FINAL ACCOUNTS

 The businessman is interested in knowing whether the business has resulted in profit or loss and
what the financial position of the business is at a given period. In short, he wants to know the
profitability and the financial soundness of the business. The trader can ascertain these by
preparing the final accounts. The final accounts are prepared at the end of the year from the
trial balance. Hence, the trial balance is said to be the connecting link between the ledger
accounts and the final accounts.
 Popularly, the Trading and Profit & Loss Account and the Balance Sheet are together called the
final accounts/financial statements.
 The trading and profit & loss account /income statement is prepared to show the financial results
of a business, may be in the form of profit or loss during an accounting period or year.
 Balance sheet is prepared to show the financial position or conditions of business in terms of
position of assets and liabilities of a business as on a particular date.

FINAL ACCOUNTS FOR SOLE TRADERS

(a) TRADING ACCOUNT
The trading account summarises the trading activities (sale and purchase of
goods/stocks) of the business and tries to determine the gross profit for the
relevant financial period. The gross profit is then taken up in the profit and
loss account as part of the income.

Format for the trading account:

 Name
Trading Account
for the year ended 31 Dec.
ksh ksh

Sales x
Less: Returns Inwards (x)
Net sales x
Less: Cost of Sales
Opening stock x
Purchases x
Add: Carriage Inwards x
x
Less: Returns Outwards ( x)
Cost of stock available for sale x
Less: Closing stock x (x)
Gross Profit x

Example 1
From the following details draw up the trading account of Springs for the year
ended 31 December 2002, which was his first year in business.

ksh
Carriage inwards 6,700
Returns outwards 4,950
Returns inwards 8,900
Sales 387,420
Purchases 333,330
Stock of goods: 31 December 2002 74,890
Springs
Trading Account for the year ended 31 Dec
2002

£ £

Sales 387,420
Less: Returns Inwards 8,900
378,520

Less cost of sales

Purchases 333,330
Add: Carriage Inwards 6,700
340,030
Less: Returns outwards 4,950
335,080
Less: Closing stock 74,890 260,190
Gross Profit
118,330
Example 2
The following details for the year ended 31 March 2003 are available. Draw up the
trading account of R Sings for that year.

ksh
Stocks: 1 April 2002 16,523
Returns inwards 1,372
Returns outwards 2,896
Purchases 53,397
Carriage inwards 1,122
Sales 94,600
Stocks: 31 March 2003 14323

Answer
R Sings
Trading Account for the year ended 31 Mar 19x8
₤ ₤ ₤
Sales 94,600
Less: Returns Inwards (1,372)
93,228
Less: Cost of sales
Opening Stock 16,523
Purchases 53,397
Add: Carriage Inwards 1,122
54,519
Less: Returns Outwards 2,896 51,623
Cost of goods available for sale 68,146
Less: Closing stock 18,504
(49,642)
Gross Profit 43,586

(b) PROFIT AND LOSS ACCOUNT

It shows the net profit or net loss that the business has made from all the activities
during a financial period.
The net profit (or loss) is determined by deducting all the expenses from all the
incomes of the same financial period.
In practice, the trading account is combined together with the net profit and loss
account into one report so that the format is as shown below:

Example: 1
From the following details draw up the trading account of Springs for the year ended 31
December 2002, which was his first year in business.
₤
Carriage inwards 6,700
Returns outwards 4,950
Returns inwards 8,900
Sales 387,420
Purchases 333,330
Stock of goods: 31 December 19x7 74,890

Springs
Trading Account
for the year ended 31 Dec 2002

£ £

Sales 387,420
Less: Returns Inwards 8,900
378,520
NET SALES
Less cost of sales
Opening stock nil
Purchases 333,330
Add: Carriage Inwards 6,700
Cost of available 340,030
Less: Returns outwards (4,950)

