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Financial Accounting

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Financial Accounting (Mgt-101)
VU
Lesson-32
SOLE PROPRIETORSHIP
ILLUSTRATION # 1
Prepare profit & loss account and balance sheet for the year ending June 30, 2002 from the following trial
balance of Naseem Trading Company.
Particulars
Debit
Credit
Rs.
Rs.
Opening Stock
115,200
Cash in hand
10,800
Cash at bank
52,600
Purchases
813,500
Returns inward (Sales return)
13,600
Wages
169,600
Fuel & power
94,600
Carriage on sales
64,000
Carriage on purchases
40,800
Building
640,000
Land
200,000
Machinery
400,000
Salaries
300,000
General expenses
60,000
Drawings
12,000
Insurance
104,900
Sundry Debtors
290,000
Sales
1,975,600
Returns outwards (Purchase returns)
10,000
Capital
1,090,000
Sundry Creditors
126,000
Rent received
180,000
Total
3,381,600
3,381,600
Following additional information is supplied to you:
 Closing stock is valued at Rs. 136,000
 Machinery & Building are to be depreciated @ 10%
 Salaries for the month of June, 2002 amounting to Rs. 30,000 are unpaid
 Insurance is paid in advance to the extent of Rs. 13,000
 Rent receivable is Rs. 20,000
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Financial Accounting (Mgt-101)
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SOLUTION
When additional information is given at the end of the question, which means these entries are still to be
recorded in the books of accounts. So, we shall pass the entries first:
ENTRY # 1
Particulars
Code #
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
Closing stock account
136,000
Profit & Loss account
136,000
Closing stock is recorded
Closing stock is presented in the profit & loss account, credited in the cost of goods sold and is shown in the
balance sheet under the heading of Current Assets.
The ledger account of closing stock will be as follows:
Stock Account
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Closing Stock
136,000
136,000
Balance b/d
Total
136,000 Total
136,000
ENTRY # 2
Particulars
Code #
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
Depreciation account
40,000
Machinery account
40,000
Depreciation on machinery is
charged.
Depreciation of machinery will be shown in the profit & loss account under the heading of Administrative
Expenses and will be deducted from the value of machinery account in the balance sheet.
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Financial Accounting (Mgt-101)
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ENTRY # 2
Particulars
Code #
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
Depreciation account
64,000
Building account
64,000
Depreciation on building is charged.
Depreciation of building will be shown in the profit & loss account under the heading of Administrative
Expenses and will be deducted from the value of building account in the balance sheet.
The ledger account of depreciation will be as follows:
Depreciation Account
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Dep. of Machinery
40,000
Dep. of building
64,000
Balance b/d
104,000
Total
104,000 Total
104,000
ENTRY # 3
Particulars
Code #
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
Salaries account
30,000
Salaries payable account
30,000
Salaries for the month of June are
unpaid.
Salaries account will be presented in the profit & loss account under the heading of Administrative Expenses
and salaries payable will be presented in the balance sheet under the heading of Current Liabilities.
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Financial Accounting (Mgt-101)
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The ledger account of salaries will be as follows:
Salaries Account
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Balance c/d
300,000
Salaries payable
30,000
Balance b/d
330,000
Total
330,000 Total
330,000
ENTRY # 4
Particulars
Code #
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
Advance Insurance
13,000
Insurance Account
13,000
Insurance is paid in advance
Advance insurance is our asset and it will be shown in the balance sheet under the heading of current assets
and advance insurance will be deducted from the insurance expenses.
The ledger account of insurance will be as follows:
Insurance Account
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Balance c/d
104,900 Advance insurance
13,000
Balance b/d
91,900
Total
104,900 Total
104,900
ENTRY # 5
Particulars
Code #
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
Rent Receivables
20,000
Rental Income
20,000
Rental Income receivable
Rent receivables is our income and it will be shown in the balance sheet under the heading of current assets
and rent will be shown as income in the profit & loss account
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Financial Accounting (Mgt-101)
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The ledger account of rent will be as follows:
Rent Account
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Balance c/d
180,000
Receivable
20,000
Balance b/d
200,000
Total
200,000 Total
200,000
PROFIT & LOSS ACCOUNT
Naseem Trading Company
Profit & Loss Account for the year ended June 30, 2002
Particulars
Amount
Amount
Rs.
Rs.
Income / Sales / Revenue
1,975,600
Less: Sales Return
1,962,000
(13,600)
Less: Cost of Goods Sold
(See note # 1)
(1087700)
Gross Profit
874300
sLess: Administrative expenses
(See note # 2)
(585900)
Less: Selling Expenses
(64,000)
Carriage on sales
Operating profit
224400
Add: Other Income (Rent received)
200000
Net Income
424400
210
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Financial Accounting (Mgt-101)
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NOTE # 1
COST OF GOODS SOLD
Rs.
