Thursday 2 June 2011

TRIAL BALANCE AND FINAL ACCOUNT : Financial Accounting 1st Year



LESSON – 2
TRIAL BALANCE AND FINAL ACCOUNT

OBJECTIVES

After going through this chapter you should be able to
·        understand the meaning of Trial Balance
·        Know the preparation of Final Accounts with necessary adjustments.
STRUCTURE
2.1 Meaning of Trial Balance
2.2 Methods of Preparation
         2.2.1 Balance Method
         2.2.2 Total Method
2.3 Preparation of Final Accounts
         2.3.1 Trading Account
         2.3.2 Profit and Loss Account
         2.3.3 Balance Sheet
         2.3.4 Treatment of Adjustments
Unit Questions

 2.1 Meaning of Trial Balance
            The third function of accounting summarizing is done by the preparation of Trial Balance. A Trial Balance is the listing of ledger accounts along with their balances extracted from the ledger. The objectives of preparing Trial Balance are:
a)     To check the arithmetical accuracy of books of accounts.
b)     To facilitate the preparation of final accounts.
c)     For easy detection of errors.
2.2 Methods of Preparation
The methods used for the preparation of Trial Balance are:
1.      Balance Method. Trial Balance is prepared by taking up the ledger balances only.
2.      Total Method. Trial Balance is prepared by taking up total of both debits and credit of all ledger accounts.
Normally Balance Method is used for preparing  a Trial Balance.
Example 3:
            The following balances were extracted from the ledgers of a business organisation on 31-3-2004. Prepare a Trial Balance as on that date.

Rs.

Rs.
Drawings
12,000
Capital
48,000
Creditors
86,000
Bills Payable
8,000
Debtors
1,00,000
Bills Receivable
10,400
Loan from Kumar
20,000
Furniture
9,000
Opening Stock
94,000
Cash in Hand
1,800
Bank Balance
25,000
Taxes
7,000
Sales
2,56,000
Salaries
19,000
Sales Returns
2,000
Purchase Returns
2,200
Travelling Expenses
9,200
Commission Paid
200
Rent
4,000
Discount Earned
8,000
Purchases
1,41,600


Solution.
TRIAL BALANCE as on 31-3-2004 of ……..
Particulars
Debit
Rs.
Credit
Rs.
Drawings A/c
12,000
-
Capital A/c
-
48,000
Creditors A/c
-
86,000
Bills Payable A/c
-
8,000
Debtors A/c
1,00,000
-
Bills Receivable A/c
10,400
-
Loan from Kumar
-
20,000
Furniture A/c
9,000
-
Opening Stock
94,000
-
Cash in Hand
1,800
-
Bank
25,000
-
Taxes
7,000
-
Sales
-
2,56,000
Salaries
19,000
-
Sales Returns
2,000
-
Purchase Returns
-
2,200
Travelling Expenses
9,200
-
Commission Paid
200
-
Trading Expenses
5,000
-
Discount Earned
-
8,000
Rent
4,000
-
Bank Overdraft
-
12,000
Purchases
1,41,600
-

4,40,200
4,40,200
 2.3 PREPARATION OF FINAL ACCOUNTS
            The last stage in the accounting process is the preparation of final accounts at the end of the year in the form of Trading, Profit and Loss Account and Balance Sheet.

            These are called financial statements. The object of their preparation is to throw light on the financial results of operation of business during the period under consideration and to know the financial position of the business.

            The procedure for the preparation of final accounts is as follows.
2.3.1   Trading Account is prepared to ascertain Gross Profit or Gross Loss of a business during a given period.

FORMAT OF TRADING ACCOUNT

Dr.

Cr.
Particulars
Rs.
Particulars
Rs.
To Opening Stock
To Purchases
            Less:Purchases Returns
To Direct Expenses:
            Freight and Carriage
            Customs
            Wages
            Gas, Water & Fuel
            Factory Expenses
            Royalty on Production

By Sales
            Less: Sales Returns
By Closing Stock

           
          Compare both sides. If credit side total is more than the debit side, Gross Profit results. If debit side total is more than the credit side, Gross Loss results.
            2.3.2 The second stage in the preparation of final accounts is the preparation of Profit and Loss Account. It can be defined as a report that summarises the revenues and expenses of an accounting period to reflect the changes in various critical areas of firm’s operations.

