance is prepared from the ledger balances to check the arithmetic accuracy of accounts. It lists debit and credit balances. Final accounts including the trading account and profit & loss account are prepared from the trial balance. The trading account shows the results of business operations like purchases, sales, expenses. The profit & loss account consists of income and expenses to determine the profit or loss for the period.
Transactions are recorded in a journal and posted to ledger accounts. The ledger contains account balances. A trial balance is prepared from the ledger balances to check the arithmetic accuracy of accounts. It lists debit and credit balances. Final accounts including the trading account and profit & loss account are prepared from the trial balance. The trading account shows the results of business operations like purchases, sales, expenses. The profit & loss account consists of income and expenses to determine the profit or loss for the period.
Business transactions were recorded as and when they occur
in the Journal. Journal thus contains the date-wise record of transactions. However we require another book, namely Ledger, to keep the account-wise record of transactions. Account is the summary of all the monetary transactions related to an entity, person, item or an object. Ledger is a group of accounts where you find all types of accounts. Ledger is called the Principal book of account. This is the main Book i.e. a book of final entry and a gateway for final accounts. The format of an Account in the Ledger Date Particulars JF Amount Rs. Date Particulars JF Amount Rs. Dt/M/ Yr To Name of A/c credited -- ---------- Dt/M/ Yr By Name of A/c debited -- ---------- Total --------- Total --------- Dr. Title of the Account Cr. Every account has a debit side and a credit side; Journal Folio or J.F. indicates the number of the page of the journal where the other affected account appears. Ledger of . Posting of Entries Consider the following Journal Entry : Date Particulars L F Dr.(Rs.) Cr.(Rs.) 7 th Jan 2010 Purchases A/c------------- Dr. To Bank A/c (Being goods purchased). 5,000 5,000 Date Particulars JF Amount Rs. Date 2010 Particulars JF Amount Rs. 7 th Jan 2010 To Bank A/c 5000.00 Dr. Purchase Account Cr. The above journal entry when posted to the ledger accounts would appear as follows: [The debit side of the Purchase A/c is greater. To maintain symmetry the balance is carried down (c/d) at the end of the month to the credit side and brought down again at the beginning of the following month i.e. Feb 1 to the debit side. Thus it can be seen that the Purchase A/c has a debit balance.] Date Particulars J F Amount Rs. Date Particulars JF Amount Rs. 7 th Jan 2010 By Purchase A/c 5,000 Dr. Bank Account Cr. TRIAL BALANCE The next stage after posting accounts to the ledger is the preparation of a Trial Balance. At the end of the financial period (or at some other date)the list(statement) of debit balances and the credit balances from the ledger is prepared called a Trial Balance. In the double entry system every entry has its corresponding credit and debit. Thus the total of debit balances appearing in the Trial Balance must agree with the total of credit balances of appearing in the Trial Balance. An agreement indicates reasonable accuracy of the accounting work. A Trial Balance consists of all the five financial elements- assets, liabilities, equity, income and expenses. A Trial Balance is not a part of books of accounts. It is prepared as a separate statement and is used as the basic document to prepare financial statements viz, Balance Sheet and Profit & Loss Account. Objects of preparing Trial Balance : 1. It forms the very basis on which final accounts are prepared. 2. It helps in knowing the balance on any particular account in the ledger. 3. The trial balance used as a test in ascertaining arithmetical accuracy of the ledger accounts 4. It serves as a primary evidence of the fact that the double entry system has been completed. However, a Trial Balance is not a conclusive proof of absolute accuracy of the accounts. It does not indicate the absence of an error. Thus, a non-tallied Trial Balance indicates the presence of book-keeping errors. Particulars Debit Amount Credit Amount Capital-------------------------------------------------------------------- Purchases--------------------------------------------------------------- Sales---------------------------------------------------------------------- Sales