Preparation of Final Accounts for a Proprietary Concern

Maharashtra State Board: Class 11

Steps to Prepare Final Accounts When Trial Balance is Given

1. Identify Direct and Indirect Expenses/Incomes

Mark direct expenses (wages, purchases) and direct incomes (sales) for the Trading Account.
Mark indirect expenses (rent, salary, advertising) and indirect incomes (commission, interest) for the Profit and Loss Account.

2. Prepare the Trading Account

3. Prepare the Profit and Loss Account

4. Prepare the Balance Sheet

List all assets on one side, liabilities and capital on the other.
Incorporate adjustments (outstanding/prepaid expenses, closing stock, depreciation) as needed.

5. If the Balance Sheet Doesn't Tally,

Check all parts of the final accounts for any differences, as well as posting/casting/totalling errors.

Note:

When only bad debts are given in the trial balance, it is debited to the profit & loss A/c, as it is a loss.
When R.D.D. is given in the trial balance, it is known as old R.D.D. [existing R.D.D.].
When R.D.D. is given in adjustment, it is called New R.D.D.

Maharashtra State Board: Class 11

In the books of M/s ABC Enterprises
Trial Balance as on 31st March, 2019

Debit Balances	Amt (₹)	Credit Balances	Amt (₹)
Machinery	1,00,000	Discount	2,000
Sundry Debtors	1,20,800	Sales	77,500
Furniture	36,000	Purchases Returns	4,800
Stock (1st April, 2018)	20,000	Creditors	52,000
Wages	1,800	10% Bank Loan (taken on 1st Oct. 2018)	76,000
Electricity Charges	4,600	R.D.D.	1,600
Insurance	5,000	Bank Overdraft	53,300
Factory Rent	4,600	Capital	1,00,000
Travelling Expenses	3,600
Advertisement	2,500
Office Rent	3,000
Purchases	49,300
Sales Returns	2,800
Bad Debts	1,200
Drawings	12,000
	3,67,200		3,67,200

Adjustments:

Stock as on 31st March 2019 amounted to ₹57,000
Depreciate Machinery and Furniture @ 5%
Unexpired (Prepaid) Insurance: ₹1,000.
₹800 are written off as bad debts, and a provision for a reserve for doubtful debts of 5% on sundry debtors, a reserve for a discount on debtors of 2%, and a discount on creditors of 3% are created.
Outstanding Expenses – Wages: ₹2,200 and Office Rent: ₹1,400.
Goods worth ₹2,000 were withdrawn by the owner for personal use.

Solution : In the Books of M/s ABC Enterprises
Trading Account and Profit and loss Account for the year ended 31st March 2019
Dr. Cr.

Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Opening Stock		20,000	By Sales	77,500
To Purchases	49,300		Less: Sales Return	2,800	74,700
Less: Purchase Return	4,800	44,500	By Goods withdrawn for personal use		2,000
To Wages	1,800		By Closing Stock		57,000
Add: Outstanding Wages	2,200	4,000
To Factory Rent		4,600
To Gross Profit c/d		60,600
		1,33,700			1,33,700
To Office Rent	3,000		By Gross Profit b/d		60,600
Add: Outstanding Rent	1,400	4,400	By Discount received		2,000
To Electricity Charges		4,600	By Provision for Discount on Creditors		1,560
To Insurance	5,000
Less: Prepaid Insurance	1,000	4,000
To Travelling Expenses		3,600
To Depreciation on:
Machinery	5,000
Furniture	1,800	6,800
To Bad debts (Old)	1,200
Add: Bad debts (New)	800
Add: R.D.D. (New)	6,000
	8,000
Less: R.D.D. (Old)	1,600	6,400
To Provision for Discount on Debtors		2,280
To Advertisement		2,500
To Interest on Bank Loan		3,800
To Net Profit (Transferred to Capital A/c)		25,780
		64,160			64,160

Balance Sheet as on 31st March, 2019

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital	1,00,000		Machinery	1,00,000
Add: Net Profit	25,780		Less 5%: Depreciation	5,000	95,000
	1,25,780		Furniture	36,000
Less: Drawings (12,000 + 2,000)	14,000	1,11,780	Less: 5% Depreciation	1,800	34,200
Outstanding Exp:			Prepaid Insurance		1,000
Wages	2,200		Sundry Debtors	1,20,800
Office Rent	1,400	3,600	Less: Bad debts (New)	800
Creditors	52,000			1,20,000
Less: 3% Discount on Creditors	1,560	50,440	Less: 5% R.D.D.	6,000
10% Bank Loan	76,000			1,14,000
Add: Interest	3,800	79,800	Less: 2% Provision for discount	2,280	1,11,720
Bank Overdraft		53,300	Closing Stock		57,000
		2,98,920			2,98,920