            Gross Profit from Trading Account is transferred to the credit side of Profit and Loss Account. Gross Loss is debited on the debit side. On the debit side all expenses of indirect nature (connected with sales and distribution) Provisions and Losses are recorded. On the credit side incomes and gains are recorded. By comparing the total of both sides Net Profit/Net Loss is calculated. If credit side is more, net profit occurs and if debit side is more, net loss results.

FORMAT OF PROFIT AND LOSS A/C

PROFIT AND LOSS ACCOUNT for the year ending 31st December 19....
Dr.                                                                                                                                                Cr.
Particulars
Amount
Rs.
Particulars
Amount
Rs.
To Gross Loss

By Gross Profit

To Office salaries and wages

By Cash discounts received

To Office Rent, Rates and Taxes

By Bad debts recovered

To Office Lightingand Insurance

By Income from investments

To Printing & stationary

By Commission received

To Postage, telegrams

By Interest on deposits

To legal expenses

By Interest on renewal of bills of exchange

To Trade expenses

By Gain on sale of fixed assets

To Audit fees

By Apprenticeship premium

To Car upkeep expenses

By Interest on drawings

To Telephone expenses

By Net Loss (transfered to Capital account)

To General Expenses



To Cash discounts allowed



To Interest on capital



To Interest on loans



To Discount or Rebate on bills of exchange



To Bad debts



To Selling& Distribution expenses



To Packing of finished goods



To Store charges



To Carriage, freight,
cartage outwards



To Cost of samples,
catalogue expenses



To Salesman’s salaries, expenses  and commission



To Advertising expenses



To Depreciation on fixed assets



To Loss on sale of fixed asstes



To Net profit (transferred to capital account)



                                                Rs.

                                                Rs.
           

2.3.3.  The third stage is the preparation of Balance Sheet. It shows the assets and liabilities grouped, properly classified and arranged in a specific manner. It shows the financial position of a business by detailing the sources of funds and their utilization.
            Its functions are:
a)     It provides information regarding assets, liabilities and capital.
b)     It facilitates analysis and interpretation with reference to liquidity, solvency, profitability and its capabilities.

FORMAT OF BALANCE SHEET
Liabilities
Rs.
Assets
Rs.
Capital
Reserves and Surplus
Loans
Trade Creditors
Bills Payable
Outstanding Expenses









Good will
Plant and Machinery
Furniture and Fixtures
Stock
Debtors
Bills Receivable
Investments
Cash at Bank
Cash in Hand



I may be presented in the vertical format.
Example:
From the following Trial Balance of a business unit run by Narayanan, prepare Trading, Profit and Loss Account for the year ending 31-3-2004 and the Balance Sheet as on that date.
TRIAL BALANCE
Particulars
Debit
Rs.
Credit
Rs.
Purchases
21,750
-
Discount allowed
1,300
-
Wages
6,500
-
Sales
-
30,000
Travelling Expenses
400
-
Commission
425
-
Administration Expenses
105
-
Trade Expenses
600
-
Interest
250
-
Building
5,000
-
Furniture
200
-
Debtors and Creditors
4,250
2,100
Capital
-
13,000
Cash
2,045
-

45,100
45,100
Stock on 31-3-2004 was Rs.6,000.
Solution.
TRADING AND PROFIT & LOSS ACCOUNT OF NARAYANAN
                        Dr.                               for the year ended 31-3-2004                          Cr.
Particulars
Rs.
Particulars
Rs.
To Purchases
21,750
By Sales
30,000
To Wages
6,500
By closing Stock
6,000
To Carriage
275


To Gross Profit
7,475



36,000

36,000

To Discount
To Salaries
To Travelling Exp.
To Commission
To Admn. Exp.
To Trade Exp.
To Interest
To Net Profit

1,300
2,000
400
425
105
600
250
2,395

By Gross Profit

7,475
7,475
7,475
                                                BALANCE SHEET as a 31-3-2004
Liabilities
Rs.
Assets
Rs.
Capital                       13,000
Add: Net Profit           2,395

Creditors


15,395
  2,100
_____
17,495
Building
Furniture
Stock
Debtors
Cash

  5,000
     200
  6,000
  4,250
  2,045
17,495

2.3.4 TREATMENT OF ADJUSTMENTS
            In mercantile system of accounting it is essential to adjust different account before the  preparation of final accounts. Any information given outside the Trial Balance is called an adjustment. The point to be noted here is that any adjustment given double entry incomplete and an adjustment entry is to be passed.

