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Profit and Loss Account Name of Institution
Importance:
• Knowledge of net profit or net loss
• Calculation of expenses ratio to sales
• Comparison of actual performance with the
desired performance
• Maintaining provision and reserves
• Determining future line of action
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Manufacturing Account Name of Institution
Characteristics:
• Balance sheet is a statement
• Prepared on a specified date
• It is a statement of assets and liabilities
• Knowledge about the nature of assets and liabilities
• Knowledge of financial position
• Assets and Liabilities tally each other
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Objectives: Name of Institution
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While preparing final accounts, at the end of every accounting period, we come across
certain problems. The accountant may come to know of certain adjustments to be
Name of Institution
made in the books of accounts to give a true picture of the state of affairs of the
business after closing the books of accounts. These adjustments generally relate to
the following:
Adjustment If appears in Trial Balance If appears in
Adjustment
I. Closing stock Cr. Side of trading a/c (i) Cr. Side of trading
A/c
(ii) Asset side of
Balance sheet
II. Depreciation Dr. side of P/L a/c (i) Dr. side of P/L a/c
(ii) Reduce the value of
concerned asset in
balance sheet
III. Appreciation Cr. Side of P/L a/c (i) Cr. Side of P/L a/c
(ii) Increase the value of
concerned asset in
balance sheet
IV. Outstanding Expenses Liability side only in Balance Sheet (i) Added to concerned
expense at the debit
side of Trading or
P/L a/c
(ii) Liability side of
Balance Sheet 7
Adjustment If appears in Trial Balance If appears in
Adjustment
V. Prepaid expenses Asset side of Balance Sheet (i) Name
Deduce from
of Institution
concerned expenses
at the debit side of
Trading or P/L a/c
(ii) Asset side of
Balance Sheet
VI. Outstanding or Accrued Asset side of Balance sheet (i) Added to the
income concerned income at
the credit side of P/L
a/c
(ii) Asset side of
Balance Sheet
VII. Unearned Income Shown at the liabilities side of (i) Deduct from the
Balance Sheet concerned income at
the credit side of P/L
a/c
(ii) Shown at liabilities
side of Balance
Sheet.
VIII. Interest on capital Debit side of the P/L a/c (i) Dr. side of P/L a/c
(ii) Increase amount of
capital at the
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liabilities side of
Adjustment If appears in Trial Balance If appears in
Adjustment
IX. Interest on drawings Credit side of P/L a/c (i) Name of Institution
Cr. Side of P/L a/c
(ii) Deduct from capital
at liabilities side of
Balance Sheet.
X. Interest on loan (BORROWED) (i) Debit side of P/L a/c
Debit side of P/L a/c (BORROWED)
(ADVANCED) (iii) Added to loan A/c at
Credit side of P/L a/c liability side of
Balance sheet.
(ADVANCED)
(v) Credit side of P/L a/c
(vi) Added to lon A/c at
asset side of Balance
Sheet.
XI. Interest or dividend on Credit side of P/L a/c (i) Credit side of P/L a/c
investment (ii) Added to the value of
investment, shown at
the asset side of
Balance Sheet
XII. Bad Debts Debit side of P/L a/c (i) Debit side of P/L a/c
(ii) Deducted from
debtors at the Asset
side of Balance 9
Sheet
Adjustment If appears in Trial Balance If appears in
Adjustment
XIII. Provision for bad debt (i) Shown at Cr. Side of P/L a/c (i) Name
Shownof Institution
at liability
or side of Balance
(iii) Deducted from total of bad sheet
debts, further bad debts at debit Or
side of P/l a/c Deducted from sundry
Or debtors at the asst
(iii) Liability side in Balance Sheet side of Balance
XIV. Provision for discount on Debit side of P/L a/c (i) sheet
Debit side of P/L a/c
debtors (ii) Debit sidefrom
(ii) Deducted of P/L a/c
debtors at the asset
side of balance sheet
XV. Provision for discount on Credit side of profit and loss A/c (i) Credit side of P/L a/c
creditors (ii) Deducted from
creditors at the
liability side of
Balance Sheet
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The following is the trial balance of Mr. Kapur on 31st March
Name of Institution
1993:
Debit Credit
353160 353160
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Name of Institution
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Depreciation Name of Institution
Features of depreciation:
• Depreciation is the loss in the value of assets
• Loss should be gradual and constant
• Depreciation is the exhaustion of the effective life of business
• It is a normal feature
• Maintenance of assets is not depreciation
• It is continuing decrease in the value of assets
• It is the allocation of cost of assets to the period of its life
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Causes for depreciation: Name of Institution
By constant use
By expiry of time
By obsolescence
By depletion
Permanent fall in price
By accidents
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Methods of providing depreciation:
Name of Institution
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Straight line method/ Fixed Name of Institution
installment method
Q1. On 1st July 1993, Raj & co. purchased
machinery worth Rs.40000. On 1st July,
1995 they buy additional machinery worth
Rs.10000. On 30thJune 1996 half of the
machinery purchased on July 1993 is sold
for Rs.9500. The company writes off 10%
on the original cost. The accounts are
closed every year on 31st December.
Show the machinery account for four years .
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Name of Institution
Machinery A/c
Dr. Cr.
40000 40000
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Diminishing or written down value Name of Institution
method:
A manufacturing concern whose books are closed
on 31st Dec purchased machinery for Rs.50000
on 1-1-90. Additional machinery was acquired
for Rs.10000 on 1-7-91 and for Rs.16061 on 1-
1-94. Certain machinery purchased for Rs.10000
on 1-1-90 was sold for Rs.5000 on 30-6-93.
Give the machinery account for 5 years.
Depreciation is written off at 10% per annum on
written down value.
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Reserves Name of Institution