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final account

Final account
Chapter # 4

What are final accounts?


Final account Consist of Trading and Profit and Loss Account which finally show the profit and loss for a
particular period and Balance Sheet which show financial position for a particular date.
What is profit and loss account or income statement?
A statement which shows the financial position of a business for a particular period
What is balance sheet?
A statement which shows the financial position of a business on a particular date
Trading Profit and Loss Account
Trading Account
Profit and Loss Account
What do you understand by direct expenses?
Expenses connected with purchases of goods or to bring the goods in saleable condition are called direct
expenses e.g Wages, carriage inward.
What do you understand by indirect expenses?
All these expenses which have no concern with purchases of goods or to bring the good in saleable
condition are known as indirect expenses salaries, carriage outward.
Define gross profit/Gross Loss, Net Profit and Net Loss?
Gross Profit means Excess of Sales over cost of goods sold.

Gross Loss Means Excess of Cost of Goods Sold over Sales

Net Profit Excess of gross profit over all indirect expenses

Net Loss Excess of Indirect expenses over gross profit.


Define the closing entries?
The journal entries made for the purpose of closing the temporary account called closing entries.
What are adjusting entries?
The entry at the end of the period to record internal transactions are called adjusting entries.
What are assets?
All Economic resources of business are called assets of business e.g. Building, Land, Debtors
Define liabilities?
Any kind of debts of business are liabilities e.g Accounts Payable, Creditor, bank overdraft

Trading account
Opening stock

Sales
Less sales return

Purchase
Less Purchases return

Closing stock

Carriage inward
Cartage
Dock charges

Wagers
Custom, Import, Export, Excises and Octroi duty
Freight inward
Clearing charges
Store consumed
Motive power
Royalty
Manufacturing expenses
Gross profit (if Cr is greater then Dr)

Gross Loss (if Dr is greater then Cr)

Carriage inward
Carriage means conveyance charges incurred to bring the good in the shop by road.
Dock Charges
These are the charges paid when ship left the port.
Freight inward
Conveyance Charges incurred to bring the good in the shop by sea, Railway, Airplane.
Custom duty
A tax levied imports of good from one country to other country.
Excise duty
It is a tax imposed by government of production of goods.
Octori duty
It is a tax imposed on bringing goods to certain town or cities.
Store consumed
This includes the items like lubrication oil, grease and cotton required for running of business.
Motive power
Any source of energy used to produce motion in machinery e.g. cock gas, water electricity energy
Royalty
Royalty is an amount paid to a person for exploiting rights possessed by him.
Manufacturing expenses
This includes factory rent, factory insurance and factory repairs.

Profit and Loss account


Gross Loss b/d

Gross profit b/d

Salaries

Interest received

Carriage outward

Discount received

Freight outward

Other/ Misc receipts

Rent and rates


Interest allowed
Misc/ other expenses
Discount allowed

Commission allowed
Insurance
Bank Charges
Legal Charges
Repairs
Advertisement
Trade expenses
Office expenses
Bad debts
Traveling expenses and Taxes

Balance sheet
Assets
Cash
Bank
Bill receivable
Account receivable
Debtors
Stock
Land and building
Plant and Machinery
Furniture and fixture
Goodwill
Patents
Trademarks
Copyrights

Liability
Bank overdraft
Loan
Bill payable
Account payable
Creditors
Capital

What is marshalling?
The term marshalling means the order in which assets and liabilities are stated on the balance sheet.
1.
The order of liquidity
2.

The order of performance

3.

Mixed order of arrangement

Cash, Bank, Debtor, A/R, B/R, Stock,


Investment, Land, Building, Plant,
Machinery, Furniture, Fixture, Goodwill,
patent, Trademark, Preliminary Expenses,
Discount on issue of share,

Define the term debt?


When a customer becomes business debtor the amount due from him is called Debts
What is the bad debt?
The debts which cannot recover from the debtor are called dad debts.
What are doubtful debts?
The debts the recover or realization of which is doubtful or uncertain are known as doubtful debt.

Wasting Assets
Wasting assets are that whole value gradually reduces with usage. Like, mine

Contingent Liabilities
Liabilities that may or may not be incurred by an entity depending on the outcome of a future event such
as a court case
What Depreciation
Gradually decrease in the value of fixed assets is called depreciation.