Opening stock
115,200
Add: Purchases
813,500
Less: purchase return
(10,000)
Add: Carriage on purchases
40,800
Add: Wages
169,600
Add: Fuel and power
94600
Less: Closing stock
(136,000)
Cost of goods sold
1087700
NOTE # 2
ADMINISTRATIVE EXPENSES
General expenses
60,000
Insurance
91,900
Depreciation on Machinery
40,000
Depreciation on Building
64,000
Salaries
330,000
Total Administrative Expenses
585900
BALANCE SHEET
Naseem Trading Company
Balance Sheet As At June 30, 2002
Liabilities
Assets
Particulars
Amount
Particulars
Amount
Rs.
Rs.
Capital
1,090,000 Fixed Assets
Add: Profit and Loss Account
424,400 land
200,000
Less: Drawings
(12,000) Machinery
400,000
360,000
Less: Dep.
(40,000)
Building
640,000
576,000
Less: Dep.
(64,000)
1,502,400
1,136,000
Current Liabilities
Current Assets
Creditors
126,000 Debtors
290,000
Salaries payable
30,000 Cash in hand
10,800
Cash at bank
52,600
Closing stock
136,000
Rant receivable
20,000
Advance insurance
13,000
Total
1,658,400 Total
1,658,400
211
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Financial Accounting (Mgt-101)
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ILLUSTRATION # 2
Following trial balance has been extracted from the books of Arif Traders on June 30, 2002
Arif Traders
Trial balance as on June 30, 2002
Particulars
Amount
Amount
Dr. (Rs.)
Cr. (Rs.)
Sales
987,000
Stock on June 30,2002
175,500
Material Consumed
537,000
Cash in Hand
10,500
Cash at Bank
57,000
Capital Account July 01, 2001
495,000
Drawings
142,500
Furniture
72,000
Rent Paid
51,000
Wages Paid
129,000
Discounts Allowed
34,500
Discounts Received
18,000
Debtors
246,000
Creditors
124,500
Provision for Doubtful Debts Jul. 01 2001
13,500
Vehicles
120,000
Vehicle Running Costs
22,500
Bad Debts Written off
40,500
Total
1,638,000
1,638,000
Further information available:
 Wages and salaries payable on June 30, 2002 Rs. 4,500
 Rent prepaid on June 30, 2002 Rs. 7,000
 Vehicle running costs payable on June 30 Rs. 3,000
 Increase in provision for doubtful debts Rs. 3,000
 Depreciation rate is 12.5% for furniture and 20% for vehicle.
You are required to prepare Profit and Loss Account for the year and Balance Sheet as on June 30, 2002
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Financial Accounting (Mgt-101)
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SOLUTION
Arif Traders
Profit and Loss Account for the Year Ending June 30, 2002
Particulars
Rs.
Rs.
Sales
987,000
Less: Cost of Goods Sold (material consumed)
(537,000)
Gross Profit
450,000
Less: Expenses
Wages and Salaries
Note 1
(133,500)
Rent
Note 2
(44,000)
Discount Allowed
(34,500)
Vehicle Running Cost
Note 3
(25,500)
Provision for Doubtful Debt
Note 4
(43,500)
Depreciation
Note 5
(33,000)
(314,000)
Operating profit
136000
Add: Other income( Discount receive)
18000
Net Income
154,000
In the profit & loss account prepared above, the amount of bad debts written off are grouped with the
provision for doubtful debts (see note # 4)
In the following presentation, bad debts are shown separately and working of provision of bad debts is
shown in Note # 4(a).
Arif Traders
Profit and Loss Account for the Year Ending June 30, 2002
Particulars
Rs.
Rs.
Sales
987,000
Less:  Cost
of
Goods
Sold
(material
(537,000)
consumed)
Gross Profit
450,000
Less: Expenses
Wages and Salaries
Note 1
(133,500)
Rent
Note 2
(44,000)
Discount Allowed
(34,500)
Vehicle Running Cost
Note 3
(25,500)
Bad Debts
(40,500)
Provision for Doubtful Debt
Note 4(a)
(3,000)
(314,000)
Depreciation
Note 5
(33,000)
Operating Profit
136000
Add: Other income( Discount receive)
18000
Net Income
154000
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Financial Accounting (Mgt-101)
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Arif traders
Balance Sheet As At June 30, 2002
Particulars
Amount Rs.
Amount Rs.
