EXAMPLE

Enter the following business transactions of Aboli Traders, Anand into the journal, post them
in ledger, balance the ledger accounts and prepare the trial balance as on 31* March, 2019.
Amount
Date Particulars
2019
March
1st Aboli started business with the initial capital 90,000
2nd Opened a current account with Canara Bank by paying 50,000
4th Purchased a new machinery from basu and paid by cheques 10,000
7th Bought goods from Chandan on credit@ 4% trade discount 5,250
10th Purchased furniture from Deco Home for cash 5,000
13th Sold goods to Darshan @4% quantity discount 15,000
15th Spot purchases made from Manish Market 1,000
18th Office rent paid by cheques 3,500
20th Paid to Chandan in full settlement by cheque 5,000
23rd Cash Sales with Ebrahim 10,000
25th House rent paid 2,500
27th Crossed cheques received from Darshan in full settlement of account 14.000
29th Remuneration paid to office manager by cheques 5,500
30th Cash paid into Bank 10,000
31st Travelling expenses paid to traveling salesman 1,500
 Unit 2..

Financial Statement
Synopsis ...
2.1 Financial Statement
2.1.1 Meaning
2.1.2 Importance
2.1.3 Objectives
2.2 Preparation of Final Accounts of a Sole Proprietary Firm
llustrations
Questions for Self-Study

2.1 FINANCIALSTATEMENTS
The important objectives of the science of Accounting is to convey analytical accounting
information which can help in making a considered opinion on the financial status and
accounting performance of an organisation. This is achieved through the preparation of financial
statements at the end of the financial year. The financial statements are prepared in the form of
Final Accounts on the basis of the trial balance. The preparation of Final Accounts is the last step
involved in the accounting process. Thus, Financial Statements are prepared by the business
organsiations that provides a summary of financial effects of business transactions taken place
during a particular financial period.
Preparation of Final Accounts involves the following:
a) Preparation of Trading Account, b) Preparation of aProfit and Loss Account, and
() Preparation of aBalance Sheet.
Trading Account is prepared to know the gross profit or trading profit. Profit and Loss
Account discloses net profit of the business. The Balance Sheet shows the financial position of the
business on agiven date, generally on the last date of the accounting period.
2.1.1 MEANING
The important aim of any profit making organisation is to undertake number of business
activities relating to either manufacturing, trading or service rendering, to earn huge amount of
Proits that results into wealth maximisation of the owners. A businessman toils hard throughout
e period, faces the severe competition and struggle for ultimate survival in the competitive
environment. Now, at the end of the accounting period, after recording every business
transaction into journal and ledger more accurately, his interests are to know his profit or loss and
ue uitimate financial position of his business, on the basis of trial balance which he has prepared
(2.1)
 2.2 PREPARATION OF FINAL ACCOUNTS OF A SOLE PROPRIETARY FIRM
Thus, Final Accounts are prepared by the businessman at the end of the accounting year.
These accounts show the final results of the business carried out. Final Accounts are prepared to
find out the profit earned or loss suffered by the businessman and his financial position as On a
particular date. Usually, it consists of Income Statement such as Trading Account and Profit and
Loss Account and position statements such as Balance Sheet.
Trading Account :
Trading Account a part of income statement, is prepared to find out Gross Profit or Gross
Loss in the business done during the year. It is prepared to ascertain the profit or loss arising out
of buying and selling transactions. It is debited with opening stock, purchases less retum
outwards, all the expenses relating to purchases and manufacturing. On the credit side sales less
return inward closing stock is recorded. The Form of Trading Account is as follows :
Dr. Trading Account for the period ended Cr.
Particulars Particulars
ToOpening Stock By Sales
To Purchases Less : Returns Inwards or
Less : Returns Outward or Sales Returns
Purchase Returns By Closing Stock
To Direct Expenses By Direct Incomes
To Freight
To Carriage Inward
To Wages
To Octroi Duty
To Customs Duty
To Motive Power
To Fuel, Gas and Water
ToFactory Rent and Taxes
To Royalty
To Gross Profit C/D By Gross Loss C/D
 PinanCIai
Managerial Accounting 2.6

