It is the basic need of an accounting or
any student to solve accounting problems and prepare financial statement and if
you are not sure what is final account and tricks to adjustment entries when the preparation of final
account in business organization stick till the end of this post to get
more idea.
Having a business management student or a
business man final account is practical problems of financial reports are to be
solved. Final account is the common name of trading account, profit
& loss account and balance sheet.
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We are focused here to get an idea on
types of final account and advantages of having accounting problems and at last
the free tricks to
adjustment entries when the preparation of final account in your
business and level of study.
Before learning all about tricks to adjustment entries when
the preparation of final account in business organization it is must
understand first what actually the final accounts are.
What is final account?
In the first step
of accounting, the transactions are recorded in Journal and Subsidiary
books. In the next step, they are posted into Ledgers. After that, a Trial
balance is prepared by transferring the debit and credit balances of each
ledger.
The purpose of
trial balance is to check the arithmetic accuracy of these records and help
prepare final accounts. In the last step, final accounts are prepared at the
end of each accounting period.
Final
account is the common name of Trading
account, Profit
& loss account and Balance
sheet. These accounts are referred as final account because they are
prepared at the final stage of accounting cycle.
Basically,
if you are business management student or business man you are searching in
various website to solve your level of accounting problems, best the quality of
free tricks to adjustment
entries when the preparation of final account will be discuss in the article and I will
introduce ways on it.
Trading
account
Trading
account is the first important account of the final accounts. It is the account
that shows result of buying and selling of merchandizing goods for the
particular accounting period. It shows the cost of sales, the amount of sales
revenue, value of closing stock and the result of trading known as gross profit
or gross loss from business activities.
Gross Profit = Credit Total - Debit
total of Trading account
Gross Loss = Debit Total – Credit
Total of Trading Account
Debit Total
(Expenses) = Opening
Stock+ (Purchase – Purchase return- Goods Lost) + Carriage on purchase +freight
+ (Wages + Outstanding - Prepaid) + Duty (Custom+ Excise+ Import) + Factory/Manufacturing
Expenses + Royalty + Power+ Fuel + lighting + Heating + Octroi
Credit Total
(Incomes) = (Sales –
Sales return) + Closing Stock
Note: Add: Outstanding (due/payable) Expenses
Less: Prepaid (advance) Expenses
Less: Prepaid (advance) Expenses
Add: Outstanding
(Receivable/Accrued) Income
Less: Pre-receipt (advance) Incomes
Less: Pre-receipt (advance) Incomes
Profit
& loss account
Profit account
is the second important account of the final accounts. It is basically prepared
to ascertain net profit or net loss at the end of the accounting period. Since it
is a nominal account, it contains all other items of operating and
non-operating revenue earned and operating expenses such as office and
administration, selling and distribution, legal, financial etc. and
non-operating expenses and losses incurred during the accounting period.
Net Profit = Credit Total - Debit
total of Profit & Loss account
Net Loss = Debit Total – Credit Total
of Profit & Loss Account
Debit Total
(Expenses/Losses) = Gross
Loss+ Office Operating and Selling Expenses ( Salary + due/outstanding -
Prepaid) + Office rent +Depreciation+ Interest on loan + advertisement + General expenses + Bad
debt+ bad debt write off + Travelling expenses + printing and stationery
expenses + Charges ( telephone + electricity + bank + legal)+ Discount and
commission allowed + audit fees + insurance+ selling and distribution expenses)
Credit Total
(Incomes/Gains) = Gross
Profit + Office operating Income/gains (appreciation + Discount and commission
received + Receivable (accrued) – Advance Received+ provision for bad debt +
interest and rent received + other incomes/gains)
Note: Add: Outstanding (due/payable) Expenses
Less: Prepaid (advance) Expenses
Less: Prepaid (advance) Expenses
Add: Outstanding
(Receivable/Accrued) Income
Less: Pre-receipt (advance) Incomes
Less: Pre-receipt (advance) Incomes
Balance sheet
Balance
sheet is the third and final important component of the final accounts. It is a
statement and not an account, as it is not prepared by using the rules of debit
and credit. Therefore, it is a statement of the assets, liabilities and capital
of a business. Unlike trading and profit and loss accounts, the balance sheet is
prepared to show the financial position of the business at a particular point
in time.
Note: Add: Outstanding (due/payable)
Expenses
(Liabilities: Double Entries)
Less: Prepaid (advance) Expenses
Less: Prepaid (advance) Expenses
(Assets: Double Entries)
Add:
Outstanding (Receivable/Accrued) Income
(Assets: Double Entries)
Less: Pre-receipt (advance) Incomes
Less: Pre-receipt (advance) Incomes
(Liabilities: Double Entries)
The following are some
important definitions of final accounts:
S. Mukharjee, “Final
account is the account, which is prepared at the end of a given year period, to
see the profit and loss position as well as the financial position of a going
concern for the period given.”
O.P.
Gupta, “Final accounts consist of trading account, profit and
loss account and balance sheet. Trading account shows gross profit or loss, net
profit or net loss is calculated from profit and loss and balance sheet is
prepared to know the position of assets and liabilities.”
From the above definitions, it
is clear that final accounts consist of trading account, profit and loss
account and the balance sheet, which are prepared to find out results of
business of a period in terms of profit or loss and to show position of assets
and liabilities.
In
Nepal, the income Tax Act, needs organizations to prepare and present their
financial statements for the period from 1st Shrawan to following
end of Ashadh. Therefore, the organizations would follow the same accounting
period so that their accounting would serve their informational needs as well
as enable them to easily present the information that has to be presented to
the Inland Revenue Depart
A joint
stock company is required to prepare its final accounts at the end of every
financial year. Final account of the company include the accounts and the
statement such as Manufacturing and /or Trading Account, Profit and Loss
account, Profit and Loss appropriation account and Balance sheet. Such company
should follow the rule of Sections 82-84 of company Act 2063.
In the context
of Nepal, Curriculum Development Center (CDC) and Universities are including Final Account as a
chapter which is teaching in following grades and levels:
Grade IX: Office practice & Accountancy (Optional
II)
Grade X: Office Practice & Accountancy (Optional
II)
Grade XI: Principles of Accounting I (Management)
Grade XII: Principles of Accounting II (Management)
Bachelor: BBS,
BBA, BIM, BHM BTTM (Tribhuvan
University) (Pokhara
University) (Purbanchal University)
(Kathmandu University)
(Kathmandu University)
What are the tricks to adjustment entries when preparation of final account?
# Trick-1 : Closing Stock
Closing stock given in trial balance : Treated as an assets
Closing stock given in additional info/adjustment:
i) It is treated in credit side of trading account.
ii) It is treated in assets site of balance sheet as double entries.
#Trick -2: Depreciation
Depreciation given in trial balance : Treated as a loss in Dr. of P/L account
Depreciation given in additional info/adjustment:
i) It is treated in Debit side of P/L account.
ii) It is treated as loss on use of assets and deducted in related assets of balance sheet as double entries.
Important Examples and adjustment entries
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