ABHIMANYYU AGARRWAL 9874311319

Final Accounts of Sole Proprietor

Final Account

Non- manufacturing Entities (Trading Entity) Manufacturing Entities

(a) Position Statement (a) Position Statement

- Balance Sheet - Balance Sheet

(b) Income Statement (b) Income Statement

i) Trading A/c (Gross Profit /Loss) (i) Manufacturing A/c (Cost of goods produced)

ii) Profit & Loss A/c (Net Profit/Loss) (ii) Trading A/c (Gross Profit /Loss)

(iii) Profit & Loss A/c (Net Profit/Loss)

Concept 1: Trading Account

Dr. Trading Account For the year ended…… Cr.

Particulars ₹ Particulars ₹
To Opening Stock xx By Sales xx
To Purchase (Net) xx By Closing Stock xx
To Direct Expense xx
To Gross profit xx
XX XX
(i) Trading Account is prepared to find out Gross profit or Gross Loss of a given period.

(ii) Trading A/c shows the Net Result of buying and selling of goods.

(iii) Trading A/c shows the relationship between sale and Cost Of Goods Sold (COGS).

(iv) Cost of Goods Sold (COGS)

Opening Stock xx
(+) Purchase xx
(+) Direct Expense xx
(-) Closing stock (xx)
COGS xx

Sales xx
(-)COGS xx
Gross Profit xx

Dr. Trading Account Cr.

₹ ₹
To COGS xx By Sales xx
To Gross Profit xx

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(5) Adjusted purchase

Opening Stock XX
(+) Purchase XX
(-) Closing Stock XX
Adjusted purchase XX

Adjusted purchase XX
(+) Direct Expense XX
COGS XX

Sale XX
(-) Adjusted purchase XX
(-) Direct Expense XX
Gross Profit XX

Dr. Trading Account Cr.

₹ ₹
To Adjusted Purchase xx By Sales xx
To Direct Expense xx
To Profit & Loss A/c -GP
(xx)
XX XX

(6) Opening Stock: Last year unsold stock/closing sock of Last year is opening stock of current year.

(7) Net Purchase:

Cash Purchase XX
Credit Purchase XX
Gross Purchase XX
(-) Purchase Return/ Return outward (XX)
Net Purchase XX

(8) Net Sale:

Cash Sales XX
Credit Sales XX
Gross Sales XX
(-) Sales Return/ Return Inward (XX)
Net Sales XX

(9) Direct Expense: Direct Expenses are those expenses which are incurred to bring the inventories in
the location on sale. In other words all Production & Factory expenses is also direct expenses.

For eg. Carriage Inward, Freight Inward, wages, Taxes on purchase (import duty) clearing charges,
Transit Insurance, etc.

(10) Closing Stock: Unsold Stock of current year. Closing stock shall be valued a lower of cost or net
realisable value (NRV)

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(11) Import: Purchase from foreign country.

(12) Export: Sale to foreign country.

(13) Closing Entries in Respect of Trading A/c (in Journal proper)

(a) For Opening Stock

Trading A/c Dr. xx

To Stock (opening) A/c xx

(b) For Purchase Return

Purchase Return A/c Dr. xx

To Purchase A/c xx

(c) For Sale Return

Sales A/c Dr. xx

To Sales Return A/c xx

(d) For Purchase A/c (Net)

Trading A/c Dr. xx

To purchase A/c xx

(e) For Sale A/c (Net)

Sale A/c Dr. xx

To Trading A/c xx

(f) For Direct Expense

Trading A/c Dr. xx

To Direct Expense A/c xx

(g) For Closing Stock

Stock (closing) A/c Dr. xx (Removing closing Stock from trading A/c

To Trading A/c xx and Recorded in the Asset Side of B/S)

(Eg.1) Trial Balance as on 31.3.2022

Dr. Cr.
Opening stock 20,000
Purchase 1,00,000
Sale - 1,40,000
Adjustment: -

Closing Stock is ₹ 30,000.

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Soln.

Dr. Trading A/c. Cr.

