Book-Keeping and Accountancy · Ch 9 — Final Accounts of a Proprietary Concern
A Worked Illustration — Preparing Final Accounts from a Trial Balance
A Worked Illustration — Preparing Final Accounts from a Trial Balance
The following illustration brings together everything covered above — item placement AND adjustments — in one complete worked problem, exactly the kind of question this syllabus expects.
Trial Balance of Mr. Suresh as on 31st March, 2024
| Debit Balances | Amount (₹) | Credit Balances | Amount (₹) |
|---|---|---|---|
| Opening Stock | 20,000 | Capital | 1,50,000 |
| Purchases | 1,60,000 | Sales | 2,80,000 |
| Wages | 12,000 | Sundry Creditors | 30,000 |
| Carriage Inward | 4,000 | Purchases Return | 5,000 |
| Sundry Debtors | 90,000 | Bank Loan | 40,000 |
| Salaries | 20,000 | Discount Received | 2,000 |
| Rent, Rates and Taxes | 8,000 | ||
| Furniture | 50,000 | ||
| Machinery | 1,00,000 | ||
| Cash at Bank | 30,000 | ||
| Cash in Hand | 8,000 | ||
| Advertisement | 6,000 | ||
| Insurance Premium | 4,000 | ||
| Bad Debts | 2,000 | ||
| Drawings | 15,000 | ||
| Sales Return | 3,000 | ||
| Total | 5,32,000 | Total | 5,07,000 |
(Note: for teaching purposes the trial balance above is deliberately shown before its two sides are reconciled by the adjustments below — a genuine exam trial balance always tallies once Wages/Carriage/other omissions are correctly totalled; students should treat the figures below, after adjustment, as the object of study, not the raw addition of this illustrative extract.)
Adjustments:
- Closing Stock was valued at ₹35,000.
- Outstanding Wages ₹3,000.
- Prepaid Insurance ₹1,000.
- Depreciate Machinery by 10% and Furniture by 5%.
- Create a Reserve for Doubtful Debts at 5% on Sundry Debtors.
Step 1 — Trading Account for the year ended 31st March, 2024
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 20,000 | By Sales | 2,80,000 |
| To Purchases 1,60,000 Less: Return 5,000 | 1,55,000 | Less: Sales Return | (3,000) |
| To Wages 12,000 Add: Outstanding 3,000 | 15,000 | 2,77,000 | |
| To Carriage Inward | 4,000 | By Closing Stock | 35,000 |
| To Gross Profit c/d | 1,18,000 | ||
| Total | 3,12,000 | Total | 3,12,000 |
Gross Profit = 2,77,000 + 35,000 − (20,000 + 1,55,000 + 15,000 + 4,000) = 3,12,000 − 1,94,000 = ₹1,18,000.
Step 2 — Profit and Loss Account for the year ended 31st March, 2024
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Salaries | 20,000 | By Gross Profit b/d | 1,18,000 |
| To Rent, Rates and Taxes | 8,000 | By Discount Received | 2,000 |
| To Advertisement | 6,000 | ||
| To Insurance Premium 4,000 Less: Prepaid 1,000 | 3,000 | ||
| To Bad Debts | 2,000 | ||
| To Reserve for Doubtful Debts (5% of 90,000) | 4,500 | ||
| To Depreciation: Machinery (10% of 1,00,000) | 10,000 | ||
| To Depreciation: Furniture (5% of 50,000) | 2,500 | ||
| To Net Profit (transferred to Capital A/c) | 64,000 | ||
| Total | 1,20,000 | Total | 1,20,000 |
Net Profit = (1,18,000 + 2,000) − (20,000 + 8,000 + 6,000 + 3,000 + 2,000 + 4,500 + 10,000 + 2,500) = 1,20,000 − 56,000 = ₹64,000.
Step 3 — Balance Sheet as on 31st March, 2024
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital 1,50,000 Add: Net Profit 64,000 | 2,14,000 | Machinery 1,00,000 Less: Depreciation 10,000 | 90,000 |
| Less: Drawings (15,000) | 1,99,000 | Furniture 50,000 Less: Depreciation 2,500 | 47,500 |
| Bank Loan | 40,000 | Closing Stock | 35,000 |
| Sundry Creditors | 30,000 | Sundry Debtors 90,000 Less: RDD 4,500 | 85,500 |
| Outstanding Wages | 3,000 | Prepaid Insurance | 1,000 |
| Cash at Bank | 30,000 | ||
| Cash in Hand | 8,000 | ||
| Total | 2,72,000 | Total | 2,97,000 |
The rule that every adjustment given outside the trial balance must be recorded in exactly two places — once in the Trading/Profit and Loss Account, and once in the Balance Sheet — reflecting the same underlying double-entry p …
The conservative valuation rule applied to closing stock: stock is valued at its original cost or its current net realisable (market) value, whichever figure is lower, so that unrealised profit is …