 the year for which we maintain our business records that is we record the business transactions during a particular period of time that is known as accounting period. The accounts are prepared at the end of the accounting period and generally the accounting period coincides with financial year for tax purposes that is the financial year starts from 1st April and ends on the 31st March next year so generally accounting period and financial period are messed so what are the components of final accounts components of final accounts there are three financial statements which are to be called as final accounts it means a businessman has to prepare all these three statements to complete his final account so the first component of final account is trading account next one is profit and loss account and the third one is balance sheet balance sheet so a businessman has to prepare all these three statements to complete his final account at the end of the accounting period so let us start with trading account see one important factor there here we have written trading account and profit and loss account and balance sheet there is no account so trading account and profit and loss account records are revenue items during the particular period of time that is the accounting period and we record it as debit and credit that is both these accounts will have debit side as well as credit side but balance sheet not go debit and credit it records the assets and liabilities so balancing statement and these two are called account trading account and profit and loss account so trading account is prepared to asserting a gross profit earned by the business or gross loss suffered by the business during the particular period of time so the ego prepared in trading account is to asserting gross profit or gross loss so in trading account we will record all the direct expenses means if you take account records all purposes then expenses directly related to purchase is their expenses which are directly related to purchases and factors expenses or manufacturing expenses so these are the expenses which are recorded or the credit side of trading account that is all purchases all expenses are calculated to purchase and the factory or your manufacturing expenses and on the 27th training account we will record in cost means sales and clothing stock so we will next profit and loss account now so next profit and loss account that is the second component of our final account profit and loss account so profit and loss account will be prepared for the particular accounting period means it consists of 12 months meaning which all business transactions has been recorded so profit and loss account will show the net profit earned by the business or the net loss suffered by the business and in case of training account it was gross profit or gross loss so these two accounts show the results of gross profit or gross loss and net profit or net loss so profit and loss account will record all the indirect expense means expenses related to office expenses related to administration expenses related to distribution expenses related to financial expenses like interest interest on loan etc. distribution like advertisement so all these expenses are known as indirect expenses so all the expenses which are recorded in training account are known as direct expenses and those expenses which are recorded in profit and loss account are known as indirect expenses so it will help us in preparing the training account profit and loss account if we can properly identify what are the direct and indirect expenses last component of our final account is balance sheet balance sheet is a statement which shows assets and liabilities so this is the third component of final account that is balance sheet which is prepared on a particular day to ascertain the assets and liabilities of the particular business organization so assets means all the current assets these assets are those assets which are used in the business for a long period of time means these assets are purchased to use in the business in the future for a long period of time for example machinery furniture etc. then client assets which are accessed within the accounting period like closing stock means client assets can be easily converted into cash like submitters closing stock these are all current assets which can be easily converted into cash similarly liabilities are short term liabilities and long term liabilities short term liabilities means which are repaid within the accounting period and long term which will continue for a long period of time may be for 10 years so all these have to be shown in the liabilities side of balance sheet so let us see how to prepare final accounts so to prepare final account first of all we have to prepare a trial balance yes trial balance so as you know trial balance is a statement which contains the leisure balances so after preparing the leisure means in accounting the first step is preparing journal means we record the transaction in the primary group known as journal group means we generalize the transactions then these are transferred to leisure that transferring is known as leisure to steam and after leisure are balanced the trial balance is prepared with the help of leisure balances means it will contain all the final balances of leisure so let us see a trial balance all the leisure which are shown in balances on the debit side means the final balance means the PD balance all debit side balances will be recorded here on the debit side of trial balance and the leisure which have shown leisure balances on the credit side will be recorded on credit side of trial balance means debit balances of leisure will be recorded on credit side of trial balance and credit balance of leisure will be recorded on credit side of trial balance so let us prepare this with imaginary figures purchases 30,000 thus we are preparing the debit side of trial balance purchases 30,000 thus we get the 40,000 suddenly means see this is what explains the meaning of debtors what does it mean by debtors means in business we sell books around cash or on credit if there is cash transition means we are selling books for cash we are taking cash so our purpose is solved in case of credit transitions means we are selling goods but we are not receiving cash so those people from whom we are not receiving cash at this moment will be known as debtors means those persons will pay money to our business at a future date so there may be 1 person there may be 100 persons to whom we are selling goods on credit so together a group is known as sundry debtors means it refers to more than 1 person from whom we will receive cash on a future date because of we are selling goods today on credit so that group is known as sundry debtors and opposite the case is with purchase means if we purchase goods on credit it means what we are not paying cash now so we have to pay cash at a future date so those persons or those parties from which we are purchasing goods on credit are known as creditors of the business means our business will pay money to the creditors at a future date so together a group is known as sundry creditors means there will be more than 1 creditor that is sundry creditors so next seller is 6000 ways is 4000 rand 3000 then below rand returns to us 2000 suppose we purchase goods for rupees 10,000 we purchase