Final Account and Adjustment of final account

 

 Introduction:-

                           Accounting is considered as scientific approach in maintaining record of business transactions. It provides a systematic accounting record to all on the financial status of  the entreprice. No sooner a business transaction takes place, the accounting process starts. the process is completed by the drafting the final accounts.

Meaning of final accounts:-

                            The primary aim of accounting is assessment of performance for the benefit of all stakeholders (owners, employees, suppliers, customers, financiers etc.) which will also help them to form their opinions on the financial position of their business concerns. The final account is the set of trading account, profit and loss account and balance sheet. 

Bal fig. of trading A/C is GROSS PROFIT or GROSS LOSS. Profit and loss A/C the  Bal fig.  is Net Profit or Net Loss. whereas Balance sheet shows financial position of assets and liabilities at a given period of time.

Financial Year is start from 1st april and end at 31st march.

Objective of final account:-   

• The basic objectives of Final Account is to determine Gross profit/ Gross Loss and 

Net Profit/ Net Loss of the business during the financial year.

• Final Account show the true and correct financial position of business.
• It enables to control financial activities of business effectively.      

Importance of Final Accounts:-  

1.        Final Accounts are the basis on which management or businessmen decides                  business  policies and take financial decisions.
2.        Final Accounts gives a true picture of the financial status of business for the                 financial year.
3.        Final Account are useful for accurate accounting records.
4.        Transparency in business dealings are possible due to financial statements.
5.         Final account help to get a clear break-up of amounts payable to governments as          various taxes, e.g. income tax, GST, ect.

How to prepare Final accounts ?  

y         Every time a business transaction takes place, the detalis of it is made in primary books. these entries are then posted to the ledger. At the end of a financial year the ledger accounts are balanced and closing balance of each ledger account is determined. There many be debit or credit balance. With the help of all these balance, a Trial Balance is prepared. this in turn helps in preparing Trading Account, Profit and Loss Account and Balace Sheet, which is known as Final Accounts. This accounting process can be represented as follows:

 

    Final accounts include :-

1.Manufacturing Accounts

2.Trading Account

3.Profit and Loss Accounts

4.Profit and Loss appropriation account

5.Balance sheet

1.Trading Account:-

                             The trading a/c is an account which gives the overall preview of all trading activities.in simple words the trading account deals with Manufacturing and

factory related expenses.(purchases, sales, wages,carriage inward etc.)

specimen or format of trading account:-

2.Profit and loss account:-

     This account is main account of final accounts which gives the final working results of business. Profit and Loss account is maintaian to ascertain Net Profit or Net Loss.In simple words the profit and loss deals with office exp.(salary, rent, insurance, advertisement, etc.)

3. Balance sheet

Balance sheet is a statement showing financial position of a business concern.

Balance sheet has no debit or credit side as it is a ststement and not an account. left handside of balance sheet is "Liability side" and Right hand side "Asset side".

Both sides of balance sheet should be equal amount.

Adjustment in final Account:-

Sr.	Name of Adjustment	Journal entries	Two effects
1.	Closing stock	Closing stock A/c        Dr.        To Trading A/c	Cr. Side of trading A/c              Shown on assets side of bal. sheet
2.	Depreciation	1.Depreciation A/c        Dr.        To Asset A/c 2. Profit & loss A/c.      Dr.         To Debtors A/c	Dr. side P&L A/c            Deducted from assets side of bal. sheet
3.	Bad debts	1.bad debts A/c             Dr.      To debtors A/c 2. Profit & loss A/c	Dr. side of P&L A/c (new R.D.D.+ bad debts) Deducted from sundry debtors on assets side
4.	R.D.D (reserve for doubtful debts )	Profit & loss A/c         Dr.        To R.D.D. A/c	Dr. side of P&L A/c Deducted from sundry debtors on assets side
5.	Outstanding or unpaid expenses	Expenses A/c            Dr.        To o/s expenses A/c	(+) exp. On trading or P&L A/c  Shown on liability side of bal. sheet
6.	Prepaid expenses	Pre-paid expenses A/c  Dr.        To expenses A/c	(­-) exp. On trading or P&L A/c Shown on assets side of bal. sheet
7.	Accurate income / outstanding  income	Accurate income A/c    Dr.        To income A/c	(+) particular income on credit. Side of P&L A/c. Shown on assets side of bal. sheet.
8.	Pre received income	Income A/c                   Dr.     To Pre received income	(­-) particular income on credit. Side of P&L A/c. Shown on liability side of bal. sheet
9.	Pro. For discount on debtors	Profit & loss A/c          Dr.      To Pro. For discount on debtors A/c	Dr. side of P&L A/c Deducted from sundry debtors
10.	Pro. For discount on Creditors	Pro. For discount on creditors A/c                 Dr.        To Profit & loss A/c	Cr. side of P&L A/c Deducted from sundry debtors on liability side of bal. sheet
11.	Goods taken for personal use	1.Drawing A/c                Dr.        To trading A/c(to          purchases) 2.Proprietor’s capital A/c                    Dr.        To Drawings a/c	Cr. Side of Trading or deduct from purchases A/c Deducted from capital on liability side
12.	Goods distributed as free sample.	1.goods distributed as free   Sample A/c                 Dr. To trading A/c(to          purchases)  2. Advertisement A/c  Dr.    To goods distributed as free sample.	Cr. Side of Trading or deduct from purchases A/c Dr. to P&L A/c

posting the following:-