of Scrap---------------------------------------------------------- Sundry Debtors--------------------------------------------------------- Sundry Creditors------------------------------------------------------- Purchases Returns---------------------------------------------------- Sales Returns----------------------------------------------------------- Carriage Inward-------------------------------------------------------- Carriage Outward------------------------------------------------------ Bills Receivable-------------------------------------------------------- Wages-------------------------------------------------------------------- Salaries------------------------------------------------------------------- Repairs of Plant-------------------------------------------------------- Repairs of Office Furniture------------------------------------------ Bills Payable------------------------------------------------------------ Commission received------------------------------------------------- Cash at Bank----------------------------------------------------------- Cash in Hand----------------------------------------------------------- Plant & Machinery----------------------------------------------------- Office Furniture--------------------------------------------------------- Rent Paid---------------------------------------------------------------- Lighting Expenses----------------------------------------------------- Factory Insurance----------------------------------------------------- General Expenses----------------------------------------------------- Insurance---------------------------------------------------------------- Drawings----------------------------------------------------------------- Land & Building-------------------------------------------------------- xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Total xxxx xxxx The Trial balance of -----------as on ------------- Trial Balance Transactions are recorded in Journal and posted in Ledger. Ledger includes details (and hence balances) of all accounts. Next step is to check the arithmetical accuracy of ledger balances. Trial Balance is prepared to test the arithmetical accuracy of the account balances. FINANCIAL STATEMENTS Financial Statements refer to such statements which report the profitability and the financial position of the business at the end of accounting period. It includes Manufacturing/Trading and Profit & loss a/c which shows the results (performance) of the business operations during an accounting period. It is a periodic statement. Balance Sheet which shows financial position (i.e., the position of assets, liabilities and equity) of an enterprise at a specified point of time. The Balance Sheet is a position statement as on a particular date. Final Accounts Manufacturing/Trading and Profit & loss a/c Consists of elements of income (including gains) and expenses (including losses). The balance of Profit and Loss Account represents profit (when income is more than expenses) or loss (when expenses are more than income). Final Accounts are prepared from the Trial Balance. MANUFACTURING/TRADING ACCOUNT Trading account is prepared to show the results of buying and selling of goods. All expenses which either related to the factory for the production and to purchase goods or services are recoded in the trading account. Such expenses are called direct expenses. E.g. op. stock, purchases of goods or raw material, wages, power & fuel, factory supervision, factory rent, carriage inwards, freight charges. Particulars Rs. Rs. Particulars Rs. Rs. To Opening Stock To Purchases Less: Purchase return or Returns outward To Wages To Freight To Carriage or Carriage Inwards or Carriage on Purchase To Gas, fuel & Power(factory) To freight, octroi & cartage To Dock charges To Clearing charges To Import duty & custom duty To Factory Rent & Rates, To Factory Lighting etc. To Excise duty To Royalty To Gross Profit c/d (transferred to P&L A/c) x x x x x x x x xxx x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x By Sales Less : Returns Inward or Sales return By Sale of Scrap By Closing stock By Gross Loss c/d (transferred to P&L A/c) x x x x x x x x x x x x x x x x x XXX XXX Manufacturing and Trading Account for the year ended------------- Dr. Cr. Preparation of Manufacturing and Trading Account Items written on the Dr. side of the Manufacturing and Trading Account : 1 Opening Stock 2 Purchase & Purchase Return 3 Direct Expenses - All expenses incurred in purchasing