goods for amount of rupees 10,000 on credit from a particular party let us assume it is 10,000 from every company we have purchased goods for the amount of rupees 10,000 on credit so after we receive the goods we check it and we find that some goods are not according to our order or we find that there are some damage goods so we will return those goods but definitely for damage goods all product goods not as for our order we are not going to pay so those goods will be sent back to every company so suppose damage goods amount of rupees 10,000 so this is known as return this is known as return then see another thing this is related to purchase this is related to purchase similarly in case of sale also means at this time our business organization can sell goods so we have sold our goods to the customers so the customers are returned by purchase now because we have sent wrongly or we have sent some damage goods it may happen so in case of sale the customers may return that goods so goods for amount of rupees 10,000 to XY company now XY company finds some defective goods so XY company is not going to pay us for the defective goods so XY company will return so this is also a return suppose XY company has returned the goods so in case of purchase we have first purchased the goods then we return that is known as return outward means we have returned it is going out from our go down and in case of sale it will be returned inward means we have sold our goods first then we will come back to our go down that is returns inward so this is a meaning of return inward means we have to deduct the amount of returns inward from sale next one is bad debt 1400 drawings 4800 printing and stationery 1600 insurance 2400 operating stock 10,000 administrative expenses 2400 last item on the credit side of time balance furniture 4000 so this is the credit side of time balance so let us go to the credit side of time balance interest received or investments interest received or investment amount will be 800 sales 64200 next one is returns returns outward will be 100 then sundry creditors as we have discussed sundry creditors sundry creditors 2400 next one is capital 20000 commission 1200 so commission receipt is nominal account and because of nominal account the rule is every expense and losses and credit comes as gains so it is income because it is on the credit side of interest interest is 400 so this is the credit side of our time balance so we have prepared this with some imaginary figures so in case of exam also you will get a time balance from which you have to prepare a final account so the rate which your time balance is there that will be amount column and credit amount column of time balance should be the same both sides will agree so the total of this time balance will be 11,600 11,000 means if we total all the amounts of debit column and all the amounts of credit column will get 11,600 means our time balance agree it means you can do your credit in recording journal and in recording the ledgers and balancing the ledgers and in preparing the time balance so it facilitates in preparation of final accounts so our main purpose starts now means we are going to prepare the final account means 10 day account of the amount of credit sheet drawings from the drawings we are going to prepare the time balance drawings we are going to prepare drawings we are going to say that business or career we are going to do our private business and often we are going to do it so what we have to do in accounts business man or business we have to do it in black and white so we have to do it in separate entity so what concept is this business entity concept business entity concept in this concept we have to in business man in business we have to do it in black and white party we have to do 4 other transactions these drawings means in business man after the business we have to do cash and in this case we are going to use our private account and in this case we have to draw it so this business we are going to do drawings account to cash account so drawings we are going to confirm that the amount of cash would run from the business for personal use of the owner business or money they are going to do it in private business or career so we are going to do drawings so first of all we have to take money child by 10% number 2 provision for bad and us to take money child at the rate of 5% on submitters prepaid insurance would be 400 number 4 outstanding administrative expenses would be 1600 number 5 closing stock 12000 so if you have an adjustment you have to find your account this one is particular for our balance autonomy so you have to write this in the books of xy company means the company for which we are preparing the final account trading account trading and capital loss account order year ended 31st March 2012 or it's called a question trading year capital loss account you write 40 year ended 31st March above this particular line trading and capital loss account 40 year ended 31st March 2013 or 2012 or 2011 according to the question so this is the credit side of credit accounts and this is the credit side of credit account debit 40 year and cr credit particular amount credit bracket rupees particular amount credit bracket rupees so this is the format of trading account and capital loss account so first of all we will ascertain the gross profit by preparing gross profit or gross loss by preparing trading account so let us start so the items of trading account are the items that we will include in trading account so buy the quality is 2 and on the credit side we will buy it as buy first item or credit account will be opening stock opening stock trading stock amount amount amount opening stock is mentioned on the debit side of trial balance so from the debit side we will record it as opening stock on the debit side of profit trading and capital loss account next will be purchasing so we have to see whether there are any adjustment or anything that we have to adjust here because in preparing the trial balance we have seen some returns so the amount of purchase is 40,000 and there is some adjustment that is returns outward means the goods that we have purchased on 3D but due to some defects we have to return the goods and that return is known as returns outward or purchase return returns outward this is also known as purchase return so returns outward amount is 1,000 so we have returned it in our cover 30,000 less 1,000 means it is 20,000 so the next item we have to see them from trial balance that is what, wages as I mentioned earlier trading account records all direct expenses openings of purchases or expenses related directly to purchases and all direct expenses or factory expenses so wages is paid to the workers means those persons who work at factory so wages is a direct expense so it should be according trading account is a manufacturing expense also so amount is 4,000 so on the different side let us come to credit side of trading account so it will start with sales so there is another adjustment returns sales is amount 64,200 we are returning in our cover because of there is some adjustment returns inward now customers have returned the goods because of some defects so we have to return the amount of returns inward from sales this returns inward it is also called as sales return so amount is 2,000 right so it will be 62,000 