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PARTNERSHIP

FINAL ACCOUNTS
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
INTRODUCTION
Preparation of final accounts means
to prepare TRADING A/C, PROFIT &
LOSS A/C, & BALANCE SHEET.
Preparation of final accounts is the
last step of accounting. The various
steps of accounting are as follows…

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


* Journal / subsidiary book
* Ledger
* Trial Balance with
Adjustments
* Final Accounts
* Trading Account
* Profits & loss Account
* Balance Sheet
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
Every businessman is interested to find
out Net Profit or Net Loss of business.
Therefore businessman prepares final
accounts at the end of each Financial
year. As per Income Tax Act financial
year ends on 31st march every year i.e.
period of financial year is 1st April to
31st March.
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
Preparation of Final Accounts
Trial balance & adjustments are the base of
final accounts. As we know a list of debt &
credit balances of all ledger accounts is
called as Trial Balance. This Trial Balance is
prepared before preparing the final
accounts. Final Accounts are prepared at
the end of financial year. Final Accounts
consist of TRADING A/C, PROFIT & LOSS
A/C, & BALANCE SHEET.
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
Necessity of Preparation of Final
Accounts
1. To ascertain Gross Profit or Gross Loss of the business.
2. To ascertain Net Profit or Net Loss of the business.
3. To know the financial position of the business i.e. Assets and
Liabilities of the business on a particular date.
4. To prepare various financial statements for future planning.
5. To know the amount receivable & amount payable by the
business.
6. To know the sources of funds & their application for expansion
of the business.
7. To find out various accounting ratios.
8. To provide necessary documents to bank for loan purpose.
9. To ascertain the value of goodwill of the firm in case of
admission, retirement, death of partner & dissolution of the
firm.
10. To calculate income tax & sales tax of the firm.
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
1. Trading Account:- Trading Account is a
nominal account. It is a part of profit & loss
account . All account related to goods &
Direct expenses are recorded in trading
account . This account is divided into two
sides . One is debit side & credit side. If the
total of credit side is more than the total of
debit side then it shows the credit balance
i.e. gross profit. Which is transferred to the
credit side. If the total of debit side is more
than the total of credit side then it shows the
debit balance i.e. gross loss. Which is
transferred to the debit side.

R.J.COLLEGEGHATKOPAR(
PROF. PARNEETA MUDDEBIHALKAR
W)
TRADING A/C
For the year ended 31st march
Dr. Cr.
Particulars Amt. Amt. Particulars Amt. Amt.
To opening stock XXX By sales XXX

To purchases XXX Less : sales XXX XXX


return(Return
inward)
Less : Purchase XXX XXX By goods XXX
return(Return destroyed by
outward) fire/theft
To wages XXX By goods XXX
withdrawn for
personal
use(i.e.
drawing)
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
TO wages XXX By goods XXX
distributed as free
samples

To wages & XXX By closing stock XXX


salaries

To freight XXX By GROSS LOSS tr. XXX


To Profit & loss a/c
To carriage XXX
inward
To octroi XXX
To import duty XXX

To custom duty XXX

To customs duty XXX

To dock charges XXX

To works XXX
manager salary
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
TO power, fuel, XXX
oil
TO coal, gas, XXX
water
TO royalty XXX

TO factory rent XXX

TO factory XXX
insurance
TO motive power XXX

TO Heating & XXX


lighting
TO trade exp. XXX

TO GROSS XXX
PROFIT tr. To
profit & loss a/c
XXXX XXXX

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


Explanation of Important Items
 OPENING STOCK:- Closing stock of the previous year is
the opening stock of the current year . This stock in hand
is known as opening stock . It is shown in the debit side
of TRADING A/C.
 PURCHASES:- This includes cash as well as credit
purchases of the goods. Some goods are rejected for
various reasons & they are returned to the supplier. This
return is known as Purchase Return or Return Outwards
which is deducted from the purchases.
 WAGES:- There are two types of wages.one is
PRODUCTIVE wages which are paid to workers used for
production. It is debited to TRADING A/C . The second
type of wages is UNPRODUCTIVE wages are paid to the
workers or helpers who are not engaged in production.
UNPRODUCTIVE wages are debited to TRADING A/C .

