A PROJECT WORK

ON
PREPARATION OF FINAL ACCOUNTS

SUBMITTED TO CHSE , ODISHA FOR FULIFILMENT OF AHSE-2022

SUBMITTED BY:

Name : Jashobanti Behera

CLASS: +2 2nd Year, Commerce
COLLEGE ROLL NO: IC-20-044
REGD: NO.:MA19C20044 CHSE ROLL NO:

GUIDED BY:
MISS PRARTHANA MISHRA

DEPARTMENT OF COMMERCE
KAMALA NEHRU WOMEN`S COLLEGE, SESSION: 2020-22
BHUBANESWAR

Signatures of the Student

Sign of the External Evaluator Sign of Internal Evaluator

 CERTIFICATE

This is to certify that JASHOBANTI BEHERA is the student of +2 2 nd Year

Commerce in Higher Secondary Examination of CHSE ,Odisha has
satisfactorily carried and conducted her Dissertation entitled
“PREPARATION OF FINAL ACCOUNTS”. She has completed her Dissertation
work under my guidance and supervision. The project work is the outcome
of her work.

We wish her a successful career.

Authorized Signatory

Place: Miss Prarthana Mishra

Date: (Project Guide)
 DECLARATION

I JASHOBANTI BEHERA , College Roll No. IC-20-044, a student of the +2 2 nd

Year Commerce of Higher Secondary Examination of CHSE, Odisha do
hereby declare that the present study was undertaken by me under the
guidance of Miss Prarthana Mishra , KAMALA NEHRU WOMEN`S
COLLEGE , Bhubaneswar and the project report entitled “ PREPARATION
OF FINAL ACCOUNTS ” is of my own and has neither been submitted to
this nor any other institution any where previously.

Jashobanti Behera
Roll No : IC-20-044
 ACKNOWLEDGEMENT

I would like to express my special thanks of my teacher Miss Prarthana

Mishra, who gave me the golden opportunity to do this wonderful project of
Preparation of Final Accounts and also helped me in completing my
project. I came to know about so many new things I am really thankful to
her. Secondly, I would also like to thank my parents and friends who helped
me a lot in finalizing the project within limited time frame.

Jashobanti Behera
+2 2nd Year Commerce
 CONTENTS

Sl No. Title Page No.

1. Introduction 01

2. Objective 06

3. Methodology 06

4. Problem Statement 07

5. Conclusion 11

6. References 12
Introduction:

The term ‘financial statement analysis’ , also known as analysis and

interpretation of financial statements refers to the process of determining
financial strengths and weaknesses of the firm by establishing strategic
relationship between the items of the balance sheet, profit & loss account
and other operative data. Accounting is an exercise carried out to ascertain
the profitability and the financial soundness of business. A trader can
ascertain these by preparing the final accounts. Trial balance proves the
arithmetical accuracy of the business transactions, but its preparation is
not the end purpose of accounting. Business is interested in knowing
whether its operations have resulted in a profit or a loss and also about its
financial position at a given time. In short, the final accounts are prepared
at the end of the Year from the trial balance. Hence, the trial balance is
said to be the connecting link between the ledger accounts and the final
accounts.

Final accounts or financial statements are those statements which are

prepared at the end of an accounting period to ascertain the profit or loss
and financial position of the business.

Parts of financial statements or final accounts:

Financial statements or final accounts include two parts.

1. The trading and profit and loss account.
2. The balance sheet.

What is a trading account?

Trading means buying and selling. Trading account shows the result of
buying and selling of goods,i.e., it shows the gross profit earned on the gross
loss incurred through purchase and sales of the goods. Gross profit is the
result of total sales less the cost of goods sold. If the cost of goods sold is
more than the total sales then its result into gross loss.
Features of trading account:

1. It serves as the first step in preparation of financial statements.

2. It exhibits the value of direct sales and direct cost of goods sold.
3. It ascertains gross profit or gross loss,
4. It provides the operating balance for profit and loss account.

Need of trading account:

1. To determine the gross profit and gross loss of the business which is
the difference between net sales and cost of goods sold.
2. To provide information about the direct expenses that are incurred on
the purchase and manufacturing of goods.
3. To compare the closing stock with previous year closing stock and
draw out various analysis , especially if it exhibits an increasing trend.
4. To study ratio of gross profit and if it shows a decreasing trend , then
take steps to safeguard against it.

What is a profit & loss account?

