Financial Statements

Created by:

Sandeep Singh
Anuj Sharma Abhijeet Sharma

Harshvardhan Narayan
Mohd. Zia Kushik Kumar Rai

Trial Balance
According to Carter Trial Balance is the list of Debit and Credit balances, taken out from ledger. It also includes the balances of cash and bank taken from cash book. It is prepared to help in locating the errors and to obtain a summary of ledger accounts to help in the preparation of Final accounts..

Trial Balance of Sh. Rama Nand Sagar, As on 31st Dec 1993

Trial Balance
for the year ended 31st Dec 1993
Dr Balance Opening Stock Purchases Sales Return Carriage Inward Carriage Outwards Amount in Rs 20000 80000 6000 3600 800 Cr. Balance Sales Purchase Return Discount Sundry Creditors Bills Payable Amount in Rs 270000 4000 5200 25000 1800

Wages
Salaries Plant and Machinery Furniture Sundry Debtor Bills Receivable Cash in Hand Traveling Expenses Lighting (Factory) Rent and Taxes General Expenses Insurance Drawings Total

42000
27500 90000 8000 52000 2500 6300 3700 1400 7200 10500 1500 18000 381000

Capital

75000

381000

Adjustments:
1. Stock on 31st Dec 1993 was valued at Rs. 24000 (Market Value Rs. 30000). 2. Wages Outstanding for December 1993 amounted to Rs 3000, 3. Salaries Outstanding for December 1993 amounted to Rs 2500. 4. Prepaid Insurance amounted to Rs 300. 5. Provide Depreciation on Plant and Machinery at 5 % and on Furniture at 20%

Trading A/C
Trading account is prepared for calculating the gross profit or gross loss arising or incurred as a result of the trading activities of a business. If the amount of sales exceeds the amount of purchases and expenses directly connected with such purchases the difference is termed as gross profit. On the contrary, if the purchases and direct expenses exceed the sales, the difference is called gross loss.

Some Important Terms

Debit Items
Opening Stock: The stock of the goods remaining unsold at the end of the previous year is termed as the opening stock of the current year. Closing Stock: The goods remaining unsold at the end of the year is known as closing stock. It is valued at cost price or market price whichever is less.

Carriage Inwards: Is the cost of transport of goods into the firm

Wages: Wages are paid to the workers who are directly engaged in the loading, unloading and production of goods

Contd.
Purchases and Purchase Returns: Goods which have been bought for the resale are termed as purchases and goods which are returned to suppliers are termed as purchase returns or returns outwards. Purchase return will be deducted out of the Purchases on the Debit side of the trading account.

Credit Items
Sales and Sales Return: Both Cash and Credit sales will be included in sales. The sales account will be a credit balance whereas, the sales return account or returns inward account will be a debit balance. Sales return will be deducted out of the sales on the credit side of the trading account.

Contd
Trading Account
for the year ended 31 Dec 1993 Particular To Opening Stock To Purchases 80000 Less: Returns -4000 To Carriage Inward 76000 3600 Amount in Rs 20000 Particular By Sales 270000 264000 24000 Amount in Rs

Less: Return -6000 By Closing Stock

To Wages

42000
45000 1400 142000 288000 288000

Add: Outstanding 3000 To Factory Lightning To Gross Profit c/d Total

Profit and Loss A/C

According to Prof. Carter: A Profit and Loss account is an account into which all gains and losses are collected, in order to ascertain the excess of gains over the losses or vice-versa. Trading account only discloses the gross profit earned as a result of buying and selling of goods. However, a businessman has to incur a number of expenses which are not taken to trading account. Hence a business man is more interested in knowing the net profit earned or net loss incurred during the year. Therefore Profit and Loss a/c is prepared

Some Important Terms

Debit Items
Carriage Outward: Carriage outward is the cost of delivery of good, So it is an expense to the company

Depreciation: According to J.R. Batliboi It is a matter of common knowledge that all fixed assets such as plant, machinery, building, furniture etc. gradually diminish in value as they get older and become worn out by constant use in the business.

Contd
Profit & Loss a/c
for the year ended 31 Dec 1993

Particular To Carriage Outward To Salaries 27500

Amount in Rs 800

Particular By Gross Profit b/d By Discount

Amount in Rs 142000 5200

Add: Outstanding +2500 To Traveling Expenses To Rent and Taxes To General Expenses To Insurance Less: Prepaid To Depreciation Plant and Machinery Furniture To Net Profit c/d Total 1500 -300

30000 3700 7200 10500

1200

4500 1600 87700 147200 147200

Balance Sheet
According to A. Palmer. The Balance Sheet is a statement at a particular date showing on one side the traders property and possessions and on the other hand the liabilities . After ascertaining the net profit or loss of the business enterprise, the businessman would also like to know the exact financial position of his business. For this purpose Balance sheet is prepared which contains all the Assets and Liabilities of the company

Some Important Terms

Liabilities
Bills Payable: The payable to the suppliers for which the negotiable instrument in the form of bill of exchange is given to the suppliers.

Creditors: The term creditors represents those persons or firms from whom goods have been purchased or services procured on credit and payment has not been made to them

Outstanding Expenses: These are the expenses which have been incurred during the year but have been left unpaid on the date of preparation of final accounts.

Contd.
Drawings: Any cash value of goods withdrawn by the owner for personal use or any private payments made out of business funds are called drawings.

Assets
Bills Receivable: The amount receivable from the customers for which the negotiable instrument in the form of bill of exchange is received from the customer is called Bills Receivable

Debtors: The term Debtors represents those persons or firms to whom goods have been sold or services rendered on credit and payment has not been received from them.

Contd
Prepaid Expenses: These are the expenses which have been paid in advance for the next year during the current year itself. In other words, the benefit of such payments will be available in the next accounting years.

Contd
Balance Sheet
as on 31st Dec 1993
Liabilities Amount in Rs Assets Amount in Rs

Bills Payable
Sundry Creditors Outstanding Wages Outstanding Salaries Capital Add: Net Profit 75000 +87700

1800
25000 3000 2500

Cash in hand
Bills Receivable Sundry Debtors Closing Stock Prepaid Insurance Furniture and Fixtures 8000 -1600 90000 -4500

6300
2500 52000 24000 300

Less: Drawings -18000

144700

Less: Depreciation Plant and Machinery Less: Depreciation

6400

85500 177000

Total

177000

Conclusion
Financial Statements refers to such statements which report the profitability and the financial position of the business at the end of accounting period. Its Objectives is to present a true and fair view of the financial performance and financial position of the business.

Contd
From the Trading a/c we have calculated the Gross profit. Gross Profit: When amount of sales exceeds the amount of purchases and the expenses directly related connected with such purchases the difference is termed as gross profit. Gross profit of the company is Rs1,42,000. We can say that the firm is getting profit from its buying and selling of goods.

Contd..
From the Profit and Loss a/c of the company we have calculated the Net Profit. Net Profit: Net Profit is arrived by deducting indirect expenses from the gross profit. Net profit of the company is Rs. 87,700 With the help of which we can say that the company is in profit mode.

Contd
Balance Sheet shows the Balance on Both side as Rs1,77,000. Balance sheet of the companies show that the Current assets of the firm is of Rs.85,100 where as Current Liability of the company is of Rs32,300. By which we can see the liquidity of the firm and can say that the company is able to pay its debts.