Chapter 18

Final Accounts
without
adjustments

ACCOUNTANC

Class XI

MEANING

The financial statements are prepared to know

the profit and loss and financial position of the
business.
A complete set of financial statements includes:

Balance Sheet

Trading and Profit and Loss Account (Income

statement)

Schedules and Notes forming part of Balance

sheet and Profit and Loss Account

USERS

USERS
Investors: - The shareholders and the owners of the
business are interested to know the financial position,
earning capacity and profitability of the business.
Potential Investors: - The potential investors are
interested to know whether the investment will be safe or
not.
Lenders: - Lenders like debenture holders, suppliers of
loans are interested in knowing the short term as well as
long term loan solvency of the business.
Creditors:- They are interested to know whether the firm
will be able to pay off their debts when they fall due

USERS
Employees:- The employees can judge as how much
bonus and increase in wages is possible from the profits
of the firm
Government:- Government uses the financial statements
to study the profits and position of the industries so that
necessary measures and policies can be framed
Taxation Authorities: - They use the financial statements
for the purpose of assessment of income tax, sales tax
etc.

EXPENDITURE
CAPITAL EXPENDITURE

REVENUE EXPENDITURE

CAPITAL EXPENDITURE
Any expenditure which increases the value of the
Fixed Assets is termed as Capital Expenditure. It
includes acquisition and up gradation of the fixed
assets.
Examples of Capital Expenditure are: The expenditure incurred on acquisition of fixed
assets
Expenditure incurred in the installation or erection
of fixed assets
Expenditure which increases the earning capacity
of the fixed assets

REVENUE
EXPENDITURE
Any expenditure which is incurred which gives the
benefit for the current year. This expenditure is
shown in Income Statement and written off in the
same accounting period in which it is incurred
Examples of Revenue Expenditure:
Expenses incurred for day to day running of the
business
Expenses incurred on ordinary repairs and
maintenance
Depreciation on fixed Assets

Capital Expenditure v/s

Revenue Expenditure
Capital Expenditure

Revenue Expenditure

Capital Expenditure is incurred for the Revenue Expenditure is incurred for the day to
acquisition and up gradation of the fixed day running of the business
assets

Capital Expenditure is incurred for the Revenue Expenditure is incurred for the
purpose

of

increasing

capacity of the business

the

earning purpose maintaining the earning capacity of

the business

The capital expenditure benefit is yielded The revenue expenditure yields benefit for the
over a long period of time

current accounting period in which incurred

INCOME STATEMENTS
Trading Account
Trading account is prepared for calculating the
gross profit or gross loss incurred as a result of
the trading activities of a business.
Trading account records the amount of purchases
and the expenses incurred directly to bring it in
saleable state

FORMAT
Particulars
To Opening Stock A/c

Amount(Rs)
xxxx

To Purchases A/c

Particulars
By Sales A/c

xxxx

Less: Sales return A/c

xxxx
xxxx

Less: Purchase Return A/c

xxxx

By Closing Stock

To Wages

xxxx

By Gross Loss

To Wages and salaries

xxxx

( Transferred to P& L A/c)

To Direct Expenses

xxxx

To Carriage Inward

xxxx

To Gas, fuel and power

xxxx

To Freight, octroi & cartage

xxxx

To Manufacturing expenses

xxxx

To Factory Expenses

xxxx

To Dock Charges

xxxx

To Import duty/Custom Duty

xxxx

To Royalty

xxxx

To Gross Profit

xxxx

( Transferred to P& L A/c)

Amount (Rs)

INCOME STATEMENTS
PROFIT AND LOSS ACCOUNT
Profit and Loss Account discloses the Net Profit
and Net Loss which a firm has earned or
incurred during the year. It actually takes into
account all the expenses of the accounting
period not taken in trading account.
These expenses include:
Administrative expenses
Selling Expenses
Distribution Expenses

FORMAT
Particulars

Amount

Particulars

Amount

To Gross Loss b/d

xxxx

By Gross Profit b/d

xxxx

To Office Expenses

xxxx

By Indirect Incomes

xxxx

By Net loss transferred to

xxxx

To Selling and Distribution

expenses
To Miscellaneous Expenses

xxxx

capital A/c

xxxx

To Net Profit Transferred to

capital A/c

xxxx

Total

Total

POSITION STATEMENT
BALANCE SHEET
A statement is prepared to know all the assets and
liabilities of the business enterprise.
It is a statement at a particular date showing on one
side the assets and on the other side the liabilities of
the business firm
It helps in ascertaining the financial position of the
firm
It gives an indication of whether the firm is solvent
or not.

FORMAT
Liabilities

Amount

Assets

Amount

Capital

Current Assets

xxxx

Add: Net profit

Long term Investments

xxxx

Less: Drawings

Fixed Assets

xxxx

Less: Income Tax

Less: Life insurance Premium
Reserves
Long Term Loans
Current Liabilities

xxxx
xxxx
xxxx
xxxx

Total

Total

QUESTION
PARTICULARS
Purchases and Sales
Sales return and Purchase return

AMOUNT

AMOUNT

60,000

1,27,000

1,500

1,275

Plant and Machinery

90,000

Opening Stock

40,000

Discount allowed and Discount received

350

Bank charges

100

Debtors and Creditors

Salaries

45,000
7,000

800

20,000

QUESTION
Wages

10,000

Capital

1,13,075

Freight inward

1,000

Freight outward

1,200

Bills payable

5,000

Rent, rates and taxes

2,000

Advertisement

2,000

Cash at bank

7,000
2,67,150

2,67,150

The closing stock is valued at 35,000. Prepare Trading account

and Profit and Loss Account for the year ended 31.12.2007 and
Balance sheet as on that date.

SOLUTION
Trading and Profit Account for the year ending 31.12.2007
Particulars

Amount

To Opening Stock A/c

40,000

Particulars
By Sales A/c

Amount
1,27,000

To Purchases A/c 60,000

Less: Returns A/c

Less: Returns A/c

By Closing Stock A/c

1,275

To Freight Inward A/c

To Wages A/c
To Gross Profit transferred to
Profit and Loss A/c

1,500

1,25,500
35,000

58,725
1,000
10,000
50,775

1,60,500

1,60,500

SOLUTION
Particulars

Amount

Particulars

To Discount allowed A/c

350

By Gross Profit

To Bank Charges A/c

100

By Discount received A/c

To Salaries A/c

7,000

To Freight Outward A/c

1,200

Amount
50,775
800

To Rent, Rates and

Taxes A/c
To Advertisement A/c

2,000

To Net Profit transferred to

2,000

Capital A/c
38,925

51,575

51,575

SOLUTION
Balance Sheet as on 31.12.2007
Liabilities

Capital
Add: Net Profit
Creditors
Bills Payable

Amount (Rs)

1,13,075
38,925

1,52,000

Assets

Amount (Rs)

Plant and machinery

90,000

Debtors

45,000

20,000

Cash at Bank

7,000

5,000

Closing Stock

35,000

1,77,000

1,77,000