Dr. Cr.
Profit and Loss Account for the period ended ....
Particulars Particulars
To Gross Loss B/D By Gross Profit B/D
To Office Salaries By Discount Received
To Office Rent By Interest Received
To Office Rates and Taxes By Commission Received
To Insurance By Rent Received
To Printing and Stationery By Sundry Income
To Postage and Telegram By Interest on Drawings
To Repairs By R.D.D.
To Audit Fees (Old Reserve > New Reservve)
ToCarriage Outward
To Advertisement
To Bad Debts
To R.D.D.
(New Reserve > Old Reserve)
To Depreciation on Assets
To Travelling Expenses
To Interest on Capital
To Discount Allowed
To Net Profit C/D OR By Net LOss C/D
 Balance Sheet as at ......
Liabilities Assets
P's Capital Goodwill
(+) Net Profit Or Land and Buildings
-Net Loss Plant and Machinery
-P's Drawings Furniture and Fixtures
Sundry Creditors Investments
Bills Payable Cash in Hand
Loans Taken Cash at Bank
Bank Overdraft Bills Receivable
Outstanding Expenses Sundry Debtors
Pre-received InComes Prepaíd Expenses
Stock in Trade
utstanding Incomes
 ILLUSTRATION1
prepare the rinal Accounts as
From the following Trial Balance of Bharat Bhushan, Baroda,
on 31st March, 2019.
Debit Credit
Particulars

2,00,000
B's Capital
87,000
Land and Buildings
17,500
Plant and Machinery
Goodwill 20,000
22,600
B's Drawings
Cash in Hand
1,795
27,000
Stock on 1St April, 2018
10,000
Wages 69,000
Purchases Less Returns
600
Carriage Inward
6,000
Traveller's Commission
2,000
Insurance
3,000
Motor Car
1,400
Carriage Outward
94,000
Sales Less Returns
15,000
Salaries
105
Bank Charges
Reserve for Doubtful Debts 1,500
20,000
Debtors
7,500
Creditors
Total 3,03,000 3,03,000

The following adjustments are to be considered :

valued at 46,000.
i) On 31st March 2019, the Stock was
ii) Insurance Premium amnounting to 800 is prepaid.
ii) Outstanding Salaries amounted to 1,000.
Motor Car @20% p.a.
iv) Depreciate Plant and Machinery @10% p.a. and
@10% on Debtors.
v) Create a Reserve for Doubtful Debts
ILLUSTRATION 2
Deshpande, Dombivali :
The following balances were extracted from the books of Deepali
for the year ended 30th Jur
on 30n june 2019. Prepare Irading and Profit and Loss ACcount
account the following adjustments :
2019 and the Balance Sheet as on that date after taking into
Trial Balance as on 30th June, 2019
Debit Credit
Particulars
3,30,000
D'sCapital
24,450
D's Drawings
Opening Stock 2,00,000
Bills Receivable 25,000
Purchases 2,75,000
4,20,000
Sales
60,000
Bills Payable
Returns Outward 4,500
Returns Inward 5,000

Plant and Machinery 1,00,000

Loose Tools 25,000
Patents 25,000
Sundry Debtors 1,25,000
Sundry Creditors 1,40,000
Cash at Bank 77,550
Salaries and Wages 50,000
Repairs and Renewals 7,500
Insurance 3,000
Power and Fuel 3,500
Printing and, Stationery 2,000
Miscellarneous Expenses 6,500
Total 9,54,500 9,54,500
Adjustments :
i) Closing stock was 1,30,000 as on 30th June, 2019.
i) Depreciate Plant and Machinery @5% p.a. and Patents @159% p.a.
ii) Revalue Tools at 20,000.
iv) Provide for Bad and Doubtful Debts@ 5% on Debtors.
v) Outstanding Salary amounted to 3,500.
vi) Insurance was paid in advance to the extent of 750.
 ILLUSTRATION 3
The Trial Balance of Eknath Mahashabde, Matunga as on 30th September 2019 was as
follows :
Trial Balance as on 3oth September, 2019
Debit Credit
Particulars
M's Capital 2,50,000
M's Drawings 7500
Investment 1,00,000
Motor Vehicles 80,000
Office Furniture 20,000
Office Equipment 60,000
Cash in Hand 5,500
Purchases 4,75,000
Sales 7,55,000
Returns 15,000 10,000
Carriage 3,500
Opening Stock 140,000
Rent 30,000
Debtors 1,76,000
Salaries 25,000
Trade Expenses 3,000
General Expenses 6,000
Bad Debts
2,500
Reserve for Bad Debts
7,500
Discount 1,000 500
Creditors 1,26,000
Prepaid Insurance 1,000
Outstanding Salaries 2,000
Total 11,51,000
11,51,000
Adjustments :
i) Closing Stock was valued at 80,000, as on 30th September, 2019.
ii) Depreciation on Motor Vehicle and Office Furniture @5% p.a. and Office Equipment @
10% p.a. was to be provided.
iüü) Create 5% for Reserve for Doubtful Debts on Debtors.
iv) Goods costing? 1,000 was taken for personal use by Mahashabde and it was incuded in
Debtors.
v) Goods worth 10,000were destroyed by fire and the Insurance Co. admitted the claim
for 8,000.
|ILLUSTRATION 5
Folowing is the Trial Balance of Ashok Amarnath, Ajmer for the. year ende
S1 March, 2019, prepare Trading Account and Profit and Loss Account for the year endei
31st March, 2019 and a Balance Sheet as on that date.

