Accounting for

lawyers Part 2
PARVESH AGHI
Accounting cycle

Posting to
Journal
Transactions general Trial balance
entries
ledger

Adjusting Financial
Closing
entries statements
Transactions

Financial transactions start the process. If there are no

financial transactions, there’s nothing to keep track of.

Transactions may include a debt payoff, purchases or

acquisitions of assets, sales revenue or any expenses
incurred
Journal entries

With the transactions set in place, the next step is to

record these entries in the company’s journal in
chronological order.

Debiting one or more accounts and crediting one or

more accounts, the debits and credits must always
balance
Posting to the General Ledger

The journal entries are then posted in

the general ledger where a summary of
all the transactions to individual
accounts can be seen.
Trial Balance

At the end of the accounting period

(this may be quarterly, monthly, or
yearly depending on the company), a
total balance is calculated for the
accounts
Adjusting Entries

At the end of the company’s

accounting period, adjusting entries
must be posted to account for
accruals and deferrals.
Financial Statements

The balance sheet and the

income statement can be
prepared using the correct
balances.
Closing

The revenue and expense accounts are closed and zeroed out for the
next accounting cycle. This is because revenue and expense accounts
are income statement accounts, which show the company’s
performance for a specific time period.

Balance sheet accounts are not closed because they show the
company’s financial position at a certain point in time.
Final accounts

The process of Accounting Cycle

ends with the preparation of Final
Accounts . So Let us begin various
steps to compile final accounts
FINAL
Sole Proprietor
ACCOUNTS
INTRODUCTION
Non-manufacturing entities are the trading entities, which are engaged in the purchase and sale of goods at
profit without changing the form of the goods.

In other words, non-manufacturing entities do not process the goods purchased and sell them in its original
form.

Meanwhile it indulges in some liabilities, makes some assets and also incurs some expenses like salaries,
stationary expenses, advertisement, rent etc to run the business.

At the end of the accounting year, the entity must be interested in knowing the results of the business.

To ascertain the final outcome of the business i.e., the income and financial position, they prepare
financial statements at the end of the year.
introduction

Financial Statements are the In Financial Accounting, profit is

Performance of the enterprise is measured at two levels :
systematically organized summary
judged on the basis of the income • Gross Profit
of all the ledger account heads
earned/accrued during the year in the
presented in such a manner that it • Net Profit
form of profit after the adjustments
gives detailed information about the
of expenses related to the enterprise
financial position and the
and to the income earned or accrued.
performance of the enterprise.
The profit of the enterprise is obtained through the preparation of Income
Statement.

The financial position of the business enterprise is judged by measuring the assets,
liabilities and capital of the enterprise and the same is communicated to the users
of financial statements. Financial position of the enterprise can be known through
the preparation of the Position Statement
TRADING ACCOUNT

At the end of the year, it is necessary to ascertain the net profit or the net loss.

For this purpose, it is first necessary to know the gross profit or gross loss.

Gross Profit is the difference between the selling price and the cost of the goods
sold.

For a trading firm, the cost of goods sold can be ascertained by adjusting the cost
of goods still on hand at the end of the year against the purchases.
Trading account

Suppose, in the first year, the net purchases are Rs 1,00,000 and that
Rs 15,000 worth of goods (at cost) were not sold at the end of the
year. The cost of the goods sold will then be Rs 85,000.

If in the next year purchases are Rs 1,50,000 and the cost of goods on
hand at the end of the year is Rs 20,000 the cost of goods sold will be
Rs1,45,000, calculated as follows:
 Cost of goods sold
Cost of unsold goods at the beginning of the year 15,000

Purchases during the year 1,50,000

 
1,65,000

Less: Cost of unsold goods at the end of the year (20,000)

Cost of goods sold 1,45,000

Trading account
If net sales, i.e., after adjustment for sales returns, total Rs
2,00,000 the gross profit will be

Rs 55,000, i.e., Rs 2,00,000 – 1,45,000.

This profit is called gross profit since from it expenses have

still to be deducted for knowing the net profit.
Trading account
Gross profit is usually ascertained by preparing a Trading account. For the figures given above,
the Trading Account will appear as shown below :
 Opening Inventory 1,00,000
Purchases 6,72,000
Carriage Inwards 30,000
From the following
Wages 50,000
information, prepare a
Trading Account of M/s.
ABC Traders for the year
Sales 11,00,000
ended 31st March, 2011 :
Returns inward 1,00,000
Returns outward 72,000
Closing Inventory 2,00,000
Final Statements of Sole Proprietor

Final Statements of Sole Proprietor

comprise of preparing the following
statements • Trading and Profit and
loss account • Balance Sheet
Before we move further, let
me elaborate on some of the
new terms and their meaning
Direct Expenses:

These are incurred on purchase and

production of goods Expenses Like
, Carriage, freight, Octroi, Wages,
factory rent, Royalty
Basic Concept

Cost of goods sold=

Gross Profit = Net Opening Stock+ net
Sales – Cost of goods purchases + Direct
sold Expenses – Closing
Stock
 Trading account
Amount in Amount in
Rs Rs
To Opening stock By sales – less sales return
To Purchases- less purchase By closing stock
returns
To direct expenses