            For working out problems student should remember that an adjustment appears in two places. In dealing with the adjustments the students are to remember that for calculating Profit/Loss only current year’s income and expenses are to be considered.
            The common adjustments are:
1.      Stock at the end (closing stock).
2.      Outstanding  expenses.
3.      Prepaid expenses.
4.      Accrued income/Outstanding income.
5.      Income received in advance
6.      Depreciation
7.      Bad debts
8.      Provision for bad and doubtful debts.
9.      Provision for discount on debtors and creditors.
10. Interest on capital
11. Interest on drawings.
12. Abnormal loss of stock-in-trade
13. Interest on loans or deposits when rate of interest is given
14. Goods taken over by proprietor for personal use.
15. Manager’s commission on profits
1. Stock at the End (Closing Stock)
            This does not appear in Trial Balance. Closing stock is recorded on the credit side of Trading Account and is presented on the assets side of Balance Sheet. In case Closing Stock appears in Trial Balance, it is straightaway recorded in Balance Sheet assets side.

2. Outstanding Expenses
This refers to expenses incurred but not paid. The accounting treatment for outstanding expenses is to add the outstanding expenses to the particular expense account and shown on the debit side of Profit Loss Account. Further the outstanding expense is presented on the liabilities side of Balance Sheet.
            Adjustment Entry
                        Expense A/c                                                                          Dr.
                                    To Outstanding Expense A/c                                                  
3. Prepaid Expenses
            This means expenses incurred during the current year for services to be received in the next accounting year. The accounting treatment is to deduct it from the respective expenses account and it is presented on the assets side of the Balance Sheet.
            Adjustment Entry
                        Prepaid Expense A/c                                                           Dr.
                                    To Expenses A/c                                                                                     
Prepaid expenses/Expenses paid in advance appearing in Trial Balance is shown on the assets side of Balance Sheet.

4. Accrued Income/Outstanding Income
            If income for the current is not received during the year, it is termed as accrued income. It is added to the respective head and shown on the credit side of Profit and Loss Account and appears on the assets side of Balance Sheet.
            Adjustment Entry
                        Accrued Interest on Investment A/c                                 Dr.
                                    To Interest on Investment A/c                                                
            If this term is appearing in Trial Balance, then it is straightaway presented on the assets side of the Balance Sheet.

5. Income Received in Advance
            This refers to income received in the current year against which services are to be provided in the next accounting year. If this item appears in the Trial Balance, it will be shown on the liabilities side of the Balance Sheet.
            Adjustment Entry
                        Income A/c                                                                            Dr.
                                    To Income Received in Advance  A/c
                        (Adjusting entry for income received in advance)                                 


6. Depreciation
            This is an expense on account of fall in value of the asset due to wear and tear, lapse of time or other reasons. It is that portion of depreciable cost of fixed asset allocated to a particular accounting year. This is shown on the debit side of Profit and Loss Account and shown a deduction on the assets side of Balance Sheet. If depreciation is presented in the Trial Balance, then it is charged to the debit side of Profit and Loss Account.
            Adjustment Entry
                        Depreciation A/c                                                      Dr.
                                    To Asset A/c                                                                              
7. Bad debts
When a business organisation becomes certain about non-recovery of the amount from credit customers, it is treated as bad debt. The Journal entry for bad debts is:
                        Bad Debts A/c                                                                       Dr.
                                    To Debtors A/c
                        (Entry for bad debts)                                                                                        
            The bad debts given in adjustments is recorded on the debit side of Profit and Loss Account and is shown as a deduction from Sundry Debtors. In case bad debts is given in Trial Balance, then it is debited in the Profit and Loss Account only.