To Opening Stock 20,000 By Sale 1,40,000
To Purchase 1,00,000 By Closing Stock 30,000
To GP 50,000

Balance Sheet
Asset
Stock 30,000

(Eg. 2) Trial Balance as on 31.3.2022

Dr. Cr.
Adjusted purchase 90,000
Sale - 1,40,000
Closing Stock 30,000

Soln.
Dr. Trading A/c. Cr.
To Adjusted Purchase 90,000 By Sales 1,40,000
To GP 50,000
1,40,000 1,40,000

Balance Sheet
Asset
Stock 30,000

(Eg.3)
Trial Balance as on 31.3.2023
Dr. Cr.
Opening stock 20,000
Purchase 70,000
Closing Stock 30,000
Sale - 1,40,000
Dr. Trading A/c. Cr.

To Opening Stock 20,000 By Sales 1,40,000

To Purchase 70,000
(Purchase -Closing Stock)
To GP 50,000
1,40,000 1,40,000

Balance Sheet
Assets
Stock 30,000

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Concept 2: Profit & Loss A/c

Dr. Profit& loss A/c For the Year ended……… Cr.

₹ ₹
To Gross Loss xx By Gross Profit xx
-From Trading a/c - From Trading a/c
To Management Expense xx By other Income xx
To Maintenance Expense xx By Non-Trading Income xx
To Selling & Distribution xx By Abnormal Gain xx
To Finance Expense xx
To Abnormal Loss xx
To Net Profit By Net Loss
- Transfer to capital A/c xx - Transfer to Capital A/c xx

1) PL A/c is prepared to find out Net Profit /Net Loss of a business in a particular period.
2) Total credit Side> Total Debit Side => Net profit
Total credit Side < Total Debit Side => Net Loss.
3) Closing Entries in respect of profit /Loss A/c ( in Journal Proper)
4) All the Indirect Incomes are credited to PL A/c and all the Indirect Expense are debited to PL A/c.

a) For Closing Trading, A/c

If Gross profit
Trading A/c Dr. xx
To Profit & Loss A/c xx
If Gross Loss
Profit & Loss A/c Dr. xx
To Profit & Loss A/c xx

b) For Closing Indirect Expense

Profit & Loss A/c Dr. xx
To Indirect Expense A/c xx

c) For Closing Indirect Income

Indirect Income A/c Dr. xx
To Profit & Loss A/c xx

d) For Closing Profit & Loss

For Net Profit
Profit & Loss A/c Dr. xx
To Capital A/c xx

For Net Loss

Capital A/c Dr. xx
To Profit & Loss A/c xx

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Concept 3: Balance Sheet

Balance Sheet as on……..

Liabilities ₹ Assets ₹
Capital xx Land & Building xx
Loan Taken xx Plant & Machinery xx
Sundry Creditor xx Furniture & Fixture xx
Bills payables xx Motor Car xx
Bank overdraft xx Goodwill Xx
O/S Expense xx Patent xx
Pre received Income xx Investments xx
Stock xx
Sundry Debtor xx
Bills Receivable xx
Prepaid Expense xx
Accrued Income xx
Bank xx
Cash xx
XX XX

(1) Balance sheet is a statement and not an account.

(2) Balance sheet shows the position of a business as on a particular date. Hence it is known as
position statement.
(3) Balance sheet shows the position of a business as on a particular date. Hence it is also known
as point statement.
(4) All the Assets are presented on Right hand Side and all the Liabilities on Left hand Side.
(5) Grouping in Balance Sheet:- Items of similar nature are Clubbed/Combined together and are
presented under one single head. This is known as Grouping in Balance Sheet, for eg. Sundry
Debtor, Sundry Creditor, etc.
(6) Marshalling of Balance Sheet: - Sequencing of items in Balance Sheet.
Top Bottom
Permanence Approach Least Liquid Asset Most Liquid Asset
Least urgent payment Most urgent payment
Liquidity Approach Most liquid Asset Least Liquid Asset
Most urgent payment Least urgent payment

7) Capital in Balance Sheet

Opening Capital XX
(+) Additional Capital XX
(+) Net Profit XX
(+) Interest on Capital XX
(-) Drawing (XX)
(-) Income Tax (XX)
(-) Net Loss (XX)
(-) Interest on drawing (XX)
Closing Capital Balance XX
(will be taken to B/S)

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Concept 4: Some Important points to be covered

Trial Balance as on…………….

Heads of Accounts DR. CR.

