FINANCIAL STATEMENTS
INCOME STATEMENTS
•TRADING ACCOUNT
•PROFIT AND LOSS ACCOUNT
POSITION STATEMENT
•BALANCE SHEET
FINANCIAL STATEMENTS
It has been emphasized that various users have diverse informational
requirements. Instead of generating particular information useful for specific
users, the business prepares a set of financial statements, which in general
satisfies the informational needs of the users.
Financial statements serves as a means of communicating information about
the profitability (income statement) and
the financial position (Balance Sheet)
of the business in a concise and understandable manner at the end of
accounting period.
Financial statements include these statements:
(i) Income statement (Trading and Profit and Loss Account)—prepared to
ascertain gross profit and net profit/loss during an accounting period. In other
words, it is prepared to present a true and fair view of the financial
performance of the business
(ii) Statement of Financial Position (Balance Sheet)—prepared to ascertain
position (assets, liabilities and capital) of an enterprise at a particular point of
time, other words, it is prepared to present a true and fair view of the financial
position of the business
LEDGER ACCOUNTS
PERSONAL ACCOUNTS + REAL ACCOUNTS NOMINAL ACCOUNTS
(Debtors ,Creditors, Owner (Assets) (Including all Goods a/c s)
Loan)
SHOWS PROFIT OR LOSS OF
THE BUSINESS
SHOWS FINANCIAL POSITION OF
THE BUSINESS 1.Trading account
2.Profit & Loss account
3.Balance Sheet
Profit is calculated at two stages
Gross Profit – it is the difference between selling price and cost price
S.P. – C.P. = Gross Profit ---- Trading a/c
(Net Sales ) – (Op stock + Net Purchases + Direct Expense- closing st.)
12 boxes 5 boxes + 15 boxes (20) - 8boxes = 12
S.P. (Total cost of 15 boxes -8 boxes Cost)
S.P. of 12 boxes – C.P. of 12 boxes = Gross profit
**Cost of goods sold = Op. Stock + Net Purchases + Direct Expenses – Cl. Stock
**Gross Profit = Net Sales – Cost of Goods Sold
Net Profit – when other expenses are subtracted from Gross profit and
other incomes are added we get actual profit of the business
called Net profit ----- Profit and Loss a/c
**Net Profit = Gross profit - Indirect expenses + other Income/Revenue
TRADING ACCOUNT (Nominal a/c
For the year ended on ___________
PARTICULARS AMOUNT (Rs.) PARTICULARS AMOUNT (Rs.)
To Opening Stock ----- By Sales ___ ___
To Purchases _____ Less Sales Return __ -----
Less Purchases Return__ -----
By Closing Stock ------
To Direct Expenses -----
To Gross Profit c/d Bal fig. By Gross Loss c/d Bal fig.
DIRECT EXPENSES ( FROM PURCHASES TILL GOODS REACH GODOWN)
1. Related to Purchases Manufacturing Expenses
Carriage inward/ *Carriage Production expenses
Freight inward/* Freight Packing & Packaging
Octroi Fuel/*Power
Import duty Factory Rent
2. Related to Factory Coal and water
*Wages
*Wages and Salaries
Prepare Trading Account from the following balances relating to the year
ended 31st March, 2020:
PARTICULARS ₹ PARTICULARS ₹
Capital 1,00,000 Wages 50,000
Creditors 12,000 Bank 10,000
Returns Outward 5,000 Repairs 500
Sales 1,64,000 Stock on 1st April, 2019 20,000
Bills Payable 5,000 Rent Office 4,000
Plant and Machinery 40,000 Manufacturing Expenses 8,000
Sundry Debtors 24,000 Trade Expenses 7,000
Drawing 10,000 Bad Debts 2,000
Purchases 1,05,000 Carriage 1,500
Returns Inward 3,000 Fuel and Power 1,000
Stock is valued at Rs. 14,500 on 31st March 2020
TRADING ACCOUNT
SOLU: For the year ended on ___________
PARTICULARS AMOUNT (Rs.) PARTICULARS AMOUNT (Rs.)
To Opening Stock 20,000 By Sales 1,64,000
To Purchases 1,05,000 Less Sales Return 3,000 1,61,000
Less Pur. Return 5,000 1,00,000
By Closing Stock 14,500
To Wages 50,000
To Manufacturing
expenses 8,000 By Gross Loss c/d 5,000
To Carriage 1,500
To Fuel and Power 1,000
1,80,500 1,80,500
PROFIT AND LOSS ACCOUNT (Nominal account)
FOR THE YEAR ENDED ON ________
PARTICULARS AMOUNT(Rs.) PARTICULARS AMOUNT (Rs.)
To Gross loss b/d As per Trading By Gross Profit b/d As per Trading
a/c a/c
To Indirect Expenses ----- By other income/ revenue
To Sundry Losses
To Net Profit c/d Bal. fig. By Net Loss c/d Bal. fig.
INDIRECT EXPENSES( all exp. Other than direct expense is called )
1. Administrative expenses 3. Selling and distribution Expenses
Salaries Advertisement
Salaries and wages Carriage outwards
Electricity Bills Freight outwards
Telephone Bills Export Duty
Rent/ office Rent Trading Expenses
Audit fees Travelling Expenses
Stationary/Postage/Printing Discount Allowed
Rates and Taxes 4. Maintenance of Assets
General Expenses Repairs
2. Godown Rent
LOSSES OTHER INCOME/REVENUE
Loss by fire/theft Rent received
embezzlement Commission received
Bad debts Interest received
Depreciation Dividend received
Compensation received
Discount Received
FORMAT
TRADING and PROFIT & LOSS ACCOUNT
For the year ended on ___________
PARTICULARS AMOUNT (Rs.) PARTICULARS AMOUNT (Rs.)
To Opening Stock By Sales
To Purchases Less Sales Return
Less Purchases Return
By Closing Stock
Following Trial Balance has been extracted from the books of Prasad
on 31st March, 2020. Prepare trading and Profit and Loss A/C
Particulars Dr. (₹) Particulars Cr. (₹)
Machinery 4,00,000 Capital 9,00,000
Cash at Bank 1,00,000 Sales 16,00,000
Cash in Hand 50,000 Sundry Creditors 4,50,000
Wages 1,00,000 Interest Received 30,000
Purchases 8,00,000
Stock on 1st
April, 2019 6,00,000
Sundry Debtors 4,40,000
Bills Receivable 2,90,000
Rent 45,000
Commission 25,000
General
Expenses 80,000
Salaries 50,000
29,80,000 29,80,000
Closing Stock was valued at Rs. 8,00,000
TRADING and PROFIT & LOSS ACCOUNT
For the year ended on 31st march 2020
PARTICULARS AMOUNT (Rs.) PARTICULARS AMOUNT (Rs.)
To Opening Stock 6,00,000 By Sales 16,00,000
To Purchases 8,00,000 Less Sales Return -- 16,00,000
Less Pur. Return - 8,00,000
To Wages 1,00,000 By Closing Stock 8,00,000
To Gross Profit c/d 9,00,000
24,00,000 24,00,000
By Gross profit b/d 9,00,000
To Rent 45,000 By Interest Received 30,000
To Commission Paid 25,000
To Gen. Expenses 80,000
To Salaries 50,000
To Net profit c/d 7,30,000
9,30,000 9,30,000