Less: Closing stock (74,890 ) 260,190

Gross Profit 118,330

Example 2
The following details for the year ended 31 March 2003 are available. Draw up the trading
account of R Sings for that year.
£
Stocks: 1 April 2002 16,523
Returns inwards 1,372
Returns outwards 2,896
Purchases 53,397
Carriage inwards 1,122
Sales 94,600
Stocks: 31 March 2003 14323
 Name

INCOME STATEMENT
for the year ended 31/12/2023
KSH KSH

Sales x xxx

Less: Returns Inwards ( xxx)

xxx x

NET SALES

Less: Cost of sales

Opening stock xxx

Purchases xxx

Add: Carriage Inwards xx x

Cost of goods available for sale xxx

Less: Returns Outwards (xxx)

Less: Closing stock (xxx)

XXX ………. XXX

Gross Profit/Loss X XX

ADD OTHER INCOMES

Discount received XX

Rent received XX

Interest received XX

TOTAL INCOME XXXX

Less: Expenses
Carriage Outwards XX

Discounts allowed XX

Postage & stationary XX

Salaries & wages XX

Rent paid XX

Insurance & rates XX

Bank charges XX
Other expenses XX (XXXX)

Net profit/ (loss) XX/(X

FINANCIAL STATEMENTS WITHOUT ADJUSTMENTS

QUESTION ONE

Prepare Trading and Profit Loss Account/Income statement for the year ending 31st March 2024 from
the books of Mr. Abdullah.

Stock (31.March.2023) 15,000

Carriage outwards 4,000
Purchases 165,000
Wages 30,000
Purchases return 10,000
Sales returns 5,000
Postage 3,000
Salaries 20,000
Discount received 5,000
Stationeries 2,000
Bad debts 1,000
Interest 8,000
Sales 300,000
Insurance 4,000
Stock (31.March.2024) 80,000

QUESTION TWO: From the following balances obtained from the accounts of Mr. Ranjeet,
Prepare the Trading and Profit & Loss Account:
Particulars ksh Particulars ksh

Stock on April 01, 2012 8,000 Bad debts 1,200

Purchases for the year 22,000 Rent 1,200

Sales for the year 42,000 Discount (Dr.) 600

Commission
Wages 2,500 1,100
paid

Salaries & Wages 3,500 Sales Expenses 600

Advertisement 1,000 Repair 600

Closing stock on March 31, 2013, is ksh. 4,500.
Question THREE
From the following balances, prepare the final accounts of M/s Mangal & Sons for the year
ended 31st March 2018 :
Ksh.

Opening Stock 12,500

B/R 2,000

Sales 70,000

Purchases 37,500

Creditoksh 20,000

Salaries 3,850

Insurance 200

Debtoksh 32,500

Carriage 1,450

Commission 750

Interest 900

Printing 250

B/P 3,150

Returns in 1,300

Returns out 500

Bank 5,250

Rent and Taxes 1,300

Furniture 1,000

Capital 7,100
Closing Stock on 31-3-2018 ksh.15,000
QUESTION 3 From the following information prepare Trading and Profit and Loss Account
and Balance Sheet for the year ended 31st March, 2021.
Account Amount Account Amount

Salaries
Capital 7,20,000 1,20,000
General Expenses
Machinery 1,40,000 40,000
Rent
Sales 16,40,000 1,00,000
Purchases Return
Purchases 8,00,000 10,000
Debtoksh
Sales Return 20,000 6,00,000
Cash
Opening Stock 2,00,000 80,000
Carriage Outwards
Drawings 80,000 40,000
Advertising
Wages 2,00,000 40,000
Creditoksh
Carriage Inwards 10,000 1,00,000

QUESTION4
QUESTION5

FINAL ACCOUNTS WITH ADJUSTMENTS

QUESTION1 From the following particulaksh presented by Thilak for the year ended
31st March, 2017, prepare profit and loss account.

