Chapter no 6 Final accounts with adjustments meaning
- Slides: 32
Chapter no. 6 Final accounts with adjustments
meaning n n Financial statements which are prepared at the end of the year to know about the financial position of the business are called final accounts.
Parts of final acounts n Trading account n Profit and loss account n Balance sheet
Final accounts Trading account P&l account Balance sheet
Need and importance of final accounts n n n To know the result of a business To know the financial position of a business To get loans from financial institutions To assess income tax To conduct comparative study To assist management of business
Trading account n Tells about gross profit or gross losses n Debit side shows all the direct expences- n Opening stock, purchases, direct expences n Credit side shows-sales , closing stock
Profit and loss account n n n Tells about net profit and net losses. Debit side shows all indirect expences and losses. Credit side shows all indirect incomes and gains.
Importance of p&l acount n Tells net profitibility n Comparative study of profit and loss n Control on unnecessary expences n Helpful in preparing balance sheet
Balance sheet n It is a statement to know about financial position of a business on a certain fixed date.
Need and Importance of balance sheet n n n Tells about financial position of a firm Tells about liquidity position of a firm Tells about the balance of debtors and creditors Tells about the liabilities and assets of the firm Tells economically capability of a firm Opening entry on the basis of balance sheet
Marshalling of balance sheet n In order of liquidity n In order of permanence
Classification of assets and liabilities n Liabilities n Assets n long term liabilities n Fixed assets n Current liabilities n Current assets n Contingent liabilities n Fictitious assets n Wasting assets
Similarities between trial balance and balance sheet n n n Both are statement To and by not used Prepared from the balances of ledger Prepared on a specific date Balance of cash book written in both
Differencew between trial balance and balance sheet n n n n Trial balance Checks airthmatical accouracy Debit and credit sides All accounts written Prepared before T. &P. L. account Not compulsory Not as a proof No adjustments n n n n Balance sheet Shows financial position Liability and assets side Only real and personal account After tr. and p. &l. account Compulsory As a proof Adjustments considered
adjustments n n If any transaction omits If wrongly entered in other account If amount is wrongly entered If any transation wrongly entered in wro ng side accout
Need and importance of adjustments n n n To find out correct profit and loss and financial position To rectify the error To complete the incomlete transaction To record the transcactions To record the current incomes and expences
Closing stock n Trading account (given in adj. ): credit side n Balance sheet : current assets
Outstanding expences o/s exp. : trading acount : add it into concerned exp. balance sheet : current liabilities Entry particular exp. Dr. to o/s exp. n
prepaid expences trading acount : deduct it into concerned exp. balance sheet : current assets Entry prepaid exp. Dr. to particular exp. n
Outstanding expences o/s exp. : trading acount : add it into concerned exp. balance sheet : current liabilities Entry particular exp. Dr. to o/s exp. n
Outstanding income o/s income: trading acount : add it into concerned income balance sheet : current assets Entry: accrued income. Dr. to particular income n
Prereceived or unearned income n Trading and p/l accout : deduct from particular income balance sheet : current liability Entry : particular income dr; to unearned income
Depriciation n Trading account dr. side n Balance sheet : deducted from particular asset depriciation acount dr to particular asset
Interest on capital Profit and loss account: debit side balance sheet: liability side add in capital n entry interest on capital dr. to capital
Interest on drawing Profit and loss account: cedit side Balance sheet: liability side deducted in capital Entry drawing account dr. to interest on drawing n
Interest on loan Profit and loss account: debit side Balance sheet: liability side added in loan Entry : interest on loan account dr. To loan account n
Bad debts Profit and loss account: debit side Balance sheet: assets side deducted from debtor Entry : bad debts account dr. To debtors account n
Provision for doubtful debts Profit and loss account: debit side Balance sheet: assets side deducted from debtor Entry : provision for debts account dr. To debtors account n
Discount on debtors Profit and loss account: debit side Balance sheet: assets side deducted from debtor Entry profit and loss account dr. To discount on debtors account n
Provision for discount on creditors Profit and loss account: credit side Balance sheet: liability side deducted from creditors Entry discount on creditors account dr. To profit and loss account n
Implied interest Profit and loss accountdebit side Balance sheetliability side added in loan Entry interest on loan account dr. to loan account n
Loss of goods n n n Trading account- deducted from purchases Profit and loss account-debit side Entry-loss account dr. To purchases p/l account dr. to loss by accident
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