8. Provision for Bad and Doubtful Debts
            Bad debts is a loss to the business and it should be debited to Profit and Loss Account in the year of sales. As the exact amount of bad debts cannot be calculated at the time of sale, it is suggested that provision for bad and doubtful debts is created  in the year of sale by debiting it to the Profit and Loss Account. The amount of bad debts is recorded only when the business becomes certain about non-recovery. This is done by charging bad debts against provision for bad and doubtful debts account created for this purpose.

            Provision is created on debtors balance at the end of the year at a fixed percentage. This is based on experience in the past years or in similar type of business. The financial position of individual debtors is also considered.
            Provision for bad and doubtful debts is debited to Profit and Loss Account and it is shown as a deduction from Sundry Debtors. In case of opening balance of Provision for Bad and Doubtful Debts the amount to be charged to the debit of Profit and Loss Account is calculated as:

                        Bad debts + New provision – Provision in the beginning
            In the Balance Sheet the amount to be deducted from Sundry Debtors will be additional bad debts and Provision for Bad and Doubtful Debts.

            The Journal Entry
                        Profit and Loss A/c                                                              Dr.
                                    To Provision for Bad and Doubtful Debts
                        (For creating the provision)                                                                      
            The adjustment entry for bad debts against provision:
                        Provision for Doubtful Debts A/c                                     Dr.
                                    To Bad Debts A/c
                        (For adjusting bad debts)                                                               


9. Provision for Discount on Debtors and Creditors
            From total debtors estimated doubtful debts are deducted to arrive at sound debtors. These people may repay before due date and claim for discount. It is an allowance to be treated as an expense of the business and it should be debited to Profit and Loss Account.
            So, before calculating provision for discount, provision for doubtful debts is deducted from debtors.

Provision for Discount on Creditors
            Provision for discount on creditors is shown on the credit side of Profit and Loss Account and deducted from creditors on liabilities side of Balance Sheet.

10. Interest on Capital
            To calculate the true profit for the year, interest on capital invested by the owner of business is provided in the books and treated as business expense and debited to Profit and Loss Account. In the Balance Sheet this is added to capital on the liabilities side.
            Journal Entry
                        Interest on Capital A/c                                                        Dr.
                                    To Capital Account
                        (Entry for providing interest on capital)                                     
            If interest on capital is given in the Trial Balance, then it is added to capital on the liabilities side of Balance Sheet.

11. Interest on Drawings
            Cash, goods or any other asset withdrawn by the owner for his personal use is called as drawings. On anything withdrawn by the proprietor interest is charged by the business. This is an income to the business and credited to the Profit and Loss Account. In the Balance Sheet this is to be deducted from capital like drawings on the liabilities side.
            Journal Entry
                        Drawings A/c                                                                        Dr.
                                    To Interest on Drawings A/c
                        (Being the entry for recording interest on drawings)                
12. Abnormal Loss of Stock-in-Trade
            Stock-in-trade may be lost by theft and natural calamities like fire, flood, storm and earthquake. Then such loss is to be recorded on the credit side of Trading Account. The treatment of this loss may be tackled on the basis of the situation given in the problem. The possibilities are:
a)     Stock subject to full coverage of insurance.
b)     Stock not subject to any coverage of insurance.
c)     Stock subject to partial coverage of insurance.
a) Stock subject to full coverage of insurance
            Journal Entry
                        Insurance Claim A/c                                                                        Dr.
                                    To Trading Account
                        (Entry for insurance company accepting claim in full)            
            The loss is shown on credit side of Trading Account. In the Balance Sheet on the assets side Insurance claim is shown:
            Bank A/c Cash A/c                                                                           Dr.
                        To Insurance Claim A/c
            (Entry for the receipt of insurance claim)                                                           
b) Stock with no coverage of insurance
            Journal Entry
                        Profit and Loss A/c                                                              Dr.
                                    To Trading Account
                        (Entry for loss of stock transferred to Profit and Loss Account)
            Loss is shown on the credit side of Trading Account and debit side of Profit and Loss Account.
c) Loss of stock subject to partial coverage
Journal Entry
            Insurance Company A/c                                                                  Dr.       (Claim accepted)
            Profit and Loss A/c                                                                          Dr.       (Claim not accepted)
                        To Trading A/c                                                                                 (With loss of stock)
            (Entry for loss of stock partially accepted and the balance of loss
            transferred of Profit and Loss Account)                                                  
13. Interest on Loans or Deposits when Rate of Interest is given
            The business organisation might have borrowed money or deposited money as investments. In both the cases the rate of interest is given. Then the interest amount is to be calculated. Interest on loan is an expenditure and is shown on the debit side of Profit and Loss Account. in Balance Sheet this is presented on the liabilities side with loan amount. In the second case it is an income and it is to be presented on the credit side of Profit and Loss Account and on the assets side of Balance Sheet.

