Final Accounts

TRIAL BALANCE

A Trial Balance is a summary of all general ledgers balances as on a particular date. Helps in checking the arithmetical accuracy of the books of accounts.

Errors Disclosed by Trial Balance

Recording different amounts for debits and credits in the journalPosting a debit as a credit and a credit as a debitWrong totaling in subsidiary booksPartial omission of a transactionPosting any one aspect of a transaction more than onceError in totaling the balances of ledgersTotaling the trial balance incorrectly

Errors Not Disclosed by Trial Balance

Error of Principle eg. Salary paid to Shyam Rs 10,000.Instead of debiting salary account if you debit Shyam`s account.

Error of Omission Complete omission of a transaction from recording

Recording a Wrong Amount

Compensating Errors

Error of Repetition Recording a transaction more than once

From the following balances pertaining to Khaitan Sons Ltd. Prepare the Trial Balance as on March 31,2009.

ParticularsRsParticularsRsCapital25,000Discount Received1,000Salaries6,000Machinery10,000Purchases26,000Insurance5,000Sales47,000Interest Received2,000Trade Expense1,000Rent Received5,000Opening Inventory7,000Free Distribution of good4,000Debtors35,000Creditors20,000Drawings10,000Overdraft4,000

Trial Balance of Khaitan sons Ltd .as on 31 Dec, 200..Trial Balance of Khaitan Sons Ltd. as on 31 Dec, 2009

SNParticularsDebit (Rs)Credit (Rs)1Capital25,0002Salaries6,0003Purchases26,0004Sales47,0005Trade Expense1,0006Opening Inventory7,0007Debtors35,0008Drawings10,0009Discount Received1,000

10Machinery10,00011Insurance5,00012Interest Received2,00013Rent Received5,00014Free Distribution of good4,00015Creditors20,00016Overdraft4,000Total1,04,0001,04,000

Revenue Expenditures are such expenditure , whose benefit is not likely to be available for more than a year . They are recorded in the Income Statement .Eg

Expenses incurred for day-to-day running of a business e.g. rent , salary , wages , electricity etcExpenses for the repair and maintenance (upkeep) of fixed assetsDepreciationCarriageInsuranceTaxes

Capital Expenditures are the expenditures whose benefit does not get exhausted in the year in which it is incurred , but available over a number of years .They are recorded in the Balance Sheet .E.g.

acquiring assets such as land , building , plant & machinery , vehicles etcexpenses in connection with the purchases , receipt and installation of the fixed asset :making assets ready for use; wages paid for installing M/E ; platform constructed for fixing M/E ; overhauling of a second-hand M/E.expenditure to acquire the right to carry on business : obtaining license , patent , preliminary expenses etcextension or improvement in fixed asset : profit earning capacity is increased or results in lower cost .legal charges incurred : defending suits for protecting fixed assets , rights etc

Expenses Which Appear to be Revenue in Nature But Are Actually Capital Expenses

To be recoded in the Balance SheetExpenses incurred on the repair and white-washing for the first time on the purchase of an old building , since these expenses are necessary to make building usable.Wages paid for the construction of building , installation of M/E etcFee to lawyers or registration expense in regards to purchase of assets.Interest on loan raised to acquire an asset.

Deferred Revenue Expenditure Sometimes certain revenue expenditure may be usually heavy and its benefit is likely to be available for more than one year.

To be recorded in the Income Statement and the Balance Sheet

In such a case , it is considered appropriate to spread the expenditure over a number of accounting years. E.g. :

heavy advertising ; huge loss (because of natural calamity); major alterations in the existing fixed assets (adding more exits to cinema hall as per new norms).

Revenue Receipts are the amounts recd in the normal and regular course of business mainly by sale of goods and services. To be recorded in the Income Statement E.g. Sales RevenueCommission RecdDiscount RecdInterest Recd

Capital Receipts are the amounts recd in the form of : To be recorded in the Balance Sheetadditional capital introducedpremium on issue of sharesloan received sales proceeds of fixed assets

MANUFACTURING ACCOUNT OF M/S MOTILAL & SONSfor the year ending on 31 Dec,2004 Dr CrManufacturing Account provides the cost of goods produced by a manufacturing firm during a particular period.

MANUFACTURING ACCOUNT OF M/S MOTILAL & SONSfor the year ending on 31 Dec,2004 Dr Cr

ParticularsAmount(Rs)ParticularsAmount(Rs)To Raw Material Consumed:Opening StockAdd PurchasesAdd Carriage InwardAdd Dock ChargesLess Purchase ReturnLess Closing stockBy Closing Work In ProcessTo Opening Work In ProcessBy Sale of ScrapTo Wages ; Wages& SalariesBy Sale of By ProductTo Power ; coal ; gas ; fuel ; heating ; lightingBy Cost of Production of Finished Goods of the period transferred to the Trading A/c***To Factory OverheadsTo Factory Rent

To Repair of Plant and MachineryTo Depreciation of Plant and MachineryTo RoyaltyTo Custom Duty on imported goodsTo Consumable StoresTo Packing Material and Charges

xxxxxx

To Factory InsuranceTo Repair of Factory Building

TRADING ACCOUNT OF M/S MOTILAL & SONSfor the year ending on 31 Dec,2004 Dr Cr

ParticularsAmount(Rs)ParticularsAmount(Rs)To Opening Stock of Finished GoodsBy Sales(-) Returns InwardsTo Cost of Production of Finished Goods of the period transferred to the Trading A/cBy Closing Stock of Finished GoodsTo Wages By Gross Loss transferred to P/L a/c*To Freight & Carriage To Packing MaterialTo InsuranceTo Gross profit transferred to P/L a/c **xxxxxx

