Complete Set Of Financial Accounts Accounting Essay

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Final Accounts are prepared to know profit or loss and also the financial position of the business. A complete set of Financial accounts include

i) A balance sheet,

ii) A profit And loss Account

iii)Schedules And records.

Users of Final Account

The information in final accounts is useful to no. of users.They include:

1)External Users:

a)Owners

b) Managers

c)Employees and workers

2)Internal users:

a)bans and financial institutes

b) Investors and potential Investors creditors etc.

Capital And Revenue items:

All items appearing in Trial balance which are of revenue nature are taken to Profit and loss account while all items of capital nature are taken tobalance sheet .

Capital Expenditure

Capital expenditure is the amount spent by the enterprise on purchase of fixed assets that are used in the business to earn income and are not intended for resale. For example: Expenditure incurred for acquisition of fixed assets such as land etc.

Revenue expenditure:

revenue expenditure is the amount spent on running a business. The benefit of revenue expenditure is exhausted inaccountind period in which it has incurred. For example:expenses in day to day running os business such as rent,salaries,wages etc.

Trading account

Trading account is the first stage in the process of preparing the final accounts. Tradind account shows thegross profit or gross loss during the accounting period.Its main components are sales,services rendered on the credit side and cost of such sales or services rendered on the debit side.

Contents of Trading account

Items shown on credit side of the trading account:

a)opening stock

b)purchases and purchases return/.

c)Direct Expenses

Items shown on credit side of the trading account:

1)sales and sales return:

2)closing stock

Balancing of trading account

After recording in respective side of the trading account , the balance is calculated to ascertain gross profit or gross loss.

If the total of the debit side is more than that of the credit side, the excess is Gross loss.

If the total of credit side is more than that of the debit side than excess is known as Gross Profit

Gross profit can can be represented as follows:

Net sales = Total sales- sales return

Cost of good sold = opening stock + net Purchases + Direct Expenses- closing Stock

Net purchases = Total purchases - Purchases return

Format of trading account

Profit and loss account

Profit and loss account is prepared to calculate the net profit or net loss of the business for a given accounting period

"A profit and loss account is an account into which all gains and losses are collected in order to ascertain the excess of gains over the losses or vice versa"

It is the second stage in the prepration of the final accounts

It relates to a particular accounting period and is prepared at end of that period

Items in profit and loss account

Combined salaries and wages account

Depreciation

Discount

Loss by fire

Insurance

Bad debts and bad debts recovered

Balancing of profit and loss account

The balance in the profit and loss account represents net profit or net loss.

If the credit side is more than the debit side,it shows net profit. If the debit side is more than the credit side than, it shows net loss.

PROFIT AND LOSS ACCOUNT

PARTICULARS

AMOUNT (DR)

PARTICULARS

AMOUNT (CR)

Salaries

GROSS PROFIT

Discount Allowed

Discount Received

Rent, Rates and Taxes

Provision For Doubtful Debts (500-525)

Advertisement

Add- Samples

Depreciation (10% on Plant &Machinery)

Carriage Outwards

NET PROFIT

TOTAL

TOTAL

Balance Sheet

A balance sheet is a statement prepared with a view to measure the financial position of a business on a certain date. The financial position of a concern is indicated by it's assets on a given date and it's liabilities on that date.

A balance sheet is prepared from the real accounts and personal accounts

Contents of the balance Sheet

Assets

Labilities

Classification of assets

1)Fixed assets:These assets are those assets that are acquired for continous use and not for resale.

a) Tangible fixed assets :those assets which can be seen and touched

b) Intangible fixed assets: those assets which can not be seen or touched.

2)Current assets : these are those assets which are kept temporarily for resale or for converting into cash. These are assets which are likely to be realized within a period of one year or during the normal operating cycle.

Classification of Liabilities:

1) Long term liabilities or fixed Liabilities: These liabilities are not payable by the business in the next year. They mainly include long term loans.

2) Current liabilities: these are liabilities payable by the business within a year. For example : Bills payable.

3) Owners funds : The amount owing to the proprieters as capital is a class by itself.

Contingent Liabilities: A contingent liability is a liability that becomes payable on the happening of an event. These liabilities are not shown in the balance sheet,they are disclosed by way of a note. For example: Liabilities in respect of bills discounted, guarantee for loan, disputed claims etc.

Practical solution:

TRADING ACCOUNT

IN THE BOOKS OF AKHILESH FOR THE YEAR ENDING…

PARTICULARS

AMOUNT (DR)

PARTICULARS

AMOUNT (CR)

Opening Stock

30,000

Sales 1,27,000

(-) Sales Return (1,000)

1,26,000

Purchases 60,000

(-) Purchase Returns (750)

(-) Drawings (5,000)

(-) Furniture (920)

(-) Advertisement (1,000)

52,330

Closing Stock

34,220

Wages

10,000

GROSS PROFIT

67,890

TOTAL

1,60,220

TOTAL

1,60,220

PROFIT AND LOSS ACCOUNT

IN THE BOOKS OF AKHILESH FOR THE YEAR ENDING…

PARTICULARS

AMOUNT (DR)

PARTICULARS

AMOUNT (CR)

Salaries

7,550

GROSS PROFIT

67,890

Discount Allowed

425

Discount Received

800

Rent, Rates and Taxes

10,000

Provision For Doubtful Debts (500-525)

25

Advertisement 2000

Add- Samples 1000

3,000

Depreciation (10% on Plant &Machinery)

7,800

Carriage Outwards

1,200

NET PROFIT

38,740

TOTAL

68,715

TOTAL

68,715

BALANCE SHEET

IN THE BOOKS OF AKHILESH FOR THE YEAR ENDING…

LIABILITIES

AMOUNT (DR)

ASSETS

AMOUNT (CR)

Capital 1,00000

(-) Drawings (5,000)

95,000

Debtors 45,000

(-) Provision For Doubtful Debts (500)

44,500

Creditors

25,000

Plant &Machinery 78,000

(-) Depreciation (7,800)

70,200

Net Profit

38,740

Furniture 2000

Add- Purchases 920

2,920

Cash

6,900

Closing Stock

34,220

TOTAL

1,58,740

TOTAL

1,58,740

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