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21.09.2015 admin
At the end of a financial period, all expense and revenue accounts are closed to a summarizing account usually called a Profit and Loss Account. Trading account is one of the financial statements prepared by the company and shows the result of buying and selling of goods and services during an accounting period. Profit and loss account is one of the financial statements prepared by the company and shows the financial performance of company during an accounting period.
Balance sheet is one of the financial statements prepared by the company and shows the financial position of company at a particular time. Below is the Trading and profit and loss account and balance sheet which is prepared from the trial balance example in the Trial balance topic. Accounting adjustments are those transactions of a company’s business that are recorded at the end of the accounting period. Treatment in final accounts:- First effect- shown on the debit side of profit and loss account as a separate item.
If depreciation also appears in trial balance, then it would be shown only on the debit side of profit and loss account and not on the balance sheet.
Treatment in final accounts:- First effect- shown on the credit side of trading account as a separate item. If closing stock also appears in trial balance, then it would be shown only on the assets side of balance sheet and not on the trading account. Treatment in final accounts:- First effect- deducted from the respective expenses on the debit side of trading account or profit and loss account.
If prepaid expenses also appear in trial balance, then they would be shown only on the assets side of balance sheet and not on the trading account or profit and loss account.
Treatment in final accounts:- First effect- added to the respective expenses on the debit side of trading account or profit and loss account.
If outstanding expenses also appear in trial balance, then they would be shown only on the liabilities side of balance sheet and not on the trading account or profit and loss account.
Treatment in final accounts:- First effect- deducted from the respective income on the credit side of profit and loss account. If unaccrued income also appears in trial balance, then it would be shown only on the liabilities side of balance sheet and not on the profit and loss account.
Treatment in final accounts:- First effect- added to the respective income on the credit side of profit and loss account.
If accrued income also appears in trial balance, then it would be shown only on the assets side of balance sheet and not on the profit and loss account. If bad debts also appear in trial balance, then they would be shown only on the debit side of profit and loss account as additional bad debts and added to the existing bad debts in trial balance.
Treatment in final accounts:- First effect- shown on the credit side of profit and loss account as a separate item.
Treatment in final accounts:- First effect- total value of loss whether recovered or not is shown on the credit side of trading account and total value of loss not recovered from the insurance company is shown on the debit side of profit and loss account. There is no standard format of balance sheet or P & L account for sole proprietorship business. If the business entity carries on manufacturing activities, a Manufacturing account is also prepared by such business entity before the preparation of Trading Account.
If the amount of sales exceeds the total amount of purchases and expenses directly connected with such purchases, the difference is termed as gross profit.
A Profit and Loss Account starts with the amount of gross profit or gross loss brought down from the Trading Account.
From the following information of Birbal and Akbar Enterprise prepare a Profit & Loss Account for the year ended 31st December, 2008. After ascertaining the net profit or loss of the business enterprise at the end of a particular period, the businessman would also like to know the financial position of his business as on that date.