Trial Balance as on 31% March, 2019

Debit Credit
Particulars

Purchases 98,000
Wages 21,000
Stock on 1st April, 2018 25,000
Printing and Stationery 17,000
Insurance (paid for one year from 1t Oct. 2018 to 30th Sept. 2019) 2,200
Salaries 32,000
Sales 2,12,000
Carriage Inward 10,000
Carriage Outward 12,000
Advertising 14,000
A's Capital 1,10,000
Land and Buildings 35,000
Machinery 60,000
Debtors and Creditors 30,000 35,000
Returns Inward and Returns Outward 2,000 2,300
Cash 2,300
Loan from Bhagwan (taken on 1st December, 2018@ 12% p.a.) 18,000
Patents 20,000
Rent received 3,200
Total 3,80,500 3,80,500
Adjustments:
i) Closing Stock is valued at cost price 32,000 and at market price 26,000.
i) Depreciate machinery @ 10% p.a. and patents are revalued on 31st March, 2019 at
18,200.
i) Apart of the building is let out @r1,000 per month from 1% December, 2018.
iv) Printing bill of *1,200; Wages of ®1,800 and Salaries of ?3,800 are outstanding.
 ILLUSTRATION6
From the following Trial Balance of Brijesh Chandra, Dombivali as on 31st March, 2019,
prepare Trading Account and Profit and Loss Account for the year ended 31st March, 2019 and a
Balance Sheet as on that date.
Trial Balance as on 31st March, 2019
Debit Credit
Particulars
Stock as on 1-4-2018 20,000
Purchases and Sales 2,20,000 3,50,000
Bills Receivable 5,000
Returns 10,000 5,000
Carriage Inward 5,000
Debtors and Creditors 20,000 40,000
Carriage Outward 4,000
Discounts 500 500
Salaries and Wages 22,000
Insurance 6,000
Rent 6,000
Wages and Salaries 8,000
Bad Debts 1,000
Furniture 40,000
Brijesh's Capital 50,000
Brijesh's Drawings 7,000
Loose Tools 10,000
Printing and Stationery 3,000
Advertisement 5,000
Cash in Hand 4,500
Cash at Bank 20,000
Petty Cash 500
Machinery 30,000
Commission 1,000 3,000
Total 4,48,500 4,48,500
Adjustments :
i) Stock as on 31st March, 2019 was valued as follows:
Cost Price 42,000, Market Price 40,000.
) Method.
Depreciate Furniture 10% p.a. and Machinery @20% p.a. as per Reducing Balance
ii) Rent of 500 was paid in advance.
iv) Salaries and Wages due but not paid amounted to 3,000.
v) Create a Reserve for Bad and Doubtful Debts @5% on Book Debts.
vi) Interest on Capital @6% pa. was also to be provided but not on Drawings.
Managefial 2.41 FinanClal Statem

ILLUSTRATION 13
The following Trial Balance was extracted from the books of Firoz Frammy, aridabad as on
31# March, 2019.
Trial Balance as on 31st March, 2019
Particulars Debit Credit