What is inventory?
Goods or merchandise on hand that is a goods remaining unsold is also called stock.
Define outstanding expenses/ Accured Expenses /Expenses Payable/Amount Due/Not
Paid/Unpaid
The expenses incurred but have not been actually paid till the end of current accounting year

Define outstanding income/Accured Income/Income Receivable/ Amount Due/Not


received/Un received
Income earned but has not received till the end of current accounting year
Define prepaid expense/ Paid in Advance/ Paid Upto
Expenses paid in advance before they have fallen due.
Define income received in advance/unearned income/ received in advance
Income received in advance but not earned

capital and revenue

Chapter # 5
revenue

Define capital Transactions?


Transactions having long term effect are known as capital transactions. Like purchase of Building
What are revenue transactions?
Transactions having short term effect are known as revenue transactions. Like payment of Salaries
What do you mean by capital expenditures?
Expenditures incurred on acquiring fixed assets and having Long term effect are known as capital
Expenditure. Like expenditure on purchase of Building, Land and Furniture
Describe the revenues expenditure
All the expenditures which are incurred in the day to day conduct and administration of a business and
have short term effects Like, purchases of stationery, payment of salaries
Give any three examples of capital expenditures
Addition or extension of assets

Wages paid for the construction of building

Premium given for lease

Give the three examples of revenue expenditures


Wages paid to factory workers

Bad debt

Stationery

Capital and

Describe the deferred revenue expenditures?


Revenue expenditure benefits of which is likely to more than one year but it is non recurring by nature are
called deferred revenue expenditure
Give examples of deferred revenue expenditures?
Preliminary expenses
Heavy expenditures on advertisement for making the new product.
Define capitalized expenditures?
Some revenue expenditure are connected with fixed assets and are full added to cost of that assets
whatever is the amount. Like repairs of newly purchased machinery
What are capital receipts?
Receipts which are non recurring by nature, received from Sale of fixed assets are known as capital
Receipts. Like Receipts from sale of of Building, Land and Furniture
What are revenue receipts?
Receipts which are recurring by nature receive from the day to day conduct and administration of a
business and have short term effects Like inertest received, Discount Received
What is capital payment?
Payments which are non recurring by nature, incurred on acquiring fixed assets and having Long term
effect are known as capital Payment. Like Payment for purchases of Building, Land and Furniture
What is revenue payment?
Payments which are recurring by nature which are incurred in the day to day conduct and administration
of a business and have short term effects
What do you mean by capital profit?

Capital profit is a profit which is earned on the sale of a fixed asset for example a machinery worth of Rs.
10000 is sold for Rs. 15000. the profit is 5000/- is capital profit.
What do you mean by Revenue profit?
Revenue profit is a profit which is earned during the day to day course of business is called revenue profit
is a regular Profit.
What is capital loss?
The loss suffered by a business on the sale of a fixed asset or it incurred or raising capital or a joint stock
company. for example a machinery worth of Rs. 10000 is sold for Rs. 8000. the Loss is 2000/- is capital
Loss.
What is revenue loss?
Revenue Loss is a Loss which is earned during the day to day course of business is called revenue loss

Rectification of error
Rectification of error
Chapter # 6
How many kinds of errors?
There are two kinds of errors
1.
Book keeping error ( in books of original documents that are journal and ledger).
2.

Trial balance error (errors which are made in preparation of trial balance

How many kinds of book keeping error?


1.
Error of omission: Where Transaction is completely omitted from the accounting records.
2.
Error of commission: An error of commission accrues when a transaction is partly or wholly
incorrectly in the books of accounts
o Wrong amount posting to ledger
o Wrong side posting to ledger
o Making wrong entry in book of original entry
3.
Error of principle: Mistakes arises out of ignorance of fundamental principles of accountancy e.g
(wrong allocation of depreciation, inadequate provision of dad debts, and wrong allocation of revenue and
capital and revenue expenditure)
4.
Compensating error: Compensating error which are cancelled by an other error of same amount
in opposite direction

What is trial balance error?


Errors which are made in preparation of the trail balance are called trial balance. Like
Omission of balance form the trial balance

Wrong transfer of balance (amount)

Wrong side transfer of amount

Wrong additions of trial balance


What is suspense account?
Suspense account is an account in which we entered transaction which cannot be placed to their proper
account for want sufficient information.
What is error of posting?
These errors are committed when a journal entry is posited in to ledger.

What is error of casting?


It is error of posting where as the error occur due to short casting or excess casting of an accounts