14. Goods taken over by Proprietor for Personal Use
            Goods may be taken over by the proprietor for personal use/consumption. This is done at cost price.
            Journal Entry
                        Proprietor’s Drawings A/c                                                  Dr.
                                    To Purchases A/c
                        (Entry for taking over stock)                                                         
            The proprietor may use the stock as free samples as part of advertisement campaign. Then Journal entry will be:
            Journal Entry
                        Samples Account                                                                 Dr.
                                    To Purchase A/c
                        (For using the stock as samples)                                                   
            At times goods may be donated by the business unit. Then the Journal will be:
                        Charity and Donation A/c                                                   Dr.
                                    To Purchases A/c
                        (Entry for stock used for charity)                                                 
15. Manager’s Commission on Profits
            The calculation of commission payable to a manager is made in any one of the following ways:
a)     Commission on profits before charging such commission.
b)     Commission on profit after charging such commission.
a) Commission on profits before charging such commission
            This is calculated by preparing Trading and Profit and Loss Account and calculated with the help of the following formula:
            Profit before commission x
b) Commission on profits after charging such commission     
            This is calculated by using information about profit before commission with the help if the following formula:
Profit before commission x
            Commission is debited to Profit and Loss Account. Commission payable appears on the liabilities side os the Balance Sheet.

Example
            From the following trial balance prepared from the books of A. Arthur on 31st December, 1997, prepare trading and profit and loss account for the year ending 31st December, 1997 and a balance sheet as on their date:

A. Arthur, Drawings
Rs.10,550
A.Arthur, Capital     
           Rs.1,19,400
Bills receivable
9,500
Loan at 6% p.a.        
20,000
Plant and machinery
28,000
Sales
3,56,430
Sundry debtors (including B.Madan for dishonoured
cheque-Rs.1,000)
62,000
Commission received
5,640
Wages (manufacturing)
40,970
Sundry creditors
59,630
Returns inward
2,780


Purchases
2,56,590


Rent and taxes
5,620


Stock on 1st Jan.1997
89,680


Salaries
11,000


Travelling expenses
1,880


Insurance
400


Cash
530


Bank
18,970


Repairs and renewals
3,370


Interest on loan
1,000


Interest on discount
4,870


Bad debts
3,620


Fixtures and fittings
8,970



Rs.5,61,100

Rs.5,61,100
           
The following adjustments are to be made: (a) Stock –in-trade in hand on December 31,1979 Rs.1,28,960. (b) Write off half of B.Madan’s sheque. (c) Create a provision of 5% on sundry debtors. (d) Manufacturing wages include Rs.1200 for erection of new machinery purchased. (e) Depreciate 10% on plant and machinery (f) Commission not entered but received amounts to Rs.600.



Solution:                            TRADING AND PROFIT AND LOSS ACCOUNT
             Dr.                                          for the year ending 31st Dec., 1997                  Cr.
Particulars
Rs.
Particulars
Rs.
To Stock
To Purchases
To Wages                    40,970
Less tr.to plant a/c         1,200
To Gross Profit c/d

To Rent and taxes
To Salaries
To Travelling Expenses
To Insurance
To Repairs
89,680
2,56,590

39,770
   96,570
4,82,610
5,620
11,000
1,880
400
3,370
By Sales          3,55,430
Less Returns        2,780
By Stock



By Gross Profit b/d
By Commission           5,640
   Less not earned           600


3,53,650
1,28,960

_______
4,82,610
96,570

5,040


To Interest on loan          1,000
   Add Outstanding            200
To Interest and discount
To Bad debts                  3,620
Add dishonoured
   cheque of B. Mohan        500
To provision for bad debts –5% on 61,000, i.e.(62,000-1,000)
To Depreciation:
   Plant                              1,500
   Fixtures                            897
To Net profit transferred to capital account