Wages XX - Debit Side of Trading A/c
Salaries XX - Debit side of PL A/c
Wages & Salaries XX - Debit Side of Trading A/c
Salaries & Wages XX - Debit side of PL A/c
Carriage Inward XX - Debit Side of Trading A/c
(Carriage on Purchase)
Carriage Outward XX - Debit side of PL A/c
(carriage on Sale)
Carriage XX - Debit Side of Trading A/c
Freight Inward XX - Debit Side of Trading A/c
Freight outward XX - Debit Side of PL A/c
Freight XX - Debit Side of Trading A/c
Purchase Return - XX Deduct from Purchase in Trading A/c
Sale Return XX - Deduct from Sale in Trading A/c
Return XX XX Sales Return/ Purchase Return
Discount Allowed XX - Debit Side of PL A/c
Discount Received - XX Credit Side of PL A/c
Discount XX XX Discount Allowed/Discount Received
Commission XX XX Expense/Income
Rent XX XX Expense/income
Drawings XX - Deduct from Capital A/c
Income Tax XX - Deduct from Capital A/c
Closing Stock XX - Asset Side of B/S
Apprenticeship premium - XX Credit Side of PL A/c

Additional Concepts to be Covered:-

Concept 1: Outstanding Expense/Accrued expense/Expense payable:

(Expense Incurred, but not paid)

Not Appearing in T.B Appearing in T.B

i.e. It means it is given in additional Information i.e. It means its adjustment entry has already
I.e. It means is adjustment Entry has not yet been done
been done
Expense A/c Dr.
To O/S Expense A/c

Effects in final A/cs (i) Liability side of B/S

(i) Add with Expense in Trading A/c/PL
(ii) Liability Side of B/S.

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Concept 2: Prepaid Expense/Unexpired Expense

(Expenses paid but not incurred /Expenses paid in Advance)

Not Appearing in T.B Appearing in T.B

Prepaid Expense A/c Dr.
To Expense A/c
(i) Deduct from Expense in Trading A/c (i) Asset Side of B/S.
(ii) Asset Side of B/S

Concept 3: Accrued Income/Outstanding Income/Income Receivable

(Income Earned, but not received)

Not Appearing in T.B Appearing in T.B

Accrued Income A/c Dr.
To Income A/c
(1) ADD with Income in PL A/c (i) Asset Side of B/S
(2) Asset Side of B/S

Concept 4: Pre-received Income/ Advance Income

(Income received but not earned)

Not Appearing in T.B Appearing in T.B

Income A/c Dr.
To Pre received Income A/c
(1) Deduct from Income in PL A/C (i) Liability side of B/S
(2) Liability side of B/S

Concept 5: Depreciation

DEPRECIATION

Not Appearing in T.B Appearing in T.B

Depreciation A/c Dr
To Fixed Asset A/c
(1) Debit side of PL A/c (i) Debit side of PL A/c
(2) Deduct from FA in B/S

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Concept 6: Closing Stock

Not Appearing in T. B Appearing in T. B

Stock (closing) A/c Dr.
To Trading A/c
(1) Credit Side of Trading A/c (i) Asset Side of B/S
(2) Asset Side of B/S.

Concept 7: Goods taken by proprietor for personal use -₹ 5000 (Given in Additional information)

Drawings A/c Dr. 5000

To Purchase A/c 5000

Dr. Trading A/c Cr. Balance Sheet

Liability ₹ Assets
To Purchase xx Capital xx
(-) Drawing (5000) XX (-) Drawings (xx) xx
(xx+5000)

Concept 8: Goods given away as Sample ₹ 5000 (Given in Additional information)

Advertisement A/c Dr. 5000

To Purchase A/c 5000

Dr. Trading A/c Cr. Dr. PL A/c Cr.

To Advertisement 5000
To Purchase xx
(-)Advertisement (5000) xx

Concept 9: Goods given away as Charity ₹ 5000 (Given in Additional information)

Charity A/c Dr. 5000

To Purchase A/c 5000

Dr. Trading A/c Cr. Dr. PL A/c Cr.

To Charity 5000
To Purchase xx
(-) Charity (5000) xx

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Concept 10: Goods pilfered ₹ 10000 (Add info.)

Goods pilfered A/c Dr. 10000

To Purchase A/c 10000

Dr. Trading A/c Cr. Dr. PL A/c Cr.

To Loss by pilferage 10000
To Purchase xx
(-)Pilfered (10000) xx

Concept 11: Goods Destroyed by fire ₹ 10000 and Insurance claim admitted ₹ 6000(add. Info.)

