Example1_final

Example -1 The following Trial Balance and Adjustment of a trading concern on Chaitra 31^st were given to you.

Particulars	Debit	Credit
Drawing	12500
Capital		160000
Opening stock	74400
Carriage inwards	12400
Return inwards	5500
Return to suppliers		7500
Deposit to suppliers	18300
Charges on sales	7000
Rent outstanding		1000
Loan to Raju	10000
Interest on loan		500
Creditors		30000
Purchases	1130000
Sales		1280000
Provisons for bad debts		12000
Debtors	60000
Good will	31000
Advertisements	9500
Bad debt	4000
Cash	20600
Discount on sales	3300
Wages	7500
Plant and Machinery	78000
Prepaid insurance	2000
Good will written off	5000
Total	1491000	1491000

       Adjustments:

         i.     Write off further bad debts of Rs. 2,000 and make provision for bad debts @10% on debtors.

       ii.            Closing stock at the end of the years were valued at Rs. 1,88,000 .

      iii.            Wages included Rs. 2000 paid for erection of plant.

     iv.             Depreciate plant by 10%

       v.            Prepaid insurance expired to the extent of Rs 1500.

Required:  a)      Trading account  b)      Profit and Loss Account  c)    Balance Sheet as on Chaitra 31, 2068

Step -1  Trading Account Presents Gross Profit or loss

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

            Add: Outstanding (Receivable/Accrued) Income

            Less: Pre-receipt (advance) Incomes

Gross Profit = Credit Total - Debit total of Trading account

Gross Loss = Debit Total – Credit Total of Trading Account

Step -2  Profit and Loss Account Presents Net profit or Loss

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
            Add: Outstanding (Receivable/Accrued) Income
            Less: Pre-receipt (advance) Incomes

Step -3  Preparation of Balance Sheet 

Balance Sheet Show the Financial Position of a business concern including Assets, Capital and Liabilities 

Note: Add: Outstanding (due/payable) Expenses 

(Liabilities: Double Entries)

            Less: Prepaid (advance) Expenses 

(Assets: Double Entries)

            Add: Outstanding (Receivable/Accrued) Income 

 (Assets: Double Entries)

            Less: Pre-receipt (advance) Incomes

(Liabilities: Double Entries)

 Examples :     1     2     3   4    5    6   7