1,200
4,870


4,120
3,050




2,397

63,703



1,01,610

1,01,610
BALANCE SHEET OF A. ARTHUR as on 31st Dec., 1997
Liabilities
Rs.
Assets
Rs.
A. Arthur’s Capital
 Balance               1,19,400
 Add Profit              63,703
                       
                              1,83,103
Less drawings        10,550

Loan
Creditors
Outstanding creditors:
For Interest on loan    200
For commission
received in advance   600






1,72,553
20,000
59,630



800
Plant                       30,000
Less Depreciation   1,500

Fixture and fittings 8,970
Less Depreciation     897

Closing stock
Bills receivable
Debtors                  61,000
Less Provision        3,050

Bank
Cash


28,500


8,073
1,28,960
9,500


58,450
18,970
530

2,52,983

2,52,983
            Notes. 1. Since half of the cheque amount due from Madan is bad, the remaining half must be good. Provision for doubtful debts is neither required for bad debts nor for good debts. Hence provision of 5% is made on Rs.61,000  i.e., Rs.3,050.
            2. Depreciation on plant has been provided on the figure arrived at after the adjustment regarding the wages paid for installing the plant.



Example:
You are required to prepare Trading & Profit and Loss Account and Balance Sheet from the following balances and adjustments.
Particulars
Dr. (Rs.)
Cr. (Rs.)
Purchases / Sales
Cash in hand
Cash at bank
Stock as on 01.01.1997
Wages…….
Returns……
Repairs…….
Debtors/Creditors
Bad Debts
Loan (12% P.A.)
Discounts
Capital
Interest on loan….
Salaries
Sales Tax
Octroi
Insurance
Charity
Rent
Machinery

1,30,295
500
9,500
40,000
22,525
2,400
1,675
30,000
2,310

800

600
8,000
800
500
1,000
125
2,000
16,000
1,80,500




195

30,305

20,000
530
37,500


Total
2,69,030
2,69,030

Adjustments:
(i)     Wages include Rs.2,000 for erection of new machinery installed on 1.1.1997
(ii)   Provide for depreciation on Machinery @ 5% P.A.
(iii)Stock on 31.12.1997 is Rs.40,925
(iv) Salaries unpaid Rs.800
(v)   Further Bad debts Rs.400
(vi) Make a provision of 5% on Debtors.
(vii)   Rent is paid up to 31st March, 1998
(viii)Unexpired insurance Rs.300.
Solution:
TRADING AND PROFIT AND LOSS ACCOUNT
            Dr.                                           for the year ended 31st December, 1997                    Cr.
Particulars
Rs.
Particulars
Rs.
To Stock
To Purchases             1,30,295
 Less Returns                    195
To Wages                       22,525
Less.Tr.toMachinery     2,000
To Octroi
To Gross Profit c/d

To Repairs
To Bad debts
To Interest on loan      600
Add Outstanding      1,800
To Salaries                8,000
Add Outstanding         800
To Depreciation on Machinery 5% on Rs.18,000
To Insurance             1,000
Less Prepaid                 300
To Discount allowed
To Charity
To Rent                      2,000
Less prepaid                 500
To Bad debts (new)
To Provision of bad debts
To Net Profit tr. To capital a/c
40,000

1,30,100

20,525
500
   27,100
2,18,225
1,675
2,310

2,400

8,800

900

700
800
125

1,500
400
1,480
6,540
By Sales         1,80,500
Less Returns      2,400
Less Sales Tax      800
By Stock




By Gross Profit b/d
By Discounts


1,77,300
40,925


_______
2,18,225
27,100
530

27,630

27,630
                                   BALANCE SHEET  as on 31st Dec., 1997
Liabilities
Rs.
Assets
Rs.
Loan
Interest on loan due
Creditors
Salaries due

Capital:
  Balance                    37,500
  Add Net Profit        6,540
20,000
1,800
30,305,
800



44,040
Cash in hand
Cash at bank
Sundry debtors         30,000
  Less Bad debts             400
                                    29,600
   Less Provision         1,480
Stock
Rent prepaid
Unexpired insurance
Machinery                 16,000
   Add tr. from wages  2,000
                                    18,000
Less Depreciation          900
500
9,500



28,120
40,925
500
300



17,100

96,945

96,945

Unit Questions:
1.      What do you mean by a trial balance? What are its main uses? Why do you prepare a trial balance?
2.      Explain the procedure of preparing a trial balance.
3.      What are the objects of preparing a trial balance?

