Chapter no. 6
Final accounts with adjustment
meaning
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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
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Trading account
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Profit and loss account
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Balance sheet
Final accounts
Trading account
P&l account
Balance sheet
Need and importance of final
accounts
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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
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Tells about gross profit or gross losses
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Debit side shows all the direct expences-
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Opening stock,purchases,direct expences
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Credit side shows-sales ,closing stock
Profit and loss account
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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
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Tells net profitibility
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Comparative study of profit and loss
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Control on unnecessary expences
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Helpful in preparing balance sheet
Balance sheet
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It is a statement to know about financial
position of a business on a certain fixed
date .
Need and Importance of balance
sheet
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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
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In order of liquidity
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In order of permanence
Classification of assets and
liabilities
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Liabilities
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Assets
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long term liabilities
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Fixed assets
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Current liabilities
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Current assets
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Contingent liabilities
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Fictitious assets
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Wasting assets
Similarities between trial balance
and balance sheet
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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
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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
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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
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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
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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
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Trading account (given in adj.):
credit side
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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.
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prepaid expences
trading acount :
deduct it into concerned
exp.
balance sheet :
current assets
Entry
prepaid exp. Dr.
to particular exp.
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Outstanding expences
o/s exp.: trading acount :
add it into concerned
exp.
balance sheet :
current liabilities
Entry
particular exp. Dr.
to o/s exp.
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Outstanding income
o/s income: trading acount :
add it into concerned
income
balance sheet :
current assets
Entry:
accrued income. Dr.
to particular income
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Prereceived or unearned income
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Trading and p/l accout :
deduct from particular income
balance sheet :
current liability
Entry :
particular income dr;
to unearned income
Depriciation
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Trading account
dr. side
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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
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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
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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
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Bad debts
Profit and loss account:
debit side
Balance sheet:
assets side deducted from
debtor
Entry :
bad debts account dr.
To debtors account
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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
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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
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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
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Implied interest
Profit and loss accountdebit side
Balance sheetliability side added in loan
Entry
interest on loan account dr.
to loan account
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Loss of goods
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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