Profit and loss account is an account prepared to ascertain the net profits
earned or net loss incurred during an accounting period. To earn net profit ,
a trader has to incur many expenses apart from those spent on purchases of
raw materials and manufacturing of goods. Profit and loss account is
nominal account. All the indirect expenses are shown on the debit side and
all the indirect incomes are shown on the credit side. When the total of
credit side is more than the total of debit side , the difference is known as
net profit and when the total of debit side is more than the total of credit
side , the difference is known as the net loss.
Features of profit and loss account:

1. The profit and loss account lies at the penultimate stage in the
preparation of final accounts, i.e., it is prepared just before the
preparation of balance sheet.
2. The preparation of profit and loss account follows accrual basis of
accounting.
3. The major items of Profit & Loss Account such as, gross profit or gross
loss are derived from trading account. Other constituents include
income from other sources and indirect expenses and losses.
4. The balance of this account is either a Net Profit or a Net Loss.
5. The net profit or net loss derived out of the profit and loss account
directly affect the capital of the business.
6. The profit and loss account relates to and is prepared at the end of
particular accounting period.

Need of Profit and Loss Account:

1. To ascertain the net profit earned or net loss suffered during a

particular period.
2. To facilitates comparison with previous years` and assess efficiency of
operations.
3. To assist in studying various expense ratios for present and previous
years and thus control wasteful expenditure.
4. To help in the preparation of balance sheet by presenting net profit or
net loss for the period.

What is a balance sheet?

A balance sheet is a statement that shows the financial position of a

business at a particular point of time. It is prepared by taking up all
personal accounts and real accounts (assets and properties) together with
net result obtained from profit and loss account. On the left hand side of the
balance sheet , the liabilities and capital are shown. On the right hand side,
all the assets are shown. Balance sheet is not an account but it a statement
prepared from the various ledger balances.

Features of balance sheet:

1. Balance sheet forms part of financial statements or final accounts of

an enterprise.
2. Balance sheet is not an account but it is a statement prepared from
the various ledger balances. Hence “To” or “By” is never prefixed
before any item of the balance sheet.
3. It represents a summary of real and personal accounts that are still
open, i.e., they have not been closed through a transfer to trading and
profit and loss account.
4. The total of the assets and liabilities side of the balance sheet must
agree else there is an error committed somewhere which should be
rectified.
5. Balance sheet is a statement that presents the financial positions of
an enterprise at a particular date in time and not for a fixed period of
time.
6. The balance sheet shows the financial position of the business
according to going concern concept.

Need of balance sheet:

1. To determine the true financial position of business at a particular

point in time.
2. To ascertain nature, value and costs of various assets involved in the
business.
3. To ascertain nature, value and costs of various liabilities involved in
the business.
 4. To calculate the claims of proprietor to provide accurate information
about the capital invested into the business at the end of the year and
any additions or deductions made into it in the current year.
5. To establish the solvency of the firm at the end of the year or an
accounting period.
6. To assist in preparing the opening entries in the beginning of the next
period.

Form of presentation of financial statements or final accounts:

The presentation of financial statements , i.e., the Trading and Profit and
Loss Account and the Balance Sheet , can be made either in Horizontal form
or in Vertical form.

Trading Account of………..

for the year ended on……………………
Particulars Rs. Rs. Rs.
Sales xxx
Less: Returns Inward xxx
xxx xxx
Opening Stock
xxx
Purchases xxx xxx
Less: Returns Outward

Direct Expenses:
xxx
Freight and Carriage
xxx
Customs and Insurance Charges xxx
Wages xxx
Gas, Water and Fuel xxx
xxx
Lighting and Heating xxx
Factory Expenses xxx
xxx
Less: Closing stock xxx
Cost of Goods Sold xxx
Gross Profit transferred to Profit and Loss A/c
Objective of the study:

1. To determine the true and fair view of financial performance by

reflecting profit or loss.
2. To determine true and fair view of financial position by reflecting
accurate values of assets and liabilities.
3. To determine efficiency in conducting business operations through
comparison with previous years.
4. To determine the ability of business to generate cash, and the sources
and uses of that cash.
5. To determine how expenses can be controlled and sources of income
can be enhanced.
6. To determine whether the business has the capability to pay back its
debts.
7. To derive financial ratios from the financial statements that can
indicate the condition of the business.
8. To investigate the details of certain business transactions , as outlined
in the disclosures that accompany the financial statements.

Methodology of the study:

In order to prepare the final accounts herewith we are discussing some of

the practical problems and its solution as per our syllabus. Here we take the
problem example and its solution as referred in our book of Accountancy.
Problem – 01:

Give the journal entries for the following adjustments.

1. Outstanding salaries at Rs. 3,500.00

2. Rent unpaid for one month at Rs. 6,000.00 per annum.
3. Insurance prepaid for a quarter at Rs. 16,000.00 per annum.
4. Accrued commission at Rs.7,000.00.

Solution:

S.No. Particulars L.F. Dr.(Rs.) Cr.(Rs.)