4.      Record the following transactions in general journal, post them to ledger and prepare a trial balance:
(a)  Commenced business with cash of Rs.50,000
(b)  Purchased supplies on account Rs.16,000
(c)  Paid rent for the month Rs.2,000
(d)  Purchased equipment for cash Rs.6,000
(e)  Paid miscellaneous expenses Rs.2,600
(f)   Paid creditors on account Rs.11,000
(g)  Received Rs.1,200 as commission.
(h)  Received from cash sales Rs.12,000.
                                    (Ans. Cash balance Rs.41,600, Trial balance total Rs.68,200)

5.      Prepare a trial balance from the following as on 31st March 1998:

    Rs.

    Rs.
Capital
16,800
Furniture
900
Drawings
5,000
Bills Receivable
2,300
Stock
21,000
Bills payable
4,200
Purchases
36,000
Wages
1,200
Sales
72,000
Expenses on advertisement
600
Purchase return
2,000
Discount(Dr.)
100
Sales return
3,000
Commission received
600
Debtors
4,500
Machinery
20,000
Creditors
2,500
Cash
3,500

6.      From the following Trial Balance and other information, prepare Trading and Profit and Loss Account for the year ended 31st December,1996 and Balance Sheet as on that date:

Dr. (Rs.)
Cr.(Rs.)
Sundry Debtors:
32,000           

Stock ( 1st January 1996)
22,000           

Cash in hand            
       35

Cash at bank
1,545

Plant and Machinery
17,500

Sundry creditors

10,650
Trade Expenses
1,075

Sales

1,34,500
Salaries
2,225

Carriage Outwards
400

Rent
900

Bills payable

7,500
Purchases
1,18,870

Discounts
1,100

Business Premises
34,500

Capital

79,500

Rs.2,32,150
2,32,150

The stock on 31st December, 1996 was Rs.12,450. Rent was unpaid to the extent of Rs.85 and Rs.150 were outstanding for Trade Expenses; Rs.400 are to be written off as bad debts out of the above debtors; and 5% is to be provided for doubtful debts. Depreciate Plant and Machinery by 10% and Business Premises by 2%.
[Ans. Gross Profit Rs.6,080; Net Loss Rs. 4,275; Balance Sheet total Rs.93,610]

7.      From the following balances extracted from the books of Vikas, prepare the Trading and Profit and Loss Account for the year ended 31st December, 1996 and a Balance Sheet as on that date after taking into consideration the adjustments given below:


TRIAL BALANCE as on 31.12.96

Drawings and Capital
Purchases and Sales
Returns
Sundry Debtors and Creditors
Stock (1-1-1996)
Bad Debts
Bills Receivable and Payable
Cash in hand
Office Expenses
Sales Van
Sales Van Expenses
Discount
Rent and Taxes
Telephone Charges
Postage and Telegram
Furniture
Printing and Stationery
Commission
Carriage Inwards
Salaries and Wages
Dr.(Rs.)
7,500
72,100
1,300
18,200
19,800
3,000
12,000
300
6,210
15,000
1,400

10,700
1,050
950
5,000
2,750
8,400
3,200
20,500
Cr. (Rs.)
50,000
95,000
2,700
35,750


23,000




2,910
Rs.
2,09,360
2,09,360
Adjustments:
1.      Closing Stock was valued at Rs.61,700
2.      Depreciate Furniture at 10% and Sales Van at 20%
3.      Outstanding Rent amounted to Rs.900
4.      Bad Debts Rs.200
5.      Make a Provision for bad and doubtful debts @ 5% on Debtors.
6.      Charge one-fourth of Salaries and Wages to Trading account
[Ans: Gross Profit Rs.57,875; Net Profit Rs.5,450; Balance Sheet Total Rs.1,07,600]

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