Capital as on 1-4-2018 80,000

Machinery 78,800
Sales 1,25,000
Loose-Tools 7,000
Purchases 50,000
Returns 1,000 750
Fixtures 2,000
Opening Stock 28,000
Bills of Exchange 5,000 15,000
Carriage on Purchases 2,000
Installation charges on purchase of Machinery 1,200
Discount 425 800
Debtors and Creditors 40,000 10,000
Commission 1,000 1,000
Additional Capital on 30th September, 2018 20,000
Salaries 7,000
Prepaid Salaries 550

Wages 10,000
Outstanding Wages 1,000
Carriage on Sales 1,000
Bad Debts 200
Provision for Bad Debts 525
Rent for Residential Quarters 5,000
Rent for Office Premises 5,000
Advertisement 2,000
Cash in Hand 6,600
Petty Cash 300
Total 2,54,075 2,54,075
Prepare Trading and Profit and Loss Account for the year ended 31st March. 2019 and a
Balance Sheet as on that date after taking into account the following adjustments :
i) Closing Stock was valued at ? 34,220. ii) Allow interest on capital @10% p.a. ii) Depreciate
Machinery @10% p.a. iv) Provision for Bad Debts is to be made @5% on Debtors. v) Firoz has
taken goods worth 5,000 for personal use and distributed goods worth? 1,000 as free samples.
 ILLUSTRATION 14
From the following Trial Balance extracted from the books of Chandan Chopade, Chembur,
the
prepare Trading ACCount, Profit and Loss Account for the year ended 31st March, 2019 and
Ralance Sheet as on that date after referring to the adjustments given below.
Trial Balance as on 31st March, 2019
Particulars Debit Credit

Plant and Machinery 80,000

Furniture and Fixtures 30,000
Purchases 60,000
Opening Stock 30,000
Sundry Debtors 1,45,000
Wages to workers 10,000
Postage arnd Telegram 1,200
Salary to Office Staff 8,000
Discount Allowed to Debtors 1,800
Sales Returns 3,000
Cash 12,000
Publicity Charges 2,000
Bills Receivable 8,000
Rent and Taxes 2,000
Freight Inward 5,000
Sales Commission 2,000
CCs Capital 2,00,000
147,000
Sales
Purchases Returns 2,000
Discount Received from Creditors 1,000
Provision for Bad Debts 2,000
Sundry Creditors 30,000
Bills Payable 15,000
Taxes Payable 3,000
4,00,000 4,00,000
Adjustments:
1) Stock as on 31st March, 2019 was valued att 20,000. 2) Chandan has taken goods worth
(5000 for personal use, which were included in debtors. 3) Interest on capital is to be allowed at
Y% p.a. 4) Depreciate Plant and Machinery @5% p.a. and Furniture and Fixtures @ 10% p.a.
D) Additional provision for bad debts are to be made on Sundry Debtors @2%. 6) Outstanding
Wages amounted to 1000.
Manage 2.4

vear ended 31 March, 2019 and the Balance Sheet as on that date after taking into account the
following adjustments.
Trial Balance as on 31% March, 2019
Debit Credit
Particulars
Stock as on 1# April, 2018 15,000
Machinery 1,92,500
Insurance 1,000
Printing and Stationery 4,200
Commission 800
Telephone Charges 500
Machinery Installation charges 7,500
Wages and Salary 20,000
Freight Inward 5,000
Advertising paid upto 30th June, 2019 15,000
Purchases 1,00,000
Returns Inward 1,000
Motor Car 25,000
Bills Receivable 5,000
1,51,000
Sundry Debtors 5,500
Motive Power
50,000
4% Bank Loan as on 1 October, 2018 LIBRARY 2,70,000
BB's Capital 4,000
Bills Payable 1,000
Discount Received
34,000
Sundry Creditors 1,000
Commission 1,86,500
Sales 1,500
Purchases Returns 1,000
Reserve for Bad and Doubtful Debts
5,49,000 5,49,000
Adjustments:
1) Stock as on 31 March, 2019was valued at5,000.
doubtful debts.
2) Provide 1% on book debts for bad and
3) Depreciate machinery @10% p.a.
4) Wages of 4,000 were due but notbad. paid.
5) ?1,000 of debtors to be written as
In the Books of Bhavesh Bose, Baramati
 Vi) Goods worth 500 distributed as free sample.
as on 31* March, 2019.
2) Following is the Trial Balance of Balaji Barve, Badalapur2019
Trial Balance as on 31st March, Credit
Debit
Particulars