Adjustments:
i. Outstanding salaries amounted to Ksh. 4,000
ii. Rent paid for 11 months
iii. Interest due but not received amounted to Ksh. 2,000
iv. Prepaid insurance amounted to Ksh. 2,000
v. Depreciate buildings by 10%
vi. Further bad debts amounted to Ksh. 3,000 and make a provision for bad debts @
5% on sundry debtors

vii. Commission received in advance amounted to Ksh. 2,000

QUESTION 2
Given below are the balances extracted from the books of Nagarajan as on 31st March, 2016.

Prepare the trading and profit and loss account for the year ended 31st March, 2016 and the
balance sheet as on that date after adjusting the following:
i. Commission received in advance Ksh. 400

ii. Advertisement paid in advance Ksh. 150

iii. Wages outstanding Ksh. 200

iv. Closing stock on 31st March 2016, Ksh. 2,100

QUESTION 3
Edward’s books show the following balances. Prepare his trading and profit and loss A/c for the
year ended 31st December, 2016 and a balance sheet on at that date.

Adjustments:
i. Closing stock was Ksh. 1,30,000 on 31st December, 2016.
ii. Create 5% provision for bad and doubtful debts on sundrydebtors
iii. Create provision at 2% for discount ondebtors
iv. Interest on loan due for 9 months.
QUESTION 4
Consider the following balances extracted from the books of Jain as on 31st December, 2016.
Prepare the final accounts.

Adjustments
i. Salaries outstanding for December, 2016 amounted to Ksh. 600
ii. Provide depreciation on furniture @ 10% p.a.
iii. Provide interest on capital for the year @ 5% p.a.
iv. Stock on 31st December, 2016 Ksh. 14,000

QUESTION 5
Following is the trial balance of Brijesh. Prepare final accounts for the year ended on 31st
March, 2016.

Adjustments:
i. Stock on 31st March, 2016 was valued at Ksh. 4,00,000.
ii. Depreciate furniture @ 10% p.a.

iii. Insurance of Ksh. 60,000 was paid in advance

iv. Commission receivable Ksh. 50,000.

QUESTION 6
Given below are the balances of Pandian as on 31st March, 2016

Adjustments:
i. The stock value at the end of the accounting period was Ksh. 5,000

ii. Interest on capital at 6% is to be provided

iii. Interest on drawing at 5% is to be provided

iv. Write off bad debts amounting to Ksh. 2,000

v. Create provision for bad and doubtful debts on sundrydebtors @ 10%

vi. Prepare final accounts for the year ended 31st March, 2016.

QUESTION 7
From the trial balance of Ajith and the adjustments given below, prepare trading and profit and
loss A/c for the year ended 31st March, 2016 and the balance sheet as on that date

Adjustments:

i. Stock at the end of the year was Ksh. 8,000

ii. Further bad debts amounted to Ksh. 100

iii. Create 2% provision for doubtful debts on sundrydebtors

iv. Create 1% provision for discount on sundrydebtors

QUESTION 8
The following trial balance has been extracted from the books of Rajesh on 31st December,
2016.

The following adjustments are to be made:

i. Stock on 31st December, 2016 was Ksh. 28,000
ii. Unexpired insurance was Ksh. 15,000
iii. Provision for doubtful debts is to be maintained at 5% on sundrydebtors.
iv. Depreciate plant and machinery at 20%.
You are required to prepare trading and profit and loss account for the year ended 31st
December, 2016 and a balance sheet as on that date.
QUESTION 9
From the following particulaksh, prepare the balance sheet of Madhu, for the year ended 31st
March, 2018.

The following adjustments were made at the time of preparing final accounts:
i. Outstanding liabilities: Salaries Ksh. 10,000; Wages Ksh. 20,000; Interest on Bank
overdraft Ksh. 3,000 and Interest on bank loan Ksh. 6,000
ii. Provide interest on capital @ 10% p.a.
iii. Bad debts amounted to Ksh. 10,000 and make a provision for bad debts @ 10% on
sundrydebtors.
iv. Closing stock amounted to Ksh. 1,20,000
v. Depreciate vehicles @ 10% p.a.