Transactions which are being done by Business men , It writes in journal. Then after we prepare the ledger .then after we prepare trial balance. With the help of trial balance we prepare final account. Business man after making final account analyzing profit and loss. Profit and loss can be measured annually, semi annually, quarterly annually. It is treated to be as final account. Final statement shows trading and profit and loss. Position statement shows balance sheet.
Expenditure is known to be as expenses, which is follows 1. Capital expenditure 2. Revenue expenditure 3.Deffered revenue expenditure .
Capital expenditure: a) This expenditure increases the value of assets.
b) This expenditure is made for acquiring fixed assets.
For example- furniture, Table, and other assets etc.
Revenue expenditure : Payment of expenses in acquiring or manufacturing i.e. . goods , carriage ,wages etc.
Deferred revenue expenditure : 1. Advertising suspense-Huge expenditure on advertising benefits of which will be availed of during certain following year.
2.Fictitious assets (preliminary expenses, underwriting commission, Discount on issue of shares or debentures, p/l, Commission on issue of shares and debentures )
|To opening stock||xxx||By sales
Less: sales return
|To purchases||xxx||By closing stock||xxx|
|Less purchases return||xxx|
|To motive power||xxx||By Gross loss transferred to profit and loss a/c|
|To collie and cartage||xxx|
|To manufacturing expenses||xxx|
|To dock charges||xxx|
|To clearing charges||xxx|
|To Gross profit transferred to profit
And loss A/c
Note- Debit side is greater than credit side then credit side will be treated to be as gross loss.
Credit side is greater than debit side then DEBIT side will be treated to be as gross profit. BY the way IN the time of preparing profit and loss A/c Gross profit b/d will be written in credit side of profit and loss A/c. IN the time of preparing profit and loss A/c ,Gross loss will be written in debit side of the profit and loss A/C. See the format of p/L for it:
Profit and loss A/c
|To salaries and wages||By subscriptions|
|Add :outstanding subscription at the end||ADD:O/S subscription at the end|
|Less :prepaid at the end||Less: Prepaid at the end|
|Add: prepaid at the beginning||Add: Prepaid at the beginning|
|Less: o/s at the beginning||Less: o/s subscription at the beginning|
|To rent, rates, taxes||By entrance fees|
|To insurance||BY interest and dividend|
|To insurance premium||By DONATION|
|To printing and stationery||By commission|
|To postage and telegrams||By apprentice premium|
|To advertisement and publicity||By NET LOSS|
|To sundry expenses|
|TO law charges|
|To auditors fee|
|To directors fee|
|To salaries of managing directors|
|TO NET PROFIT|
Note- Addition to canteen, Investment, Car expenses, Cost of old car, quadrangular match expenses, Expenses of match, Interest on deposit on building fund, are not written in profit and loss a/c.
In order to see final A/C With adjustment for final account Adjustment means extra information given with final account .
O/s expenses, Prepaid expenses, Accrued interest are given in adjustment than IN the time of preparing p/l, expenses is added to o/s expenses. Expenses is subtracted to prepaid expenses. Interest is added to accrued interest.
See the balance sheet for it:
Let’s be care in the time of preparing balance sheet . The total of all assets must be equal to the total of liabilities.
Add : surplus
|Environment fund||Prize fund investment|
|Outstanding expenses||Sports materials|
|legacy||Cash at bank|
|Subscription received in advance||Cash in hand|
|Reserve and surplus||o/s subscription|
|Sundry creditors||Fixed assets|
|Bank loan||Current assets|
|Unearned income||Accrued interest|
QUES: The following were the balances extracted from the books of Mohan as on 31 MAR,2005:
|Debit balances||Amount||Credit balances||Amount|
|Cash in hand||540||Sales||98780|
|Cash at bank||2630||Returns outwards||500|
|Returns inward||680||Sundry creditors||6300|
|FUEL and power||4730|
|Carriage on sales||3200|
|Carriage on purchases||2040|
Prepare the trading and profit and loss account and a balance sheet as on 31mar,2005 after keeping in view the following adjustments;
a) stock in hand on mar 31,2005 was ra68oo.
b) Machinery is to depreciated at the rate of 10% and patents@20%.
C ) salaries for the month of mar 31,2005 amounting to rs1500 were outstanding.
d)Insurance includes a premium of rs170 on policy expiring on September 30, 2006.
e)Further bad debts are rs725. Create a provision @5% on debtors
f)Rent receivable rs1000.
Trading and profit and loss A/c
For the ended on 31 march,2005
|To opening stock||5,760||By sales 98,780|
|To purchases 40,675||Less: sales return 680||98,100|
|Less: purchases return 500||40,175||By closing stock||6800|
|To fuel and power||4730|
|To carriage on purchases||2040|
|To Gross profit c/d||43,715|
|To salaries 15000||By Gross profit b/d||43,715|
|Add: o/s 1500||16500||By rent 9000|
|To carriage||3200||Add: accrued rent 1000||10000|
|To general expenses||3000|
|To insurance 600|
|LESS: PREPAID 85||515|
|Further Bad debts 725|
|Add provision 689||1414|
|To depreciation on machinery and plant (2000+1500)||3500|
|To net profit||25,586|
|Sundry creditors||6300||Cash in hand||540|
|O/s Salaries||1500||Cash at bank||2,630|
|Capital 62,000||Sundry debtors 14,500|
|Add: Net profit 25,586||Less further bad debts 725|
|Totals 87,586||Totals 13,775|
|Less: Drawings 5245||82,341||Less provision for bad debts 689||13,086|
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