Plant and Machinery 1,00,000

Business Premises 40,000
Opening Stock as on 1st April, 2018 12,000
Purchases 1,10,000
Productive Wages 16,000
Carriage Outward 4,000
Book Debts 30,000
10,000
Salary
Rent 1,000
Bad Debts 1,000
Law Charges 1,500
Loan to Chandan 15,000
B's Drawings 6,000
Cash on Hand 2,500
Cash at Bank 15,000
1,20,000
B's Capital 40,000
Sundry Creditors 9,000
Bills Payable
Commission Received 1,000
Returns Outward 2,000
Interest Earned 500
Cash Sales 1,80,000
Credit Sales 10,000
Miscellaneous Income 100
Interest on Loan 1,400
Total 3,64,000 3,64,000
Adjustments :
i) Closing Stock as on 315t March, 2019 was 18,000.
ii) Depreciate Business Premises @10% p.a.
iiü) Write off 2,000 as further bad debts.
iv) Provision for discount on creditors to be made @ 5%.
v) Commission received includes 400 for the next year.
vi) Outstanding Salary was 2,000.
You are required to prepare a Trading and Profit and Loss Account for the year ended
31st March, 2019 and a Balance Sheet as on that date after considering the above
mentioned adjustments.
 Manager1al Accounting 2.49 Financial Statement
3) Following is the Trial Balance of Chandan Chaudhari, Chalisgaon from
which you are
required to prepare a Trading and Profit and Loss Account for the year ended
31% March, 2019 and a Balance Sheet as on that date after considering the
given as follows. adjustments
Trial Balance as on 31st March, 2019
Debit Balances Credit Balances
Insurance 800| C's Capital 60,000
Publicity
Cash in Hand 4,000Sundry Creditors 40,000
400 Provision for Bad Debts 2,000
Petty Cash 100| Sales 1,23,300
Cast at bank
4,000| Discount Received 1,000
C's Drawings 5,000 Interest on Investments
Land and Buildings 1,700
Debtors 40,000Outstanding Wages
40,000
2,000
Plant and Machinery 30,000
Purchases 52,000
Stock as on 1st April, 2018 5,000
Wages 30,000
Royalties 2,000
Carriage Inward 1,000
Freight Outward 800
Sundry Expenses
Bad Debts
400
1,200
Furniture Fixtures 5,000
Investments 8,300
Total 2,30,000 Total 2,30,000
Adjustments :
i) Closing Stock as on 315t March, 2019, was Cost Price -R 8,200 and Market Price -
8,000.
ii) Depreciate Land and Buildings by 10% p.a. and Plant and Machinery by 5% p.a.
ii) Insurance is paid for the year ended 30th June, 2019.
iv) Provision for bad debts to be made on Sundry Debtors @ 10% and also create a
reserve for discount on debtors @5%.
v) Outstanding commission amounted to 500.
vi) Make a provision for discount on creditors @5% on Sundry Creditors.
4) ATrial Balance of Dinesh Dongare, Dombivali as on 31* March, 2019 was as follows.
Trial Balance as on 31$t March, 2019
Debit Balances Credit Balances
D's Drawings 5,000 D's Capital 50,000
Furntiure 3,000| Purchase Returns 1,000
Purchases
Coal and Coke
36,000| Sales 80,000
1,500| Bills Payable 15,000
Petty Cash 1,000 Sundry Creditors 20,000
Wages
Patents
7,600 Discount earned
1,300
10,000 Bank Overdraft 12,000
Travelling Expenses
Sales Returns
2,000|| Commission 700
2,000
|Advertisement 2,500
Machinery
Stock on 1t April, 2018
20,000
9,000
Sundry Debtors 42,000
Commission 1,000
 2.50 Financial Statem
Managerial Accounting
Credit Balances
Debit Balances 5,000
Audit Fees
20,000
Bills Receivable
Cash in Hand 2,400
10,000
Goodwill
Total 1,80,000 Total 1,80,000
Adjustments :
i) Stock as on 31st March, 2019 was valued at 12,000.
ii) Patents were revalued at 8,000.
iii) Commission received in advance was ? 100.