(i) Salaries A/c Dr. 3,500

To Outstanding Salaries A/c 3,500
(Being salaries of Rs.3,500 is remaining
outstanding
(ii)

Rent A/c Dr. 500

To Outstanding Rent A/c 500
(iii)
(Being rent unpaid for one month at
Rs.500.00,i.e.,6,000/12)
Prepaid Insurance A/c Dr. 4,000
(iv) To Insurance A/c 4,000
(Being insurance paid in advance for 3
months,i.e,Rs.4,000.00
Accrued Commission A/c Dr. 7,000
To Commission A/c 7,000
(Being Commission earned but not
received)
Problem – 02:

The following is the Trial Balance of M/s Sports and Sports as on 31 st

March 2019.

Particulars Dr.(Rs.) Cr.(Rs.)

Cash in hand 3,240
Cash at bank 15,780
Purchases 2,44,050
General expenses 18,000
Insurance 3,600
4,26,000
Capital
Drawings 31,470
37,800
Debtors and Creditors 87,000
5,92,680
Sales
4,080 3,000
Returns
Wages 62,880
Fuel and Power 28,380
Carriage on Sales 19,200
Carriage on Purchases 12,240
Stock (1st April ,2018) 34,560
Building 1,80,000
Investment 60,000
Machinery 1,20,000
Salaries 90,000
Patents 45,000
10,59,480
10,59,480

Additional Information:
(i) Stock in hand on 31st March, 2019 Rs. 45,000.00.
(ii) Salaries for the month of March, 2019 Rs. 9,000.00 unpaid.
(iii) Insurance includes Rs.510.00 for next year.
(iv) Interest on investment @ 10% for full year earned but not received.
Solution:
Trading and Profit and Loss Account of M/s Sports and Sports
For the year ended 31st March, 2019
Particulars (Rs.) Particulars (Rs.)
To Opening Stock 34,560 By Sales 5,92,680
To Purchases 2,44,050 Less: Returns 4,080 5,88,600
Less:Returns 3,000 2,41,050 By Closing Stock 45,000
To Wages 62,880
To Fuel and Power 28,380
To Carriage 12,240
To Gross Profit c/d 2,54,490
6,33,600 6,33,600
To General Expenses 18,000 By Gross Profit b/d 2,54,4980
To Insurance 3,600 By Accrued Interest on
3,090 Investment 6,000
Less: Prepaid 510
To Carriage Outward 12,900
To Salaries 90,000
Add: Outstanding 9,000 99,000
To Net Profit 1,21,200

2,60,490
2,60,490

Balance Sheet of M/s Sports and Sports

 As at 31t March 2019
Liabilities (Rs.) Assets (Rs.)
Capital Cash in Hand 3,240
4,26,000 Cash Bank 15,780
Add: Net Profit 1,21,200
5,15,730 Debtors 87,000
5,47,200 37,800 Investment 60,000
Less: Drawings 31,470 9,000 Accrued Interest 6,000 66,000
Creditors Closing Stock 45,000
Outstanding Salaries Prepaid Insurance 510
Machinery 1,20,000
Patents 45,000
Building 1,80,000

5,62,530
5,62,350

Conclusion:
'''Final accounts''' give an idea about the profit (accounting)ability and
financial position of a [[business]] to its management, owners, and other
interested parties. All Business transaction management business
transactions are first recorded in a journal. They are then transferred to a
ledger and balanced. These final tallies are prepared for a specific period.
The preparation of a final accounting is the last stage of the accounting
cycle. It determines the financial position of the business. under this it is
compulsory to make trading account,The profit and loss account and
balance sheet.

Final accounts is an essential practice for every enterprise to know the

actual performance of the organization. All mature organization should
necessary prepare final accounts of the organization for the effectiveness of
business organization.

REFERENCES
 C.MOHAN JUNEJA, Formerly Head (POST Graduate)Deptt. Of
Commerce and Business Administration, D.A.V College, Jalandhar,
Head Deptt.of Management Studies, C.T.Institurte of Engineering ,
Management and Technology, Shahpur, Jalandhar.
 R.C.Chawla, Ex- Principal, Givt. Bikram College of Commerce, Patiala,
 Dr. J.S.Arora, (M.Com, MBA, Ph.D, FMCA, PGDLL & PM, DOOP,
PGDEITM, PGDIM, PGDFM,DIM,CCU,CCF), Associate Professor, Pg
Deptt. of Commerce and Business Administration, Khalsa College,
Amritsar, Ex-Principal, Khalsa College, Mohali,
 Prof. P.C.Sahoo,M.Com, M.Phil (Utkal), Deptt. of Commerce and
Management Studies, Kendrapara (Autonomous) College, Kendrapara,
Odisha