so it will be 2,200 means the total amount of sales for that period is 62,200 next item on the credit side of trading account is closing stock so closing stock given is our adjustment in original information now the stock that means 2,000 so these are the items that I call in trading account so now we are in a position to determine the gross profit or gross loss suffered by the business so which one is heavier either the credit side or the debit side this side is heavier if we total that for lots then the credit side is heavier so these are all incomes it means trading a profitable loss account is nominal income so all that incomes will be shown on the credit side then all expenses will be on the debit side so our income is more than our expenses so the heavier column will be total first that will be written here and this will be right first of all this column will be total then the heavier amount will be written here and from this will be the this expenses means the income minus expenses in simple terms so from 74,200 we will get up all this expenses and the resulting figure will be 31,200 right so this 31,200 is what gross profit or business as incomes are more than expenses it will result in gross profit on the other hand expenses are more than income it will result in gross loss so to gross profit to gross profit to gross profit or loss account to gross profit you can write it as to gross profit cd what you can write is to gross profit to transfer to gross profit cd right so our business is earning gross profit is 31,200 so when we finish this it means we have prepared our next business is gross profit and loss account so this is the credit side and this is the debit side same format particular amount particular so gross profit will be transferred to profit and loss account so it is profit and loss account and gross profit will be recorded here by gross profit you can write it as gross profit is bd or gross profit transferred from trading account amount of gross profit is 31,200 so again we will see our trial and balance what are the items that will be recorded in profit and loss account so first one is salary salary means the amount paid to the office staff it means it is an office expense so office expenses are known as so it should be recorded on the debit side of profit and loss account salary is the current salary is the amount paid to the adjustment there are no adjustments salary is 6,200 right there are our next one is rent then we go for bad debt so if you are an adjustment there is a provision for bad and dark full debt at the rate of 5% on salary returns salary returns means those parties to whom you have sole moves on credit so some of them will return money we are sure but some of them may not return money and some of them will never return money that we are sure so those who will not return money it means this is a bad day actually if they return or may not return they are dark full debts so here we will make some adjustment so in trials and errors we have one theory regarding bad debt bad debt amount paid to the office on salary 400 means here we will add the adjustment that is a provision we will make a provision that some debtors may not return money that is 8 reserve for dark full debts reserve for dark full debts or you can write as provision for dark full debts or reserve for dark full debts so that will be calculated at the rate of 5% on debtors right so debtors are 40,000 right from trial and error we get this because of debtors as salary debtors as 40,000 so on 40,000 we have to calculate 5% for reserve for dark full debts is it clear our trial and error amount is 40,070 debtors our interest rate amount is 5% we will make a provision that some debtors may not return money we will make a provision that we will lose we will make this at the rate of 5% so on 40,000 we will make 5% 4% 2,000 2,000 amount we will add to it for trial and error we will add 5% of debtors our total amount is 3,400 next item is out to printing and stationary printing and stationary 2,000 adjustment line for trial and error we will make 2,000 2,000 2,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 next item is administrative expenses for trial and error we will make 4,000 we will make outstanding administrative expenses outstanding we will make outstanding outstanding we will make outstanding outstanding outstanding outstanding administrative expenses we will make 1,000 6,000 6,000 we will make 4,000 we are reducing the bedroom in a particular machine or furniture we are reducing the bedroom that is known as depreciation so depreciation we have to maintain at the rate of 10% so depreciation on furniture will be at the rate of 10% so to depreciation of furniture means we have to calculate furniture is 1 it is given as 4,000 so 10% means 4,000 so depreciation of furniture means 4,000 so let us look at the profit side of profit and loss account so all the incomes means in style balance some items of income are given in style balance amount is what means all the income should come here then any other income let us see the style balance commission this is commission that we will see commission 1,200 interest 5,000 400 so the income and the expenses means the expenses that we have reported so let us find whether our business is earning net profit or net loss so if it comes out more then expenses will result in net profit so we have to calculate which one is the heavier side so in credit column the total will be 3600 3600 so again we will write it 3600 that is the total of credit side so as this credit side is heavier we will deduct the desired profit all expenses will be deducted from 3600 so what will be the result this is the resultant figure after deducting all the indirect expenses so this is known as net profit 2 net profit so net profit will be transferred to capital account so 2 net profit transferred to capital account commission or 2 net profit CD or here you can write by net profit BG CD when a 2 amount the balance will be the net profit will be the capital account so we have to calculate the balance so we have to keep the closing balance and the opening balance closing balance to all our CD so we have to do half the credit so we have to transfer the credit to the opposite side that is the BG CD means carrying down so we have to pay net profit BG so we have to finalise the net profit so we have to finalise the net profit transfer to the opposite side we have to pay the leisurely balance CD carries down this is our closing balance and BG this is our breakdown this is our final balance so this rule is applied by trading our personal loss account balance CD will be This is the amount of money that we have spent on this project. We have done this in a semi-final form. We have finalized this project in the next year. We are doing this in an appropriation form. This is a partnership form. This is the appropriation of profit. We have finalized this project. We are trying to get a good result with the wealth belong to the industry. The profession of the consumer industry needs to be understood. These all money are not stored in the market. We have tied up this amount of money. If there is a profit, we are going to give this amount. This is the current level of money. This is the cost of the energy of the project. This is the cost of the projects. This is not the cost of the projects.