(a) GDBF A/c Dr. 10000

To Purchase A/c 10000

(b) Insurance Claim A/c Dr. 6000

To GDBF A/c 6000

(or)

GDBF A/c Dr. 4000

Insurance Claim A/c Dr. 6000

To Purchase A/c 10000

Dr. Trading A/c Cr. Dr. PL A/c Cr.

To GDBF 10000
By GDBF 10000 (-)Insurance Claim 6000 4000

Balance Sheet
Insurance
Claim 6000

Concept 12: Interest on Loan

eg:1

T.B as on 31.3.23
DR CR
12% Bank Loan - 1, 00,000
Interest on Loan 4000

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Annual Interest (100000x12%) 12000

Interest paid 4000

O/S Interest. 8000

Dr. PL A/c Cr. B/S

₹ ₹ Liability ₹ Assets ₹
To Int. on Loan 4000 12% Bank Loan 100000
(+) O/S Interest 8000 12000 O/S Interest 8000

eg:2

T.B as on 31.3.23

DR CR
12% Bank Loan - 1, 00,000

Annual Interest (100000x12%) 12000

(-)Interest on loan paid Nil

O/S Interest. 12000

Dr. PL A/c Cr. B/S

₹ ₹ Liability ₹ Assets ₹
To Int. on Loan Nil 12% Bank Loan 100000
(+) O/S Interest 12000 12000 O/S Interest 12000

eg:3

T.B as on 31.3.23

DR CR
12% Bank Loan(Loan taken on 1.7.22) - 1,00,000
Interest on Loan 4,000 -

Interest for the year 9000

(100000 x 12% x 9/12)

(-) Interest on Loan paid 4000

O/S Interest. 5000

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Concept 13: Manager Commission

Case (I) Manager is entitled to get a commission @ 10% of Net Profit after charging such commission.
%
Soln. Manager Commission = Profit before commission x
100+%

Eg Profit before commission = 3,30,000

Manager commission=?
10
Manager Commission = 330000 x = 30000
110

PL B/S

To O/S Com. 30000 O/S M.Com. 30000

Case (II) Manager is entitled to get a commission @ 10% of Net Profit before charging such
commission.

%
Soln. Manager Commission = Profit before commission x
100

Eg Profit before commission = 3,30,000

Manager Commission=?
Manager Commission = 330000 x 10/100= 33000.

PL B/S

To O/S Comm. 33000 O/S Manager comm. 33000

Concept 14: Mutual Set Off

Eg T.B as on 31.3.23 Dr. Cr.

Debtor 100000 - 5000 Ram

Creditor - 90000 3000 Ram

Add info:

Included in Debtor is ₹ 5000 due from Mr. Ram, and

Included in Creditor is ₹ 3000 due to Mr. Ram.

Creditor A/c Dr. 3000

To Debtor A/c 3000

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Balance Sheet
₹ ₹
Creditor 90000 Debtor 100000
(-) Mutual set-off 3000 87000 (-)Mutual set-off 3000 97000

Note: Adjustment = 5000

3000 Lower 3000.

Concept 15: Provision For Bad Debt/Provision for Discount on Debtor.

T.B as on 31.3.2019

Dr. Cr. Dr. PL A/c Cr.

Sundry Debtor 1, 00,000 - To Bad debt 5000

Bad Debt 5000 To PFBD 10000

i) PFBD to be maintained @10% B/S 31.3.2019

New PFBD = 1,00,000x10% =10,000. Sundry Debtor 1,00,000

(-) PFBD 10,000 90,000

Dr. PFBD A/c Cr.

To Bal. c/d 10,000 By Bal. b/d NIL

By PL (Bal. fig.) 10,000

Eg2

T.B as on 31.3.2020

Dr. Cr. Dr. Bad debt A/c Cr.

