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Measurement of Profit and Financial Position: II Trial Balance to Balance Sheet and Profit and Loss Account: Non

Corporate Entities
By Prof. Neha Patel

From Trial Balance to Balance Sheet and Profit & Loss statement
Trial Balance Analysis of Trial Balance Adjustments Inventory Valuation Construction of Financial Statement Balance Sheet P & L Account

Brief Analysis of Results

Analysis of Trial Balance


Going Concern Concept

Under this concept, it is assumed that organization will continue in operation for foreseeable future
This

is the basic reason for analyzing accounts into assets, liabilities, incomes & expenses

Analysis of Trial Balance (cont..)


Capital Expenditure

The benefit of this expense accrues over a long period of time


E.g.

Fixed Assets

Revenue Expenditure

The benefit of this expenditure expires within a year


E.g.

Stationery Expenses, Salary Expenses

Analysis of Trial Balance (cont..)


Capital Receipts

The benefit of these incomes accrue over a long period of time


E.g.

Owners Capital, Long-term Loans

Revenue Receipts

The benefit of this income expires within a year


E.g.

Current Assets like Cash

Need for Adjustments


Matching Principle

While recording income in profit & loss statement. It must be correlated with all the expenses which lead to generation of such income To figure out the value of inventory at the end of a particular period using methods like: FIFO LIFO

Inventory Valuation

Construction of Balance Sheet and Profit & Loss Account


Profit & Loss statement

Displays the income & expenditure of the concern The retrospect impact of the same on the profits or losses of the business Displays the amount of Assets & Liabilities accumulated by the business

Balance Sheet

Profit & Loss Statement


Gross Profit

It is the difference between


Net

Sales & Cost of Goods Sold (COGS)

Net Profit

It is the difference between


Gross

Profit, Incomes & Expenses

Instructions for preparing the 2 Financial Statements


Draw both the statements

Simultaneously Figure out to which head & which account trial balance account entries Belong to Post entries in Financial Statements after Adjustments Find out the value & amount of Closing Inventory

Instructions for preparing the 2 Financial Statements (cont..)


Work out Profit or Loss from P&L

Statement Post this prepare Balance Sheet If the calculations are correct both sides of the Balance Sheets must match While Calculating for both the statements make sure you make adjustments for depreciation according to the time frame of accounts

Case Study Discussion


Monik Traders Case Study

Refer to Excel File


Prepare

Profit & Loss Statement & Balance Sheet

Thank You!!

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