Final Account | How to Prepare Financial Statement

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 )

Trading A/c

Particulars Amount Particulars Amount
 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 carriage xxx    
To collie and cartage xxx    
To freight xxx    
To manufacturing expenses xxx    
To dock charges xxx    
To clearing charges xxx    
To octroi 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

Particulars Amount Particulars Amount
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 morarium,      
To sundry expenses      
TO law charges      
To auditors fee      
To directors fee      
To salaries of managing directors      


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.


                      Balance sheet

Capital fund

Add : surplus

Less: Deficit

  Opening stock

Add purchases

Less depreciation

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  
B/P   Prepaid expenses  
Unearned income   Accrued interest  
Bank overdraft   B/R  



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
Purchases 40675 Capital 62000
Returns inward 680 Sundry creditors 6300
Wages 8480 Rent 9000
FUEL and power 4730    
Carriage on sales 3200    
Carriage on purchases 2040    
Opening stock 5760    
Building 32000    
Freehold land 10000    
Machinery 20000    
Salaries  15000    
patents 7500    
General expenses 3000    
insurance 600    
Drawings 5245    
Sundry debtors 14500    


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 [email protected]%.

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

Particulars Amount Particulars Amount
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 wages 8480    
To fuel and power 4730    
To carriage on purchases 2040    
To Gross profit c/d 43,715    
  1,04,900   1,04,9,00
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    
  53,715   53,715

Balance sheet

liabilities Amount Assests Amount
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
    Prepaid insurance 85
    stock 6800
    Accrued rent 1000
    Freehold land 10000
    Buildings 32000
    machinery 24000
  90,141   90,141

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  1. Harsh Dubey says:

    Yeh apke prepaid 85 kha se aya hai

  2. Manisha says:

    Sir/ mam prepaid insurance 85 kese aaya
    Please explain it..

  3. Priyanka Srivastava says:

    where is the entry for patents and secondly amt of depriciation not deducted from machinery account…..why??

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