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


 FREIGHT:- These are the expenses incurred to carry goods. This
includes RAILWAY FREIGHT & AIR FREIGHT.
 CARRAIGE INWARD:- It means the expenses incurred to carry
goods purchased by the firm.
 OCTROI & CUSTOM DUTY:- When goods are purchased &
brought in the municipal limits OCTROI needs to be paid &
when the goods are purchased from foreign country, CUSTOM
DUTY is to be paid.
 TRADE EXPENSES:- The expenses paid for trading purpose is
called TRADE EXPENSES. when TRADE EXPENSES are given
in trial balance along with GENERAL/ OFFICE/SUNDRY
EXPENSES then “TRADE EXPENSES” are debited to
TRADING A/C . If only “TRADE EXPENSES” are given in trial
balance it is shown to the debit side of PROFIT & LOSS A/C.
 ROYALTY:- It is an amount paid for the permission to use
mines, patents, copyrights etc. For commercial purpose . It is
debited to TRADING A/C .

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


 SALES:- It includes cash or credit sales made
during the year. The amount of sales return
i.e. RETURN INWARD is deducted from total
sales. SALES are shown in the credit side of
TRADING A/C .
 CLOSING STOCK:- Stocks of goods in hand at
the end of the accounting year is called as
CLOSING STOCK. It is recorded on the credit
side of TRADING A/C & it is also shown in the
ASSET side of BLANCE SHEET.”CLOSINIG
STOCK IS VALUED AT COST PRICE OR THE
MARKET PRICE WHICHEVER IS LESS”

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


PROFIT & LOSS A/c
PROFIT & LOSS A/C is a NOMINAL A/C. it is a
continuation of TRADING A/C . PROFIT & LOSS A/C
shows the NET PROFIT & NET LOSS of the business. All
DIRECT Exp. i.e. REVENUE expenses of current year
whether PAID or PAYABLE are debited to PROFIT &
LOSS A/C. All INDIRECT Exp. i.e. REVENUE income of
current year whether RECEIVED or RECEIVABLE are
credited to PROFIT & LOSS A/C . If the total of credit
side of the profit & loss a/c is more then the total of c
shows credit balance i.e. NET PROFIT of the firm. If the
total of debit side of the profit & loss a/c is more then
the total of credit side then profit & loss a/c shows
debit balance i.e. NET LOSS of the firm.

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


To Printing & XXX By Profit on sale XXX
Stationery of Assets
To Postage & XXX By Interest on XXX
Telegram Investment

To Telephone XXX By Interest on XXX


charges Drawing

To Electricity XXX By Net Loss XXX


charges transfer to
partners
capital/current
A/c
To Legal charges XXX

To Audit fees XXX

To Bank charges XXX

To Interest paid XXX


R.J.COLLEGEGHATKOPAR(
PROF. PARNEETA MUDDEBIHALKAR
W)
PROFIT & LOSS A/C
FOR THE YEAR ENDED 31ST MARCH….
PARTICULARS
DR AMT AMT PARTICULARS AMT CRAMT
To Gross Loss b/d XXX By Gross Profit XXX
(transferred from b/d (transferred
trading A/C) from trading A/C)

To Salaries XXX By Interest XXX


Received
To Salaries & XXX By Discount XXX
Wages Received
To Unproductive XXX By Commission XXX
Wages Received
To Office Expenses XXX By Dividend XXX
Received
To General XXX By Rent Received XXX
Expenses
To Sundry XXX By Other Receipts XXX
Expenses
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
To Rent Rate & XXX
Taxes
To Insurance XXX

To Trade Exp. XXX

To Travelling XXX
Exp.
To Discount XXX

To XXX
Advertisement
To Export duty XXX

To Carriage XXX
outward

To Packing XXX
charges
To Conveyance XXX
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
debts XXX
(+) (New) R.D.D XXX
XXX XXX
(-) (Old) R.D.D
To Provident fund
contribution XXX
To Repairs & XXX
Renewals
To Interest on XXX
capital
To Commission to XXX
partners
To Interest on XXX
partners loan
To Net Profit XXX
transfer to
partners
capital/current A/c

XXXX XXXX
R.J.COLLEGEGHATKOPAR(
PROF. PARNEETA MUDDEBIHALKAR
W)
Explanation of
Important Items
1) INDIRECT EXPENSES:- The expenses which are
not directly related to production & purchases
of goods are called as INDIRECT EXPENSES.
These expenses are recurring in nature and
debited to PROFIT & LOSS A/C. Explanation of
some of the important indirect expenses are as
follows.

