Lecture Notes: Profit and Loss Account and Balance Sheet

Key Points

Introduction

• Given on page number 4
• Final accounts such as the Cost of Trading, Profit and Loss Account, and Balance Sheet will be explained
• We will use trial balance to understand it

Trial Balance

• Opening Stock: Debit side of the Trading Account
• Wages: Debit side of the Trading Account
• Creditors and Bills Payable: Liability side of the Balance Sheet
• Cash in Hand: Asset side of the Balance Sheet
• Insurance: Debit side of the Profit and Loss Account
• Carriage Inward and Carriage Outward: Profit and Loss Account
• Land and Building, Furniture: Asset side of the Balance Sheet
• Sales: Credit side of the Trading Account
• Purchase Return: Less from Purchase
• Sales Return: Less from Sales
• Rent, Discount: Profit and Loss Account
• Traveling Expenses and Advertisement: Profit and Loss Account
• Closing Stock: Credit side of the Trading Account and Balance Sheet
• Outstanding Expenses: Add in the Balance Sheet

Depreciation

• Land and Building: 10%
• Furniture: 5%
• Depreciation is to be lessened in the Profit and Loss Account
• Furniture entry will be 1935 and Land and Building entry will be 4250

Advance and Insurance

• Prepaid Insurance: Asset side of the Balance Sheet
• 300 Rupees prepaid insurance

Goods Destroyed by Fire

• 3000 Rupees loss
• 'Goods Destroyed by Fire' on the credit side of trading account
• 'Loss by Fire' on the debit side of Profit and Loss Account

Net Profit

• Calculation of net profit at the end of the Profit and Loss Account
• If there is a net profit, it will be transferred to the partners' capital accounts
• Entry for profit-sharing among partners Reeti and Siddhi

Conclusion

• Combining all entries, we need to prepare the final accounts: Profit and Loss Account and Balance Sheet
• Putting entries in the proper format makes everything easily understandable
• With practice and clear concepts, understanding final accounts becomes easier

Suggestions

• Pay special attention in exams to ensure all entries are correctly made
• Can highlight entries using colored pencils
• Practice more practical problems of partnership final accounts

Thank You and Best Wishes!