by Final accounts are prepared to find the true profit and financial position of a business. They include Trading Account, Profit and Loss Account and Balance Sheet. Adjustments are given outside the trial balance, and they must be recorded in two places because they affect two accounts. Adjustments help in showing correct profit and accurate financial position.
Trading Account Preparation with Adjustments:
Trading Account shows gross profit or gross loss.
Sample Trading Account with Adjustments
Adjustments included
Closing Stock
Wages outstanding
Goods withdrawn
Goods destroyed
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 20,000 | By Sales | 80,000 |
| To Purchases | 50,000 | By Closing Stock | 25,000 |
| Add Wages Outstanding | 3,000 | – | – |
| To Wages | 12,000 | – | – |
| To Power and Fuel | 5,000 | – | – |
| To Gross Profit c d | 15,000 | – | – |
| Total | 1,05,000 | Total | 1,05,000 |
Gross profit is transferred to Profit and Loss Account.
Profit and Loss Account with Adjustments:
This account shows net profit after adding indirect incomes and subtracting indirect expenses.
Adjustments included
Salary outstanding
Prepaid insurance
Depreciation
Bad debts
Provision for doubtful debts
Sample Profit and Loss Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Salary | 12,000 | By Gross Profit b d | 15,000 |
| Add Salary Outstanding | 3,000 | – | – |
| To Rent | 6,000 | – | – |
| Less Prepaid Rent | 1,000 | – | – |
| To Depreciation | 5,000 | – | – |
| To Bad Debts | 2,000 | – | – |
| To Provision for Doubtful Debts | 1,500 | – | – |
| To Net Profit | 3,500 | Total | 15,000 |
Net profit is transferred to Capital Account.
Balance Sheet with Adjustments:
Balance Sheet shows the financial position of the business.
Adjustments included
Closing stock
Outstanding expenses
Prepaid expenses
Depreciation
Provision for doubtful debts
Accrued income
Sample Balance Sheet
Liabilities
| Particulars | Amount (₹) |
|---|---|
| Capital | 1,00,000 |
| Add Net Profit | 3,500 |
| Less Drawings | 5,000 |
| Adjusted Capital | 98,500 |
| Outstanding Salary | 3,000 |
| Outstanding Wages | 3,000 |
| Total Liabilities | 1,04,500 |
Assets
| Particulars | Amount (₹) |
|---|---|
| Fixed Assets | 80,000 |
| Less Depreciation | 5,000 |
| Net Fixed Assets | 75,000 |
| Closing Stock | 25,000 |
| Debtors | 30,000 |
| Less Provision | 1,500 |
| Net Debtors | 28,500 |
| Prepaid Rent | 1,000 |
| Cash | 5,000 |
| Total Assets | 1,04,500 |
Assets equal liabilities, so the Balance Sheet is correct.
