Session 17 - Preparation of Trading and Profit and Loss account and Balance sheet with adjustment

Practice/Practical/Practicum Session Plan : Preparation of Trading and Profit and Loss account and Balance sheet with adjustment

Introduction (5 min): Explain the need for adjustments (outstanding, prepaid, accrued income, depreciation, provisions, closing stock).

Concepts (10 min): Discuss dual effect of adjustments on Trading A/c, P&L A/c, and Balance Sheet.

Illustration (15 min): Prepare complete Final Accounts with adjustments from a Trial Balance.

Class Activity (10 min): Students solve a problem incorporating adjustments.

Recap & Q/A (5 min): Summarize importance of adjustments in showing true profit & financial position.

Instruction for Practice/Practical/Practicum : (PDF, PPT)

Final_Accounts_with_Adjustments.pptx 

Practice Material (IV Quadrant Approach)

(Q1) : Practice Questions/Problems (PDF Formats)

Final Accounts with Adjustments

Trial Balance as of March 31, 2023:

Account ₹

Sales 5,00,000

Purchases 3,00,000

Returns Inwards 10,000

Returns Outwards 5,000

Wages 40,000

Carriage Inwards 8,000

Carriage Outwards 12,000

Rent 24,000

Salaries 36,000

Insurance 6,000

Depreciation on Machinery 10,000

Capital 2,50,000

Drawings 20,000

Sundry Debtors 1,00,000

Sundry Creditors 50,000

Cash in Hand 5,000

Cash at Bank 15,000

Bank Loan 1,00,000

Closing Stock 75,000

Adjustments:

1. Outstanding wages ₹5,000.

2. Prepaid insurance ₹1,000.

3. Accrued interest on bank loan ₹4,000.

4. Provision for doubtful debts at 5% on debtors.

Step 1: Prepare the Trading Account

Trading Account for the year ended March 31, 2023:

Particulars ₹ Particulars ₹

To Opening Stock 75,000 By Sales 5,00,000

To Purchases 3,00,000 Less: Returns Inwards 10,000

Less: Returns Outwards 5,000 By Closing Stock 75,000

Net Purchases 2,95,000

To Wages 40,000

To Carriage Inwards 8,000

Gross Profit c/d 1,77,000

Total 5,00,000 Total 5,00,000

Note: Gross Profit is transferred to the Profit and Loss Account.

 Step 2: Prepare the Profit and Loss Account

Profit and Loss Account for the year ended March 31, 2023:

Particulars ₹ Particulars ₹

To Salaries 36,000 By Gross Profit b/d 1,77,000

To Rent 24,000 By Discount Received 2,000

To Insurance 6,000 By Interest on Capital 10,000

To Depreciation on Machinery10,000 By Commission Received 3,000

To Interest on Bank Loan 4,000

To Provision for Doubtful Debts5,000

Net Profit c/d 1,13,000

Total 1,77,000 Total 1,77,000

Note: Net Profit is transferred to the Balance Sheet.

Step 3: Prepare the Balance Sheet

Balance Sheet as of March 31, 2023:

Liabilities ₹ Assets   ₹

Capital 2,50,000 Sundry Debtors 1,00,000

Add: Net Profit 1,13,000 Less: Provision for Doubtful Debts5,000

Less: Drawings 20,000 Net Debtors 95,000

Bank Loan 1,00,000 Cash in Hand 5,000

Sundry Creditors 50,000 Cash at Bank 15,000

Outstanding Wages 5,000 Prepaid Insurance 1,000

Accrued Interest on Loan4,000 Closing Stock 75,000

Provision for Doubtful Debts 5,000

Total 3,47,000 Total 3,47,000

Notes:

• Provision for Doubtful Debts is calculated at 5% of Sundry Debtors (₹1,00,000 × 5%).

• Outstanding wages and accrued interest on the bank loan are shown as current liabilities.

• Prepaid insurance is shown as a current asset.

(Q2) : Video Based Content (Youtube): youtube.com/watch?v=t73DmfSeBrc&list=PLLhSIFfDZcUXEs3UhIv5tMn6AAU1GNnPr&index=41 

(Q3) : Formative Assessment (Google Form/Any Other Online Quiz Platform): forms.fillout.com/t/kUFkHj8fucus