TRADING ACCOUNT OF M/S MOTILAL & SONSfor the year ending on 31 Dec,2004 Dr Cr

ParticularsAmount (Rs)ParticularsAmount (Rs)To Opening StockBy Sales(-) Returns InwardsTo Purchases(-) Return OutwardBy Closing StockTo Wages ; Wages& SalariesBy Gross Loss transferred to P/L a/c*To Carriage ; Carriage Inward ; Freight InwardTo Custom Duty on Imported GoodsTo Power ; coal ; gas ; fuel ; heating ; lightingTo Factory ExpenseTo Factory RentTo Factory InsuranceTo Gross Profit transferred to P/L a/c *xxxxxx

PROFIT AND LOSS ACCOUNT OF M/S MOTILAL & SONSfor the year ending on 31 Dec,2004 Dr CrPROFIT AND LOSS ACCOUNT OF M/S MOTILAL & SONSfor the year ending on 31 Dec,2004 Dr Cr

To Gross Loss transferred from T A/c*By Gross Profit transferred from T A/c*To Salaries ; Salaries &WagesBy Rent Recd To Rent , Rate & TaxesBy Discount RecdTo Printing & StationaryBy Commission RecdTo Postage &TelegramBy Interest RecdTo Audit FeeBy Gain on Sale of Fixed AssetTo Legal ChargesBy Net Loss transferred to Capital A/c**To Telephone ExpensesTo Insurance PremiumTo Interest on Capital or LoanTo General Expense

To Office LightningTo Repair & RenewalTo Carriage OutwardTo Discount GivenTo AdvertisementTo CommissionTo Loss by FireTo DepreciationTo Bad DebtsTo Trade ExpenseTo Net Profit transferred to Capital A/c**xxxxxx

BALANCE SHEET OF M/S MOTILAL & SONSas on 31 Dec,2004

BALANCE SHEET OF M/S MOTILAL & SONSas on 31 Dec,2004

LiabilitiesAmount (Rs)AssetsAmount (Rs)Capital(+) Interest(+) Net Profit(-) Drawings(-) Interest on DrawingsFixed Assets:Land & Building(-) DepreciationReservesPlant & M/ELoansMotor VehiclesBank OverdraftFixture & Fittings

CreditorsCurrent Assets:B/PCashOutstanding ExpensesBankIncome Recd in AdvanceDebtors(-)Bad Debts(-) Provision for B/D(-) Provision for Discount on DebtorsB/RLoans & AdvancesPrepaid ExpensesOutstanding IncomeClosing Stockxxxxxx

Adjustment Entries

1 Closing Stock Closing Stock A/c --------- Dr To Trading A/c

Trading & P/L A/c B/S

By Closing stock * Current Asset Closing Stock *

2 Outstanding Expense

Salaries A/c -------------------------Dr To Outstanding Salaries A/c

P/L A/c B/S

To Salary *+ O/s Salary * _______ ** Current Liability O/s Salary *

3 Prepaid Expense

Prepaid Rent -----------------------Dr To Rent A/c

P/L A/c B/S To Rent *(-) Prepaid Rent * _______ Prepaid Rent * **

4 Accrued / Outstanding Income

Accrued Income A/c ------------Dr To Income A/c

Accrued Interest ----------------Dr To Interest Received A/c

P/L A/c B/S

By Interest Received * + Accrued Interest * ** Accrued Interest *

5 Income Received in Advance

Income A/c ----------------------Dr To Income Received in Advance

Rent Received A/c-------------------Dr To Rent Recd. in Advance

P/L A/c B/S

By Rent Recd. * (-) Advance Rent * ** Advance Rent *

6 Depreciation

Depreciation A/c -----------------------Dr To Accumulated Depreciation Asset A/c

P/L A/c B/S

To Depreciation * Asset * (-) AccDepre. * **

Methods of Calculation :

I Straight Line MethodII Written Down Value Method

7 Bad Debts Bad Debts A/c --------------------Dr To Debtors

P/L A/c B/S

To Bad Debts Debtors (-) B/D

Satprakash purchased goods worth Rs 5,000 on credit basis. Due to his insolvency only 80% of the amount would be recovered from him.

Bad Debts A/c --------------------Dr 1,000 To Satyaprakash 1,000

Trial Balance as on 31 Dec 2009P / L AccountB / S

DrCrSatyaprakash5,000xxxxxx

To Bad Debts1,000

Satyaprakash5,000(-) B/D1,000

4,000

Trial Balance as on 31 Dec 2009Satprakash , one of the debtors who purchased goods worth Rs 5,000 on credit basis. Due to his insolvency only 80% of the amount would be recovered from him.Bad Debts A/c --------------------Dr 1,000 To Satyaprakash 1,000

P / L AccountB/ S

DrCrDebtors 20,000Bad Debts 1,500xxxxxx

To Bad Debts 1,500+ New Bad Debts 1,000

2,500

Debtors 20,000(-) New B/D1,000

19,000

8 Provision for Doubtful Debts P/L A/c ----------------------------Dr To Provision for Bad Debts

P/L A/c B/S

To Bad Debts + Additional B/D Debtors + Provision B/D(-) Additional B/D(-) Provision B/D

Illustration : Trial Balance of Sunbeams Ltd as on 31st Dec. 2009

Additional information given is :

Mr Sharma who owed Rs 2,000 has been declared insolvent and there is no chance of recovery.Provision for B/ D is to be maintained at 10%.

Show how would you treat the following in the final accounts of Sunbeams Ltd.

DrCrBad DebtsRs 1,600Debtors22,000Provision for B / D1,000xxxxxx

P / L AccountB/ S

To Bad Debts 1,600+ Additional B/D 2,000+ New Provision 2,000(-) Old Provision 1,000

4,600

Debtors 22,000(-) Additional B/D 2,000(-) + New Provision 2,000

18,000

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