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    Chapter - Final Account Traditional Approach

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    Tenukhang limbu

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    Chapter - Final Account Traditional Approach

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    Tenukhang limbu
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    Chapter – final account traditional approach

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    3 views13 pages

    Chapter - Final Account Traditional Approach

    Uploaded by

    Tenukhang limbu

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    Chapter – 16

    Financial statements of a sole trading and partnership firm


    • Under traditional approach
    • Under NFRS approach

    Financial statements are final result of business in an accounting year.


    It is prepared every year. To determine its profit and loss one year of
    income is compared with same year’s of expenses.
    Concept of sole trading concern
    • Business organization which is operated single owner is called sole
    trading concern.
    • The owner is responsible for its debts.
    • If the business runs into financial trouble the owner will have to pay
    business debt with his/ her personal property.
    About partnership firm
    • A partnership firm is an agreement between two or more than two
    person to deal a legal business.
    • The profit and loss is divided between partners as per their
    contribution in business.
    • A partner who is directly involved in business is called active
    partner.
    • A partner who is not directly involved in business is called
    sleeping partner.
    Preparation of financial statement under traditional approach
    1. Trading account
    2. Profit and loss a/c
    3. Balance sheet

    Particulars Amount Particulars Amount


    Expenses XXX Income XXX
    Assets XXX Liabilities XXX
    Losses XXX Gains XXX
    Drawing XXX Capital XXX

    • Expenses and income recorded in trading and p/l a/l


    • Assets, drawing, capital and liabilities are recorded in
    balance sheet .
    Supplier Sugar mill market

    • Purchased
    • Carriage inward
    • Custom duty Manufacturing cost Selling and distribution cost
    • Import duty • Power , fuel, gas • Advertisement
    • Wages to labour • Carriage outwards
    • Other factory cost • export duty
    Office and admin. Cost • Sales promotion
    • Salary to staff • Commission
    • Rent of office • Discount allowed
    • Legal charge
    • Audit fees
    • General expenses
    • Insurance
    1. Trading account
    • Trading account is prepared to determine overall result of trade
    ( i.e buying and selling)
    • It include direct expenses and direct income .
    • Direct expenses includes cost related to producing and buying
    goods.
    • Direct income is sales of goods.
    • It is prepared to determine GROSS PROFIT or GROSS LOSS.
    Format of trading account

    Trading account
    As on 31st ……
    Dr. Cr.
    Particulars Amount Particulars amount
    To opening stock XXX By sales XXX
    Less : sales return (XXX) XXX
    To purchase XXX By closing stock ( adjustment) XXX
    Less : purchase return (XXX) XXX
    To carriage on purchase XXX By Gross loss c/d XXX
    To import duty XXX
    To custom duty XXX
    To power, fuel and gas XXX
    To wages XXX
    To Gross profit c/d XXX
    XXX XXX
    2. Profit and loss account
    • Profit and loss account is prepared to determine NET PROFIT OR NET
    LOSS.
    • It includes indirect expenses and indirect income.
    • Indirect expenses includes office and administrative expenses as well
    as selling and distribution expenses.
    • Example of office and admnistration expenses are: salary, rent,
    insurance, audit fees, legal charges etc.
    • Example of selling and distribution expenses are: advertisement , sales
    promotion, carriage outwards , export duty, bad debt, commission,
    discount allowed etc.
    • Indirect income includes all income except sales.
    • Example of indirect incomes are : commission received, rent received,
    interest on investment , dividend received etc.
    Format of profit and loss account
    Profit and loss account
    As on 31st …………………
    Dr. Cr.
    Particulars Amount Particulars Amount

    To Gross loss b/d xxx By Gross profit b/d Xxx


    To salary xxx By commission xxx
    To rent xxx By rent received xxx
    To telephone charge xxx By dividend received xxx
    To printing and stationery xxx By interest received xxx
    To legal fees xxx By appreciation on fixed xxx
    To audit fees xxx assets
    To depreciation xxx By net loss c/d xxx
    To carriage outwards xxx
    To export duty xxx
    To Bad debts xxx
    To provision for bad debts xxx
    To discount allowed xxx
    To commission paid xxx
    To net profit c/d xxx
    3. Balance sheet
    • Balance sheet is not an account .
    • It is a statement of assets and liabilities of business.
    Balance sheet
    As on 31st ………
    Capital and liabilities Amount Assets Amount
    Capital XXX Land and building XXX
    Add: net profit XXX
    Less: net loss: (XXX)
    Less: Drawing (XXX) XXX
    Bank loan XXX Plant and machinery XXX
    Long term loan XXX Vehicle XXX
    Debenture / Bond XXX Furniture and fixture XXX
    Creditors XXX Investment XXX
    Outstanding expenses XXX Prepaid expenses XXX
    Advance income XXX Outstanding income XXX
    Reserve and fund XXX Bank balance XXX
    Account payable XXX Cash balance XXX
    Bills payable XXX Debtor XXX
    Bills /account receivsble XXX
    Closing stock XXX
    XXX XXX
    Additional informations / adjustments
    Cr. In trading a/c
    1. Closing stock
    Assets side

    Add to concerned expenses


    2. Outstanding expenses
    Liabilities side

    3. Prepaid expenses Less from concerned expenses

    Assets side
    Add to concerned income
    4. Outstanding income
    Assets side

    Less from concerned income


    5. Advance income
    Liabilities side

    Less from prepaid expense in assets side


    6. Prepaid expenses earned
    Dr.in p/l account
    Less from advance income in liabilities side
    7. Advance income earned
    Cr. In profit and loss a/c
    Less from concerned assets
    8.Depreciation on fixed assets
    Dr. in profit and loss a/c

    Less from concerned assets


    9.Intangible assets written off
    Dr. in profit and loss a/c

    Add to concerned assets


    10. Appreciation on fixed assets
    Cr. In profit and loss a/c

    Less from debtor


    11.Bad debt, provision for bad debt written off
    Dr. in profit and loss a/c
    Note if debtor is not given in question it is deducted from
    Bills receivable or account receivable . And Debtor is also
    known as BOOK DEBT
    Total loss deducted from purchase

    12. Abnormal loss: Admitted Insurance claim – Assets side

    Unadmitted claim – Dr. in profit and loss a/c

    13. Hidden adjustment Dr. in p/l a/c


    a. Outstanding interest on loan

    Liabilities side in balance sheet

    Cr in p/l a/c
    b. Outstanding interest in investment
    Assets side in balance sheet

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