Final accounts
Introduction
This is a key topic in the OCR specification. In the
Accounting Principles paper, a question will be
asked requiring you to prepare:
A trading account
A profit and loss account
A balance sheet
This brings together much of the work in the
Accounting Principles unit.
Use the vertical form of presentation.
For this topic, you need to know how the
following are dealt with in the final
accounts:
Depreciation
Prepayment and accruals
Bad debts and provisions
Discounts
Loan interest
Drawings.
Depreciation
The amount of depreciation for the financial year
must be shown in the profit and loss account as an
expense.
The fixed assets must be shown in the balance
sheet at the Net Book Value.
The cost of the asset less the accumulated
depreciation to date equals the Net Book Value.
Cost of motor vans
Provision for depreciation: vans
£
60,000
15,000
Depreciation policy: reducing balance
Profit and loss account extract
Depreciation: motor vans (45,000 × 0.20)
9,000
Balance sheet extract
Cost
Depreciation Net Book Value
Motor vans 60,000 24,000
36,000
Prepayments and
accruals
You will be required to adjust the trial balance figures for
prepaid amounts and accruals/amounts owing.
Prepaid amounts are assets and must be debit balances in
the ledger. Prepaid amounts must be shown in the balance
sheet at the year end as current assets.
The amount shown in the trial balance plus prepaid
amounts at the start minus prepaid amounts at the end =
the expense for the profit and loss account for the year.
It is very important to revise the work covered earlier on
adjustments.
Making adjustments
When the note in the additional information affects
an account in the trial balance, it is a good idea to
mark the value in the trial balance with a cross, or
show the adjusted amount.
Items that are crossed or marked should be ticked
as they are dealt with. If any items are not ticked,
this should act as a warning that the items must be
dealt with in the final accounts.
It is vital to work through questions on this topic
from OCR past papers, and use the mark schemes
to see how marks are awarded.