R.J.COLLEGEGHATKOPAR(
PROF. PARNEETA MUDDEBIHALKAR
W)
 SALARIES & WAGES:- Payment made to office staff is
treated as salaries while payment made to factory
workers is called as wages and when the item salaries
& wages are given it is treated as indirect expenses &
debited to PROFIT & LOSS A/C . It ‘WAGES & SALARIES’
are given it is treated as direct expenses & debited to
TRADING A/C.
 INSURANCE:- When insurance premium is paid for
business assets, goods kept in warehouse, goods in
transit, vehicles etc. Then such premium is treated as
indirect expenses of the business & debited to PROFIT
& LOSS A/C . This premium is also paid as to protect
the assets of the business from the risk pf accidents,
fire, theft, etc.
 BAD DEBTS:- The amount which is irrecoverable from
the debtor is called as BAD DEBTS. It is loss to the firm &
hence debited to PROFIT & LOSS A/C .
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
 RESERVE FOR DOUBTFUL DEBTS:- This is the provision
made for doubtful debts. If it is given in the trial
balance it is credited to profit & loss a/c. If it is given
in adjustments then it is debited to PROFIT & LOSS
A/C . It is also deducted from debtors. The combine
effect of old R.D.D, New R.D.D, Bad Debts can be
given as shown in the format of PROFIT & LOSS A/C
 DISCOUNT:- there are two types of discounts-
*Discount allowed to customers or debtors –It is
financial concession given by the firm to the
customers. Such discount is debited to PROFIT &
LOSS A/C . *Discount received- It is a discount
allowed by the firm’s creditors / suppliers. As it is a
gain to the firm, it is credited to PROFIT & LOSS A/C .

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


 COMMISSION:- Commission paid to salesman or agent
is an expenditure of the firm and debited to profit &
loss A/c. The commission is paid for the development
of the business. A firm may receive commission in
various transactions such as selling goods on behalf of
others, such commissions being gain is credited to
PROFIT & LOSS A/C.
 DIVIDEND RECEIVED:- A partnership may invest its
surplus funds in shares of various companies & may
get income by way of dividend. It is debited to PROFIT
& LOSS A/C .
 DEPRICATION:- IT is a permanent and gradual
decrease in the value of fixed assets due to passage
of time & wear & tear depreciation is a loss of business
& debited to PROFIT & LOSS A/C .

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


 RENT:- There are two types of rent. One is
rent paid and another is rent received.
Rent of office, warehouse, shop etc. Paid
is an office or administrative expense & is
debited to PROFIT & LOSS A/C . Whereas
factory rent is a direct expenses & is
debited to TRADING A/C. A partnership
firm may let its property for which it may
receive rent from the tenant. Such rent
being revenue income is credited to
PROFIT & LOSS A/C.

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


BALANCE SHEET
Balance sheet is not an account. It is a statement,
showing financial position of the business on a
Particular date. It shows the ASSETS & LIABILITIES of the
business. All the personal & real accounts are
recorded to balance sheet. Balance sheet is divided
into two parts. The left hand side of the balance sheet
is called ‘CAPITAL & LIABILITIES’. This side shows the
sources of the funds. The right hand side of the
balance sheet is called ‘ASSETS & PROPERTIES’. This side
shows the application fund . The total of ASSETS side &
LIABILITIES side must be equal.
CAPITAL + LIABILITIES = ASSETS

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


BALANCE SHEET
AS ON 31ST MARCH….
LIABILITIES AMT AMT ASSETS AMT AMT

Partner’s Capital A/C Goodwill XXX


X XXX
Y XXX XXX
Partner’s Current A/C Land & Building XXX
X XXX
Y XXX XXX

Sundry Creditors XXX Freehold Property XXX

Bills Payables XXX Leasehold Property XXX

Bank Loan XXX Plant & Machinery XXX

Partner’s Loan XXX Furniture & XXX


Fixtures
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
Others Loan XXX Patents XXX

