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Amity Business School

Amity Business School


MBA Class of 2012,
Semester I
ACCOUNTING FOR MANAGEMENT
Course Code: MBAFN10101

Amity Business School

Preparation of Final Accounts

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Final Accounts of a Company


A company needs to prepare its final accounts to ascertain the profit earned or loss suffered
during the year and also the financial position of a business at the end of the year. For this
purpose the company prepares Final Accounts which is also known as Financial
Statements. These include the following:
1. Trading Account
2. Profit and loss Account
3. Balance Sheet
Trading Account: Trading Account is prepared to know the gross profit or gross loss arising
or incurred as a result of the trading activities of a business. In other words, it is prepared to
show the result of buying and selling of goods.
The Trading Account shows the results of buying and selling of goods. While preparing this
account, the general establishment charges are ignored.

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Need and Importance of Trading Account:

It provides information about Gross Profit and Gross Loss

It provides information about the direct expenses

Comparison of closing stock with those of previous year

It provide safety against possible losses.


Preparation of Trading Account:

Items written on the Dr. Side of Trading Account:

Opening Stock

Purchases less Purchases Return

Direct Expenses, which includes Wages, Carriage inwards, Manufacturing expenses,


Dock Charges, Import Duty, Excise Duty, Octroi, Royalty
Items written on the Cr. Side of Trading Account:

Sales less Sales Return

Closing Stock

Form of Trading Account


Trading A/c
(For the year ended..)
Particulars

Amount

To Opening Stock
To Purchases
Less Purchase Return
To wages
To Wages & Salaries
To Direct Expenses
To Carriage
To Carriage inwards
To Gas, Fuel, and Power
To Freight, Octroi and Cartage
To Manufacturing Expenses
To Factory Expenses
To Dock Charges
To Import Duty
To Excise Duty
To Royalty
To Gross Profit
(Transferred to P&L A/c)
(Balancing Figure)

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Particulars
By Sales
Less: Sales Return
By Closing Stock
By Gross Loss
(Transferred to P&L A/c)
(Balancing Figure)

Amount

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Prepare a Trading Account for the year ended 31 Dec 1993 from the following Balances:
Opening Stock
Purchases
Sales
Freight and Octroi
Wages
Factory Lighting
Coal, Gas and Water
Purchase Return
Sales Return
Carriage on Purchase
Carriage on Sales
Factory Rent
Office Rent
Import Duty

40, 000
2, 00, 000
5, 00, 000
6, 500
30, 000

Closing Stock is valued at Rs. 60, 000

10, 800
2, 200
12, 000
20, 000
8, 000
10, 000
12, 000
7, 500
32, 000

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Profit and Loss Account:


Trading account only discloses the gross profit earned as a result of
buying and selling the goods. However, a businessman has to incur a
number of expenses which are not taken to trading account. Hence a
businessman is more interested in knowing the net profit earned or net
loss incurred during the year. As such, a profit or loss account is
prepared which contains all the items of losses and gains pertaining to
the accounting period.

FormofProfitandLossAccount
Profit and loss A/c
(For the year ended..)
Particulars
To Gross Loss b/d
(Transferred from Trading A/c)
Office Expenses:
To Salaries
To Salaries and Wages
To Rent, Rates & Taxes
To Printing and Stationery
To Postage & Telegram
To Lighting
To Insurance Premium
To Telephone Charges
To Legal Charges, Audit Fees
To Traveling, Establishment Exp
Selling and Distribution Exp.
To Carriage Outwards
To Advertisement, commission
To Brokerage, Bad-Debts
TO Export Duty, Packing Charges
Miscellaneous Expenses:
To Discount, Sales tax
To Repairs, Depreciation, interest Exp
To Bank Charges, Entertainment Exp
To Conveyance Expenses

Amount

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Particulars
By Gross Profit b/d
(Transferred from Trading A/c)
By Rent from Tenants
By Discount Received
By Commission Received
By interest on Investment
By Dividend Received
By Bad-Debts Recovered
By profit on sale of assets
By Net Loss (if any)
(Transfd to Capital A/c)

Amount

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Balance Sheet

The balance sheet (also called statement of


financial position or statement of financial
condition) is a snapshot of the financial status
of an organization at a point in time.

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Need and Importance of Balance Sheet:

Ascertain the true financial position of a company


Helps in ascertaining the nature and cost of various assets of the business
Helps in determining the nature and amount of various liabilities of the business
Gives information about amount of capital at year end and addition and deduction during the year
Helps in finding whether the firm is solvent or insolvent
Helps in preparing the opening entries at the beginning of the next year

Classification of Liabilities
Fixed or long-term liabilities
Current or short-term liabilities
Contingent Liabilities

Classification of Assets:
Fixed Assets
Current Assets
Liquid Assets
Fictitious or Nominal Assets
Wasting Assets
Tangible and Intangible Assets

Liabilities
Current Liabilities:
Bank Overdraft
Bills Payable
Sundry Creditors
Outstanding Expenses
Unearned income
Fixed Liabilities:
Long Term loan
!0% Debentures
Reserves and Surplus
Capital:
Add : Net Profit
Less : Drawings/LIP
Less : Income Tax

FormofBalanceSheet
BALANCE SHEET
(as on ..)
Amount
Assets
Current Assets
Cash in Hand
Cash at Bank
Bills Receivable
Short term investment
Sundry Debtors
Closing Stock
Prepaid Expenses
Accrued Income
Fixed Assets
Furniture
Loose Tools
Motor Vehicle
Long Term investments
Plant and Machinery
Land and Buildings
Patents
Goodwill

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Amount

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