Adjustment of final account

Presented by Pradeep kumar pandey

INTRODUCTION
What is Final Accounts? It is the means to convey to management, owners and interested outsiders the financial position of the business.

CONTENTS OF FINAL ACCOUNTS

Trading Accounts Profit and Loss Accounts Balance Sheet

TRADING ACCOUNT
This account is prepared to know the gross profit the business earned from buying and selling during a particular period. For the purpose of calculating cost of goods sold we take into consideration opening stock, purchases, direct expenses on purchasing and manufacturing the goods and closing stock. The balance of this account represent gross profit or loss and is transferred to the profit and loss account.

PROFIT AND LOSS ACCOUNT

This account is prepared to calculate the net profit of the business. there are certain items of income and expenses of the business which must be taken into consideration for calculating net profit of the business. these are of indirect in nature like selling and distribution expenses, management expenses, financial expenses, extraordinary losses and expenses to maintain the assets into working order.

BALANCE SHEET
A balance sheet is a statement prepared with a view to measure the financial position of a business on a certain fixed date.

The financial ;position of a concern is indicated by its assets on a given date and its liabilities on that date.
A properly drawn balance sheet gives information relating to (i) the nature of value of assets (ii) the nature and extent of liabilities (iii) whether the firm is solvent (iv) whether the firm is overtrading.

Closing stock
The unsold goods lying in stock at the end of the accounting year are called closing stocks
Stock a/c dr. To trading a/c Adjustment

(a) It will be shown on the credit side of trading a/c,and (b) It will be shown on asset side of the balance sheet

Outstanding expenses
Those expenses which have been incurred and are due for payment or not paid are called outstanding expense. salaries a/c dr. To outstanding salaries a/c Adjustment (a) It will be shown on the debit side of the trading a/c or p/L account by way of adding to the expenses (b) it will be shown on liabilities side of the balance sheet.

Prepaid expenses
Those expenses which have been paid in advance are called prepaid or unexpired expenses Prepaid insurance premium dr. To insurance premium Adjustment (a) It will be shown in the p/L account by the deduction from the expenses (b) if it being debit balance will be shown on the asset side in balance sheet

Accrued income
The income has been earned but not received during the accounting year is called accrued income. Accrued income a/c dr. To interest account adjustment (a) It will be shown on credit side of p/L account by way of addition to income, and (b) Accrued income being debit balance , will be shown on the asset side of balance sheet.

Income received in advanced

Income received but not earned during the accounting year is called as income received in advanced rent a/c dr. To rent received in advanced Adjustment (a) It will be shown on the credit side of p/L account by way of deduction from the income , and (b) income received in advanced ,being credit balance, is shown on the liabilities side of the balance sheet.

Depreciation
Depreciation is the reduction in the value of the fixed asset due to its use, wear and tear or obsolescence. Depreciation a/c dr. to machinery a/c Adjustment (a) It is shown on the debit side of p/L account (b) it is shown on the assets side by way of deduction from the value of concerned asset

Bad debts
Debit which can not be recovered or become irrecoverable are called bad debts. Bad debts a/c dr. to sundry debtor Adjustment (a) it shown on the debit side on p/L accounts (b) it shown on the asset side of balance sheet by way of deduction from sundry debtor

Interest on capital
Some time in order of see whether the business is really earning profit or not , interest on capital at a certain rate is provided interest on capital a/c dr. to capital a/c Adjustment (a) It will be shown on the debit side of p/L account (b) it will be shown on the liabilities side of balance sheet by way of addition to the capital

Interest on drawings
If interest of capital is allowed , it is but natural that interest on drawing should be charged from the proprietor is called drawings Drawing a/c dr. To interest on drawing a/c Adjustment (a) Interest on drawing will be shown on the credit side of p/L account (b) It is shown on the liabilities side of the balance sheet by way of addition to the drawing

Provision for doubtful debts

Sometime a merchant finds on the last day of the accounting year that certain debts are doubtful , the amount may or may not be received Profit and loss a/c dr. To provision for doubtful debts Adjustment (a) It will be shown on the debit side of the p/L account or by way of addition to bad debts. (b) it will be shown on the asset side on the balance sheet by the way of deduction

Reserve fund
Reserve is certain out of p/L account thus is an appropriation of net profit for strengthening the financial position of the business Profit and loss a/c dr. To reserve a/c Adjustment (a) It is shown on the debit side of p/L account along with net profit in inner side (b) it shown on the liabilities side of the balance sheet

Goods distribution as free sample

Sometime in order to promote the sale of good some of the produced goods are distributed as free sample advertisement a/c dr. To purchase a/c Adjustment (a) It is deducted from the purchase ,and (b) it is also shown on the debit side of p/L account

Thanku