the goods, bringing them to the godown and manufacturing of goods are called direct expenses. Direct Expenses Wages - If the item 'Wages and Salaries' is given in the question it will be shown on Manufacturing and Trading a/c. On the contrary, if 'Salaries and Wages is given it will be shown on the profit & loss account. If wages are paid for bringing or installing a new machinery it will be added to the cost of machine and hence will not be shown in the trading account. Carriage Inwards or Freight Manufacturing Expenses -All expenses incurred in the manufacture of goods are shown on the debit side of the Manufacturing and Trading Account such as Coal, Gas, Fuel, Water, Power, Factory Rent & Rates, Factory Lighting etc. Import Duty or CustomDuty - Excise Duty Octroi Dock Charges If dock charges are paid on import of goods then they are shown on the debit side of Manufacturing and Trading Account . In the absence of specific instructions, these are debited to trading account. Trading Account- Cr. Side Sales & Sales Returns They are credited to the P & L A/c . If there are sales returns then the same is deducted from the gross sales and the net sales are shown in the outer column. e.g. Gross Sales 10000 Less: Sales Returns 500 Net sales 9500 Opening & Closing stock Opening stock The Opening stock of the year is the closing stock of the previous year. Since an opening stock is the opening balance in stock , therefore it appears in the Trial Balance. Closing stock The Cost of closing stock is not readily available. At the year end while preparing the financial statements the closing stock is physically counted and evaluated. Preparation of Profit & Loss account Debit side of the P& L A/c All the indirect expenses are debited to Profit and Loss account. Indirect Expenses The economic benefit from these is realized during the current accounting year. These are related to administrative, sales and distribution activities. E.g. Office rent, carriage outwards, sales promotion expenses, salary, interest on loan, electricity charges, advertising expenses, discount allowed, depreciation etc P& L A/C Cr Side The economic benefit is realized during the current accounting year E.g. Interest earned, commission earned, discount earned etc. Balance Sheet A balance sheet is a statement of those assets and liabilities of a business enterprise that can be given a value in terms of money; It shows both the assets and how the assets are financed; i.e. It is a position statement of Assets and Liabilities. The liabilities indicate what money has been made available to the enterprise, and fromwhere. The assets show how the enterprise has used the money made available to it. Total assets must always equal total liabilities to creditors and shareholders. Every balance sheet must include the name of enterprise and the date to which the figures in the balance sheet refer. Assets The ASSETS of a business enterprise are usually listed on a balance sheet in the following groups : Fixed assets, investment, current assets and fictitious assets. FIXED ASSETS: are those which are acquired for continued use and last for many years such as Land, building, Plant , machinery etc Fixed assets can be tangible or intangible assets. INTANGIBLE ASSETS: Assets which cannot be touched or seen, like goodwill, patent etc. Assets CURRENT ASSETS: those which are either in the form of cash or can be easily converted into cash within one year of the date of balance sheet such as debtors, account receivable, bills receivable, Stock, etc. FICTITIOUS ASSETS: e.g.. misc. expenditure to the extent not written off Preliminary Expenses Investments Investment include are investment in government securities, in shares, debentures or bonds and also in immovable properties and in the capital of a partnership firm. Out of these investments, only marketable securities which are readily converted into cash should be taken as part of current assets for all practical purposes. THE FUNDING SIDE OF THE BALANCE SHEET LIABILITIES The liabilities are listed on a balance sheet into following main groups : Capital or Share holders fund (in case of a company) Reserves Fixed liabilities Current liabilities. CAPITAL OR SHARE HOLDERS FUND (IN CASE OF A COMPANY) is the owners contribution towards the business CURREN LIABILITIES AND FIXED LIABILITIES are together referred to as outside liabilities i.e. the outsiders contribution towards business Liabilities FIXED LIABILITIES represent the companys