Assets
Fixed Assets
Note 5
159,000
Current Assets
Stocks
175,500
Debtors
Note 6
229,500
Prepaid Expenses
7,000
Cash at Bank
57,000
Cash in Hand
10,500
479,500
Total
638,500
Liabilities
Capital
495,000
Profit
154,000
Less: Drawings
(142,500)
506,500
Current Liabilities
Creditors
124,500
Expenses Payable
Note 7
7,500
132,000
Total
638,500
Note # 1
Salaries & Wages
Salaries & Wages
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Salaries & Wages Paid
129,000
Salaries & Wages Payable
4,500
Transfer to Profit & Loss
Account
133,500
Total
133,500 Total
133,500
Note # 2
Rent
Salaries & Wages
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Rent Paid
51,000 Rent Payable
7,000
Transfer to Profit & Loss
Account
44,000
Total
51,000 Total
51,000
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Financial Accounting (Mgt-101)
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Note # 3
Vehicle running cost
Vehicle Running cost
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Cost Paid
22,500
Cost Payable
3,000
Transfer to Profit & Loss
Account
25,500
Total
25,500 Total
133,500
Note # 4
Provision for doubtful debts
Provision for doubtful debts
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Bad Debts
40,500 Balance B/F
13,500
Transfer to Profit & Loss
Balance C/F
16,500 Account
43,500
Total
57,000 Total
57,000
Note # 4(a)
Provision for doubtful debts
Provision for doubtful debts  Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Balance B/F
13,500
Transfer to Profit & Loss
Balance C/F
16,500 Account
3,000
Total
16,500 Total
16,500
Note # 5
Fixed Assets at WDV
Cost
Rate
Dep.
WDV
Furniture
72,000
12.5%
9,000
63,000
96,000
Vehicle
120,000
20%
24,000
33,000
159,000
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Financial Accounting (Mgt-101)
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Note # 6
Debtors
Debtors
246,000
Less: Provision for Doubtful
Debts (note 4)
(16,500)
229,500
Note # 7
Expenses Payable
Expenses Payable
Account Code --------
Particulars
Amount
Particulars
Amount
Dr. (Rs.)
Cr. (Rs.)
Salaries
4,500
Vehicle running cost
3,000
Balance C/F
7,500
Total
7,500 Total
7,500
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Table of Contents:
  1. Introduction to Financial Accounting
  2. Basic Concepts of Business: capital, profit, budget
  3. Cash Accounting and Accrual Accounting
  4. Business entity, Single and double entry book-keeping, Debit and Credit
  5. Rules of Debit and Credit for Assets, Liabilities, Income and Expenses
  6. flow of transactions, books of accounts, General Ledger balance
  7. Cash book and bank book, Accounting Period, Trial Balance and its limitations
  8. Profit & Loss account from trial balance, Receipt & Payment, Income & Expenditure and Profit & Loss account
  9. Assets and Liabilities, Balance Sheet from trial balance
  10. Sample Transactions of a Company
  11. Sample Accounts of a Company
  12. THE ACCOUNTING EQUATION
  13. types of vouchers, Carrying forward the balance of an account
  14. ILLUSTRATIONS: Ccarrying Forward of Balances
  15. Opening Stock, Closing Stock
  16. COST OF GOODS SOLD STATEMENT
  17. DEPRECIATION
  18. GROUPINGS OF FIXED ASSETS
  19. CAPITAL WORK IN PROGRESS 1
  20. CAPITAL WORK IN PROGRESS 2
  21. REVALUATION OF FIXED ASSETS
  22. Banking transactions, Bank reconciliation statements
  23. RECAP
  24. Accounting Examples with Solutions
  25. RECORDING OF PROVISION FOR BAD DEBTS
  26. SUBSIDIARY BOOKS
  27. A PERSON IS BOTH DEBTOR AND CREDITOR
  28. RECTIFICATION OF ERROR
  29. STANDARD FORMAT OF PROFIT & LOSS ACCOUNT
  30. STANDARD FORMAT OF BALANCE SHEET
  31. DIFFERENT BUSINESS ENTITIES: Commercial, Non-commercial organizations
  32. SOLE PROPRIETORSHIP
  33. Financial Statements Of Manufacturing Concern
  34. Financial Statements of Partnership firms
  35. INTEREST ON CAPITAL AND DRAWINGS
  36. DISADVANTAGES OF A PARTNERSHIP FIRM
  37. SHARE CAPITAL
  38. STATEMENT OF CHANGES IN EQUITY
  39. Financial Statements of Limited Companies
  40. Financial Statements of Limited Companies
  41. CASH FLOW STATEMENT 1
  42. CASH FLOW STATEMENT 2
  43. FINANCIAL STATEMENTS OF LISTED, QUOTED COMPANIES
  44. FINANCIAL STATEMENTS OF LISTED COMPANIES
  45. FINANCIAL STATEMENTS OF LISTED COMPANIES