iv) Depreciate Machinery by 10% p.a. and Furniture by 10% p.a.
v) Write off?2,000 as further bad debts and provide 5% on debtors for doubt
debts. Also provide 2% for discount on debtors.
5) From the following Trial Balance as on 31st March, 2019, prepare Trading and Profit ang
Loss Account for the year ended 31st March, 2019 and a Balance Sheet as on that of Eza
Enamke, Edalabad.
Trial Balance as on 31st March, 2019
Debit Balances Credit Balances
E's Drawings 10,000 E's Capital 1,2000
Plant and Machinery 32,000 Loan @6% Account 20,00
Sundry Debtors 61,000Sales 3,52,800
Wages, manufacturing 40,000 Purchases Returns 2,0
Returns Inward 2,800 Commission 5,600
Purchases 2,78,000 Sundry Creditors 52,000
Sales Commission 10,000 Interest on Investments 2,60
Rent and Taxes 22,000
32,000
|Stockon 1st April, 2018
Salaries and Wages 13,000
Manager's Travelling 1,800
Insurance Premium 400
Cast at Bank 8,900
Repairs and Renewals 3,200
Interest and Discount 4,800
Bad Debts 3,500
Furniture 31,000
Corporation Taxes 600
Total 5,55,000 Total 5,55,00
Adjustments :
i) Stock on hand on 315t March, 2019 was 45,000.
i) Write off further bad debts of R1,000 and create a reserve @5% on Sundry Debtors
ii) Depreciate Plant and Machinery @5% p.a.
iv) Commission receivable amounts to 1,400.
6) The following is the Trial Balance of Frami Firodiya, Faizpur as on 31* March, 2019. Y
are required to prepare Trading and Profit and Loss Account for the year ende
31* March, 2019 and a Balance Sheet as on that date, considering the adjustments give
below.
ManagerialAccounting
Credit Balances
Debit Balances
Audit Fees 5,000
Bills Receivable 20,000
Cash in Hand 2,400
Goodwill
10,000
Total| 1,80,000
Total 1,80,000
Adjustments :
at 12,000.
i) Stock as on 315t March, 2019 was valued
ii) Patents were revalued at 8,000.
ii) Commission received in advance was 100.
Depreciate Machinery by 10% p.a. and Furniture by 10% p.a.
iv)
off 2,000 as further bad debts and provide 5% on debtors for doubtf
v) Write
debts. Also provide 2% for discount on debtors.
following Trial Balance as on 31$t March, 2019, prepare Trading and Profit and
5) From the Balance Sheet as on that of Ezaz
2019 anda
Loss Account for the year ended 31St March,
Enamke, Edalabad.
Trial Balance as on 31st March, 2019
Credit Balances
Debit Balances 1,20,000
E's Drawings 10,000 E's Capital
32,000 Loan @6% Account 20,000
Plant and Machinery 3,52,800
Sundry Debtors 61,000Sales
40,000 Purchases Returrns 2,000
Wages, manufacturing 5,600
Returns Inward 2,800 Commission
2,78,000 Sundry Creditors 52,000
Purchases
Sales Commission 10,000| Interest on Investments 2,600
Rent and Taxes 22,000
32,000
Stock on 1st April, 2018
Salaries and Wages 13,000
Manager's Travelling 1,800
Insurance Premium 400
Cast at Bank 8,900
Repairs and Renewals 3,200
Interest and Discount 4,800
Bad Debts 3,500
Furniture 31,000
Corporation Taxes 600
Total 5,55,000 Total 5,55,000
Adjustments :
i) Stock on hand on 31st March, 2019 was 45,000.
i) Write off further bad debts of 1,000 and create a reserve @5% on Sundry Debtors.
iii) Depreciate Plant and Machinery 5% p.a.
iv) Commission receivable amounts to 1,400.
6) The following is the Trial Balance of Frami Firodiya, Faizpur as on 31t March, 2019. You
are required to prepare Trading and Profit and Loss Account for the year ended
31t March, 2019 and a Balance Sheet as on that date, considering the
below. adjustments givel