long-term finance, and include items on which interest is payable, such as long-term loans from financial institutions. CURRENT LIABILITIES represent the companys short-term finance, and include items like short- term loans, bank overdrafts , trade creditors, Bills payables etc Interest always has to be paid on bank loans, but most other current liabilities do not require the payment of interest. Apart from bank financing, current liabilities generally represent low-cost finance for the company. RESERVES Profits made in the course of normal operation of an enterprise and retained in the business are called revenue reserve The amounts on the balance sheet for revenue reserve and capital reserve do not reflect the amount made during the year. Rather, they are cumulative totals for the years up to the date of balance sheet. IN CASE OF COMPANY-SHAREHOLDERS FUND SHARE HOLDERS FUND: The shareholders are the owners of the company. On the balance sheet the funds they provide are shown separately from those of outsiders who have loaned money to the company. When a company is formed, it needs money to carry on its activities; a good deal of this money usually comes from the shareholders, who buy shares in the company. The money which the shareholders put into the company in this way is described on the balance sheet as the capital issued and paid up. In return, at the discretion of the directors, the company makes payments, to shareholders (pays dividends) out of the profits made by the company. In addition to the capital subscribed, shareholders funds also include capital reserve and revenue reserve, which represent profits retained in the business and not paid to shareholders. BALANCE SHEET OF XYZ as on 31 st March ____ Liabilities Amount Assets Amount Capital: Bal b/d (opening) xxx Add: Fresh capital brought in xxx Add: Net profit for the year xxx Less: Drawings (xxx) Less: Net loss for the year (xxx) Reserves: General Reserve Fixed liabilities: Long term loans Current Liabilities: Bank overdraft Bills payable Sundry creditors Outstanding expenses Income received in advance Provisions Total xxx xxx xxx xxx xxx xxx xxx xxx xxx xxxx Fixed Assets: Land Building xxxx Less: Depreciation (xx) Furniture xxx Less: Depreciation (xx) Motor Vehicle xxx Less: Depreciation (xx) Plant & Machinery xxx Less: Depreciation (xx) Goodwill Investments: Long Term Investment Current Assets: Closing Stock Sundry Debtors xxx Less: Provision for Bad debts (xx) Less: Provision for Discounts (xx) Bills Receivable Short Term Investment Prepaid Expenses Accrued Income (Receivables) Cash at Bank Cash in hand Misc. Exp. to the extent not written off. Total xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxxx Final accounts & Adjustments Adjustments in final accounts mean bringing into accounts the items which have not been included in the Trial Balance. Eg.-Expenses incurred but not paid, Pre paid Expenses , income earned but not actually received, income received in advance, depreciation on assets , reserves for bad & doubtful debts etc. Adjustments always have 2 effects One effect always be in Trading A/c or P& L A/c Second effect be in Balance Sheet in liabilities or Assets Adjustments The process of determining income and financial position is based on the accrual basis of accounting. This emphasizes that while ascertaining the profitability, the revenues be considered on earned basis and not on receipt basis, the expenses be considered on incurred basis and not on paid basis. Hence, many items need some adjustment while preparing the financial statements. Need for Adjustments According to accrual concept of accounting, the profit or loss for an accounting year is not based on the revenues realised in cash and the expenses paid in cash during that year because there may be some receipts of incomes and payments of expenses during the current year which may partially relate to the previous year or to the next year. Also, there may be some incomes and expenses relating to the current year that are still to be brought into books of account. So, unless such items duly adjusted, the final accounts will not reflect the true and fair view of the state of affairs of the business. Adjustments Credit Trading a/c Show as an asset in the Balance Sheet Closing Stock 1. Adjustment to be made Particulars S.No Adjustments Reduce from expenses in the P &L a/c (from debit less) Show as Current Asset in the Balance Sheet Prepaid expenses ( Expenses already paid but not fully