Sundry Debtor 150000 - To Debtor 9000 By PFBD 9000

Bad Debt 9000

PFBD 10000

PL

i) PFBD to be maintained @10%

New PFBD =150000x10%=15000. To B.D xxs

P.F.B.D A/C
To Bad Debt 9,,000 By Bal. b/d 10,000
To Bad Debt (150000x10%) 15000 By Pl (Bal. Fig.) 14,000

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PL

To PFBD 15000

B/S

Sundry Debtor 200000

(-) PFBD (20000) 180000

(eg4)

T.B as on 31.3.2022
Dr. Cr.
Sundry Debtor 100000 - New PFBD= (100000-1000)5%=4950
Bad Debt 2000 New PFBD= (100000-1000-4950) x2%=1881
PFBD - 20000

i) PFBD to be maintained @ 5% PFBD A/c

ii) Further Bad debt = ₹ 1000 To Bad debt 3000 By Bal. b/d 20000
(2000+1000)
Iii) PFDOD to be maintained @2% To PL (B/F) 12050
To Bal. c//d 4950

PL

To PFDOD 1881 By PFBD 12050

B/S

Sundry Debtor 100000

(-) Further Bad Debt (1000)
(-) PFBD (4950)
(-) PFDOD (1881)
92169

Concept 16: Interest on Capital.

Business Capital Business Man

Interest on
Capital

Interest on Capital A/c Dr.

To Capital A/c.

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Interest on Capital

Not Appearing in T.B Appearing in T.B

(1) Debit Side of PL A/c (1) Debit Side of PL A/c

(2) Add with Capital in B/S.

Concept 17: Interest on drawings

Drawings

Business Business Man

Interest on
Drawings

Capital A/c Dr.

To Interest on drawings A/c

Interest on drawings A/c

Not Appearing in T.B Appearing in T.B

(1) Deduct from capital in B/S (2) Credit Side of PL A/c

(2) Credit Side of PL A/c

Concept 18: Goods sent on Sale or Return Basis:

(Refer Sale or Return Chapter)

Concept 19: Consignment

(Refer consignment chapter)

Concept 20: Bad debt Recovery

Bad debt Recovery is income and it should be credited to PL A/c.

Note: Bad debt Recovery can never be adjusted with Bad Debt.

(eg)

T.B as on 31.3.2023
Dr. Cr.

Bad Debt written off 7000

(after adjustment of
Bad Debt recovery of
3000 written off in 2019)

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Soln.

PL A/c

To Bad Debt 10000 By Bad Debt Recovery 3000

(7000+3000)

Concept 21: Goods in Transit

GIT refers to those goods which have been purchased, but not yet received during the current
accounting period. These goods should be treated as a part of closing Stock.

Goods in Transit A/c Dr.

To Trading A/c.

(1) Credit side of Trading

(2) Asset side of B/S.

Concept 22: Opening Entry

At the beginning of the year balances of assets, liabilities and capital needs to be brought into new
book. The entry will be as follows:-

Sundry Assets A/c Dr.

To Sundry Liability A/c

To Capital A/c

Concept 23: Manufacturing Account.

(1) Manufacturing A/c is prepared by manufacturing Concern.
(2) Manufacturing A/c is prepared to find out Cost of Goods produced.
(3) Total of Debit Side of Manufacturing a/c will always be greater than total to credit side of
manufacturing a/c
(4) The balance of manufacturing A/c is transferred to Trading A/c (ie cost of Goods produced).
(5) Format of Manufacturing A/c
Manufacturing A/c
For the year ended…..
Dr. Cr.
₹ ₹
To Opening Stock of WIP xx By Closing Stock of WIP xx
To Raw Material consumed By Sale of scrap /by Product xx
Op. stock of Raw material xx
(+) purchase of Raw mat. xx
(-) Cl. stock of Raw mat. xx xx
To Direct Wages xx By Trading A/c (Bal. fig.) xx
-Cost of goods produced
To Direct Expenses xx
To Factory Overhead xx
xx xx

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(6) Direct Expenses:

eg. Carriage on Purchase/Carriage Inward/Freight Inward, Royalty on Production/ Hire charges of

machinery based on production, etc.

(7) Factory overhead /Manufacturing overhead / works overhead/ production overhead

Eg. Factory Rent, Rent of Factory Shed, Factory electricity, Factory Supervisor salary, Dep. of Factory
Assets, etc.

(8)

Trading A/c

To Opening Stock of Finish Goods. xx By Sale xx

To Manufacturing A/c –cost of xx By Closing Stock of Finish Goods xx
Goods produced.
To Gross Profit xx
(9) Now in B/S there will be 3 types of stock.

i) Stock of Raw Material

ii) Stock of WIP

iii) Stock of Finished Goods.

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