To gross profit

Total Total
 Profit and loss account
Indirect expenses Amount in Amount in
Rs Rs
To office & administration By gross profit
expenses
To selling & distribution expenses
To salary & payroll expenses Interest received
To repair & maintenance expenses Commission received
To financial expenses Rent received
To depreciation expenses

Net Profit
Total Total
Exercise
From the following information, prepare trading and profit and loss account of Mr Ravi Saxena for
the year ending 31st December, 2020 The closing stock on 31st December, 2020 was valued
at Rs.  25,000.
Particulars Amount Rs
Opening stock 50,000
Sales 50,00,000
Purchases 35,00,000
Wages 65,000
Carriage inwards 22,500
Purchase returns 22,000
Sales returns 63,000
 Trading account for the year
ended 31st December 2020
Particulars Amount Rs Particulars Amount Rs
Opening stock 50,000 Sales 50,00,000
Purchases 35,00,000 Less returns 63,000 49,37,000
Less returns 22,000 34,78,000
Wages 65,000 Closing stock 25,000
Carriage inwards 22,500

Gross profit 13,46,500

Total 49,62,000 Total 49,62,000
Class Exercise
From the following information, prepare trading and profit and loss account of Mr Sachin for the
year ending 31st December, 2020 The closing stock on 31st December, 2020 was valued
at Rs.  2,65,000.
Particulars Amount Rs
Opening stock 1,50,000
Sales 75,60,000
Purchases 47,20,000
Wages 4,52,000
Freight inwards 28,500
Purchase returns 45,000
Sales returns 83,000
 Trading account for the year
ended 31st December 2020
Opening stock 1,50,000 Sales 75,60,000
Purchases 47,20,000 Less returns 83,000 74,77,000
Less returns 45,000 46,75,000
Wages 4,52,000 Closing stock 2,65,000
Freight inwards 28,500

Gross profit 24,36,500

Total 77,42,000 Total 77,42,000
Exercise
From the following information, prepare trading and profit and loss account of Mr
Sudhir Mittal for the year ending 31st December, 2020 and balance sheet as on that date.
The closing stock on 31st December, 2020 was valued at Rs.  2,000.
Particulars Rs Particulars Rs
Opening stock 500 Purchases 1,300
Sales 5,000 Wages 700
Discount received 500 Salary 500
Building 50,000 Capital 50,000
Cash in hand 2,500
 Trading & Profit loss account for the
year ended 31st December 2020
Particulars Amount Rs Particulars Amount Rs
Opening stock 500 By Sales 5,000
To Purchases 1,300
To Wages 700 By Closing stock 2,000

Gross profit c/ f 4,500

Total 7,000 Total 7,0000

To Salary 500 Gross profit b/d 4,500

By discount received 500
To Net profit 4,500
transferred to capital
account
5,000 5,000
Balance sheet as on 31 st

December 2020
Liabilities Rs Rs Assets Rs Rs
Capital 50,000 Building 50,000
Add net profit 4,500 54,500 Cash in hand 2,500
Closing stock 2,000
Total 54,500 Total 54,500
From the following information, prepare trading and profit and loss account of Mr Ajay
Seth for the year ending 31st December, 2020 and balance sheet as on that date. The
closing stock on 31st December, 2020 was valued at Rs.  2,60,000.
Particulars Debit Rs Credit Rs
Purchases 7,55,000
Wages 44,700
Salary 1,73,000
Capital 5,00,000
Commission received 66,000
Selling expenses 45,900
Opening stock 1,67,000
Sales 11,20,000
Discount received 12,000
Plant & machinery 4,50,000
Cash in hand 62,400
Total 16,98,000 16,98,000
 Trading & Profit loss account for the
year ended 31st December 2020
Particulars Amount Rs Particulars Amount Rs
Opening stock 1,67,000 By Sales 11,20,000
To Purchases 7,55,000
To Wages 44,700 By Closing stock 2,60,000

Gross profit c/ f 4,13,300

Total 13,80,000 Total 13,80,000

To Salary 1,73,000 Gross profit b/d 4,13,300

To selling expenses 45,900 By discount received 12,000
To Net profit 2,72,400 By commission 66,000
transferred to capital
account
4,91,300 4,91,300
Balance sheet as on 31 st

December 2020
Liabilities Rs Rs Assets Rs Rs
Capital 5,00,000 Plant and machinery 4,50,000
Add net profit 2,72,400 54,500 Cash in hand 62,400
Closing stock 2,60,000
Total 7,72,400 Total 7,72,400
Exercise

From the following trial balance of Sharan, prepare trading and profit and loss account for the year ending
31st December, 2017 and balance sheet as on that date. The closing stock on 31st December, 2017 was
valued at Rs.  2,50,000.
Balance sheet is a statement prepared to
know the financial position of the
business at the end of the year ( that is
balances of Assets and Liabilities)
From the following balances of Niruban, prepare balance sheet as on 31st December, 2017.