utilized) 3. Add to expenses in the P & L A/c (debit) Show as a liability in the Balance Sheet Outstanding Expenses ( Expenses incurred but not paid) 2. Adjustment to be made Particulars S.No Adjustments Deduct from income in the P & L A/c (credit less) Show as a liability in the Balance Sheet Income received in advance 5. Add to income in the P & L a/c (credit) Show as an asset in the Balance Sheet Income earned but not received 4. Adjustment to be made Particulars S.No Accrued Income A/C Dr. To Income A/c Adjustments Debit P & L A/c Reduce depreciation from individual assets in the Balance Sheet Depreciation on Assets 6. Adjustment to be made Particulars S.No Adjustments Debit P & L A/c as loss Show as deduction (less)from the Debtors in the Balance Sheet Provision for doubtful debts ( Some debtors may not fully pay up their debts, hence a provision is created) 7. Adjustment to be made Particulars S.No Adjustments Debit P & L A/c as loss Show as deduction from the Debtors in the Balance Sheet Additional Bad debts 8. Adjustment to be made Particulars S.No Particulars Dr Cr ( Rs.) (Rs.) Capital 250,000 Stock (as on April 1st 2003) 60,000 Debtors 100,000 Creditors 70,000 Sales 600,000 Purchases 370,000 Sales Returns 20,000 Purchase Returns 10,000 Discount Received 10,000 Bills Payable 40,000 Rent received 10,000 Insurance 10,000 Drawings 20,000 Land and Buildings 150,000 Freehold Property 50,000 Plant and Machinery 50,000 Petty Expenses 6,000 Cash at Bank 20,000 Furniture 30,000 Freight 20,000 Wages 15,000 Salaries 15,000 Advertising 10,000 Postage and Telephone 10,000 General Expenses 34,000 Total 990,000 990,000 From the following Trial Balance of Sovera Medicos prepare a Profit and Loss Account for the year ended 31st March2004 Adjustments 1. Closing Stock was valued at Rs. 95,000 2. Depreciate Plant and Machinery by 15% and Furniture by 10% 3. Provide for the following outstanding expenses Wages Rs. 10,000 Salaries Rs. 7,000 General Expenses Rs. 5,000 4. Insurance was prepaid to the extent of Rs. 3,000 5.A sum of Rs. 2000 was earned by way of rent; but not yet received and hence not included in the accounts 6. A provision of 2% is required on Debtors towards bad and doubtful debts Prepare Trading, Profit and Loss Account and Balance Sheet for the year ended 31 st March 2004. Adjustments 1.Closing Stock was valued at Rs. 95,000 2. Depreciate Plant and Machinery by 15% and Furniture by 10% Credit Trading a/c Show as an asset in the Balance Sheet Closing Stock Depreciation on Assets Debit P & L A/c Reduce depreciation from the assets in the Balance Sheet Adjustments 3. Provide for the following outstanding expenses Wages Rs. 10,000 Salaries Rs. 7,000 General Expenses Rs. 5,000 Outstanding Expenses ( Expenses incurred but not paid) Add to expenses in the P & L A/c Show as a liability in the Balance Sheet Adjustments 4. Insurance was prepaid to the extent of Rs. 3,000 Prepaid expenses ( Expenses already paid but not fully utilized) Reduce from expenses in the P &L a/c Show as an Asset in the Balance Sheet Adjustments 5. A sum of Rs. 2000 was earned by way of rent; but not yet received and hence not included in the accounts Income earned but not received Add to income in the P & L a/c Show as an asset in the Balance Sheet Adjustments 6. A provision of 2% is required on Debtors towards bad and doubtful debts Provision for doubtful debts ( Some debtors may not fully pay up their debts, hence a provision is created) Debit P & L A/c as expenditure Show as deduction from the Debtors in the Balance Sheet Adjustments Effect Trading A/c 0r P & L A/c Balance Sheet 1. Closing Stock Trading A/c (Credit ) (+) Current Assets 2. Outstanding Expenses ( Expenses incurred but not paid) P & L A/c (debit) i.e. Add to expenses (+) Current Liability 3. Prepaid expenses ( Expenses already paid but not fully utilized) P &L A/c (from debit less) i.e. Reduce from expenses (+) Current Assets 4. Accrued Income (Income earned but not received) P & L a/c (credit) i.e. Add to income (+) Current Assets 5. Income received in advance P & L A/c (credit less) i.e. Reduce from income (+) Current Liability 6. Depreciation on Assets P & L A/c (Debit) (-)From Fixed Assets i.e. Reduce from individual asset 7. Provision for doubtful debts Or Reserve for Doubtful Debts i.e. RDD ( Some debtors may not fully pay up their debts, hence a provision is created) P & L A/c (Debit) (-)From Debtors 8. Additional Bad debts Debit P & L A/c as loss (-)From Debtors SUMMARY OF ADJUSTMENTS