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2. Balance Sheet
The “what do we have?” statement
Shows what the entity owns and owes (the difference being
the owners’ residual interest)
3. Income Statement
The “what did we do?” statement
Shows the activity the entity undertook in its normal course
of operations.
1
Preparation of Balance Sheet and Profit and
Loss Account
* Direct Materials :
Refers to such materials which are
incorporated into the physical units of product
manufactured.
* Direct Labour:
Refers to the labour performed in physical
contact with the product. It is the amount of
wages paid to the workers who are engaged in
converting raw materials into finished goods.
Manufacturing Account
Manufacturing Account
Dr. For the year ending … Cr.
….. …..
Trading A/C
xxxx xxxx
Profit & loss A/C
..
Closing entries for preparing Profit & Loss
A/c
Interest Account Dr
Dividend Account Dr
Discount Account Dr
To Profit and Loss Account
Closing entries for preparing Profit & Loss
A/c
Capital Account(s) Dr
To Profit and Loss account
Ex: From the following balances, taken from the Trial
Balance of Mr. X, prepare a Trading and Profit and Loss
Account for the year ending 31st Dec. 2007
12500 12500
Profit & Loss Account
Sales X
Less Cost of Sales x
= Gross Profit x
Less Expenses / Overheads x
=Net Profit x
Calculating Cost Of Sales
Purchases X
+ Opening Stock X
- Closing Stock X
= Cost of Sales X
Balance Sheet
Current Assets: These are held temporarily & are meant for
resale. They change form from time to time. Cash in hand may be
used for purchasing the goods which will be in stock. Stock may
be sold on credit which becomes debtors.
Thus, Cash in hand, Cash with bank, Debtors, Bills receivables
are all current or circulating assets.