Generally, sole proprietors and partnership firms prepare their Balance Sheet in the order of liquidity. Annual Report is a document detailing the business activity of a company over the previous year, and containing the three main financial statements: Profit and loss Account, Balance Sheet and Cash Flow Statement as well as a host of other company-related data. A good annual report provides a variety of important financial data, investors can find in-depth information on a company’s products, market segments, competitors, customers, management and legal proceedings. Information incorporated in the Annual Report may be classified into mandatory disclosures and non-mandatory disclosures.
Non-mandatory Information, incorporated and reported in a Corporate Annual Report, is not under the mandate of any statute. 5.The Balance Sheet “is a statement at a particular date showing on one side the trader’s property and possessions and on the other hand the liabilities.
Net Profit is a the surplus of Gross Profit over all indirect expenses such as administrative, selling, distribution and non-operating expenses.. Two objects of Balance Sheet are (i) to ascertain the true financial position of the business at a particular point of time and (ii) to find out whether the business entity is solvent or not.
This is the financial statement that summarizes revenues and expenses for a specific period of time, usually a month or a year. It shows financial the activity of a business during that period and indicates any profit or loss earned. Trading account is prepared to ascertain the gross profit or gross loss made by the company during the accounting period. Profit and loss account is prepared to ascertain the net profit or net loss made by the company during the accounting period.
Balance sheet is prepared to ascertain the position of assets and liabilities of the company at a particular time.
The journal entries for such transactions are passed at the end of the accounting period and are called as adjusting entries. Second effect- shown on the assets side of balance sheet by way of deduction from the debtors after the deduction of bad debts and provision for doubtful debts, if any.
Both balance sheet format as well as P & L account format given above are for a company and not for sole proprietor. It is known to you that Financial Statements are the end products of the accounting system. It should be kept in mind that the final accounts are prepared after the preparation of trial balance. On the contrary, if the total of purchases and direct expenses exceed the sales, the difference is called gross loss. As such, all those expenses and losses which have not been debited to the Trading Account will now be debited to Profit & Loss Account. This account in combined form is shown in two parts – first part is called the Trading Account and the other part is called Profit and Loss Account. For this purpose a statement, wherein all the Assets and Liabilities of the business enterprise are included, is prepared. Assets are shown on the right hand side and the liabilities are shown on the left hand side of the Balance Sheet. The presentation of various assets and liabilities in a certain order is known as ‘Marshalling of Assets and Liabilities’.
Thus, current liabilities are written first of all, then fixed or long-term liabilities and lastly, the proprietor’s capital.
Assets which are most difficult to be converted into cash are written first and the assets which are most liquid such as Cash in hand are written last. Corporations that have shareholders must prepare an Annual Report and make it available to the corporation’s shareholders.


An ideal Annual report generally includes the following information: general and international business environment, socio-economic condition of the country, industry structure and development, business environment in which the company is working, industry and company opportunities and thereto and financial highlights. Equity ratio, Earnings per share in rupee, Cash earnings per shares in rupee; Profit after tax to average net worth, Net worth per equity share in rupee.
Names and addresses of Bankers, Auditors, Stock exchanges; and Registrar and Transfer agents.
Annual statement showing the representation of SC,ST and OBC in the company in various positions.
From the following extract of the Trial Balance of Sri Ram and the additional information, prepare a Trading Account for the year that ended on 31st March, 2008. This is divided in a Trading Account which calculates the Gross Profit for the period, and a Profit and Loss Account which calculates Net profit for the period. In the trading account the cost of goods sold is subtracted from Net Sales for the period to calculate Gross Profit. Adjusting entries are required to be passed under the accrual basis of accounting to allocate the income and expenses to the period in which they actually occur and to recognize the revenues and associated costs in the same accounting period. Accounting is the process of recording financial transactions as well as reporting on the financial status of a business.
The nature of the business entity may be ‘Sole proprietorship, Partnership, Joint Stock Company and so on. In this account, the amount of purchases of goods and also the expenses which are incurred in bringing those goods to a saleable state are recorded. All expenses which relate to either purchase or manufacturing of goods are written on the Debit side of the Trading Account. Additional information provided after the trial balance is treated as adjustments and required adjusting entries are passed. The bookkeeping methods involved in making a financial record of business transactions under double entry system and in the preparation of statements concerning the assets, liabilities, and operating results of a business. In other words, all expenses which relate to either purchase of raw material or manufacturing of goods called ‘Direct Expenses’, are recorded in the Trading Account. The Annual Report contains information such as basic financial statements, management’s opinion of the past year’s operations, and the corporation’s future prospects. Each adjusting entry has two effects and is shown twice in the final accounts- once in the trading and profit and loss account and once in the balance sheet.
When the data thus produced are abstracted in reports, usually annually, for the use of persons outside the organization, the process is called financial accounting. Trading and profit and loss accounts are prepared to find out the profit or loss of the concerned accounting period.
Profit and Loss Account is a Nominal Account and as such, all the expenses and losses are shown on its debit side and all the incomes and gains are shown on the credit side of this account.
As this statement shows the position of assets and liabilities of an entity on a particular date, it is also known as ‘Position Statement’. Trading and P&L account and Balance sheet are prepared to give the final results of the business that is why both are collectively called as Final Accounts.
Final Accounts are prepared from the figures appearing in Trial Balance and additional information.



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