Outstanding Exp. XXX Copy-rights XXX

Pre-received XXX Trade Mark XXX


incomes

Reserved Fund XXX Motor Vehicles XXX

Provident Fund XXX Investments XXX

Provident Fund XXX


Investment

Interest received XXX


on Investments

Loose Tools XXX


PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
Bills Receivable XXX

Closing Stock XXX

Stock of XXX
Stationery
Cash at bank XXX

Stock of Postal XXX


Stamps

Prepaid expenses XXX

Outstanding XXX
Incomes
Insurance claim XXX
receivable
Partner’s current XXX
A/C

Total XXXX XXXX


PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
ADJUSTMENT AND THEIR
EFFECTS

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


1. CLOSING
STOCK

BALANCE TRADING
SHEET A/C
(ASSETS) (CREDIT)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


2. PREPAID
EXPENSE

BALANCE
TRADING / P&L
A/C ( -DEBIT )
SHEET
(ASSET)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


3. OUTSTANDING
EXPENSES

BALANCE
TRADING/P&L
SHEET
A/C (DEBIT +)
(LIABILITY)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


BALANCE
SHEET
(LIABILITY)

P&L A/C (-
CREDIT)

4. PRE-
RECEIVED
INCOME

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


5. OUTSTANDING
INCOME

PROFIT & LOSS A/C (+


CREDIT)

BALANCE SHEET
(ASSET)
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
• P&L A/C (Dr. + BAD DEBTS)
7.NEW BAD
DEBTS
• ASSETS ( - SUNDRY DEBTORS)

• PROFIT & LOSS A/C (DEBIT)


8.DISCOUNT ON
DEBTORS
• ASSETS (- SUNDRY DEBTORS)

• BALANCE SHEET (LIABILTY) (-


CREDITORS)
9.DISCOUNT ON
CREDITORS • PROFIT & LOSS (CREDIT)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


6.RESERVE FOR
PROVISION
RDD A/C

PROFIT & LOSS • DEBIT


• (+ BAD DEBTS)

•(-SUNDRY
ASSETS
DEBTORS)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


10.GOODS STOLEN •TRADING A/C
.P & L A/C (DEBIT) (CREDIT)

11.GOODS • P&L A/C (DEBIT)


DISTRIBUTED AS • TRADING A/C (CREDIT)
FREE SAMPLES

12.GOODS •BALANCE SHEET


WITHDRWAN FOR (LIABILTY) (- CAPITAL)
PERSONAL USE •TRADING A/C (CREDIT)
PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)
13.INTEREST 14. INTEREST 15.INTEREST
ON CAPITAL ON DRAWINGS ON LOAN

BALANCE BALANCE BALANCE


SHEET SHEET SHEET
(LIABILTY + (LIABILTY – (LIABILITY +
CAPITAL ) CAPITAL) LOAN)

PROFIT & LOSS PROFIT & LOSS PROFIT & LOSS


A/C (DEBIT) (CREDIT) A/C ( DEBIT)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


16.UNINSURED GOODS
DESTROYED BY FIRE

•PROFIT & LOSS (DEBIT)


•TRADING A/C (CREDIT)

17.INSURED GOODS
DESTROYED BY FIRE
• BALANCE SHEET (ASSET CLAIM AMT)
PROFIT & LOSS (LOSS AMT)
• TRADING A/C (CREDIT )(GROSS AMT)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


18.UNRECORDED 19. UNRECORDED
PURCHASES SALES

TRADING A/C (DEBIT + TRADING A/C (CREDIT


PURCHASE ) +SALES)

BALANCE SHEET BALANCE SHEET (ASSETS


(LIABILITY + CREDITORS) + DEBTORS)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


• BALANCE SHEET (ASSET
20.BILLS + SUNDRY DEBTORS)
RECEIVABLE • BALANCE SHEET (ASSET
DISHONOUR – BILLS RECEIVABLE)

• BALANCE SHEET
(LIABILTY – BILLS
21.BILLS
RECEIVABLE)
PAYABLE • BALANCE SHEET
DISHONOURED (LIABILTY + SUNDRY
DEBTORS )

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


BALANCE
SHEET PROFIT &
22.COMMISSION
TO PARTNERS
(LIABILTY + LOSS
PARTNERS
CAPITAL) ( DEBIT)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


PROFIT & LOSS
(DEBIT )

BALANCE
23.DEPRECIATION
SHEET (ASSET)

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)


THANK YOU

PROF. PARNEETA MUDDEBIHALKAR R.J.COLLEGEGHATKOPAR(W)

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