Study Notes

Financial statement Profit Making organizations

Manufacturing Entity
Non-Manufacturing Entity

Meaning of financial statement

Financial statement is a written formal records of the financial activity business activities and the financial position of the business ,persons and other entity .

Elements of financial statement

Trading account
Profit & loss account
Balance sheet
Cash flow statement

Non-Manufacturing Entity

Non-manufacturing entity are those trading entity who are engaged in purchase and sale of goods at profit without changing form of goods.

These types of entity obtained profit by preparing income statement (i,e trading a/c , and profit and loss a/c ) , and

know the financial position of business by preparing the position statement (i,e Balance sheet ),

Trading account

Trading account is the first step of final account which is prepare to ascertain the gross profit or the gross loss in the business during the one financial year.

Its is start with opening debit balance of stock ( if any )
Then debit all additional purchases and other direct expenses
credit all sales and closing stock

if debit balance is more then credit balance then the difference amount is gross loss, which is transfer to the profit and loss account in debit side (expenditure side) and
if the credit balance is more than the debit balance then the difference amount is gross profit which is transfer to the credit side ( income side).

Profit and loss account

profit and loss account is also known as income statement. it is prepared to know the income and expenditure incurred during the one financial year.

All the expenditures incurred during the financial year is recorded in the debit side of the profit and loss account

all the income earned during the financial year is recorded in the credit side of the profit and loss account.

and if the the debit side (expenditure side) is more than the credit side ( Income side) then the difference value is net loss which is deduct from the capital in liability side. and,

if the credit side ( income side) is more than the debit side (Expenditure side) than the difference value is net profit which is added to the capital from the liability side.

Practice Question

Which of the following is not part of the financial Statement ?

Trial Balance
Cash flow statement
Balance Sheet
Trading and profit and loss account

Goods lost by fire will be credited to .................... as an outflow of stock and will be debited to profit and loss account as .................... .

Income, trading
Profit and loss account, loss
Profit and loss account , profit
Trading, loss

If average stock is Rs. 125000 and closing stock is Rs 10000 less than opening stock then the value of closing stock is

140000
120000
125000
110000

At the end of the of the accounting year the capital expenditure will be shown in the

Liablility side of balance sheet
assets side of Balance sheet
Debit side of Profit and loss account
Credit side of profit and loss loss

A Resources owned by the business with purpose of using it for generating future profit, is known as
Assets
Liabilities
Capital
Surplus
which of the following is capial in nature
salary account
Cost of repair
Rent of Factory
Wages paid for installation of machinery
Contingent liability would appear in
Assets side in balance sheet
Liability side in balance sheet
Debit side in profit and loss account
As a note in Balance sheet
From the following details estimate the capital as on 31/3/2022. Capital as on 1/4/2021- Rs 410000, Drawing Rs 40000, Profit during the year Rs 50000
Rs 400000
Rs 420000
Rs 435000
Rs 410000
Which of the following is revenue Expenditure
Consumerable Store
Taxes and legal Expenses
Rent of factory buiding
All of the above

Bank Loan account is an example of

Personal account
Nominal account
real account
valuation account

An expenditure incurred relating to fixed assets resulting in increase in capacity of the assets should be

Treated as defferred revenue expenditure
added to gross book value of asset
added to Net book value of asset
Charged to profit and loss account

True And False

The Excess of expenses over income is called profit. False
Hybrid Basis of accounting is the combination both cash as well as Accural Basis. True
Trial Balance would not disclose error of Ommission True
Sales book record both cash and credit Sales. False
Net Profit is reflected in higher cash balances and net loss is reflected in lower net worth.

Case Study Question

Following are the particular available of shyam and co. for the year ended 31 st march 2023

Particular Amount

Sales 820000

Opening stock 300000

Loan (dr) 20000

Wages 60000

Carriage Inward 4000

Returns inwards 4000

Funiture 10000

Drawings:-

X 12000

Y 10000

Cash 3000

Land 11000

Purchase 380000

Interest (cr.) 1000

Salaries 40000

Carriage Outward 2000

Return outwards 3000

Trade charges 8000

Capital :-

X 24000

Y 16000

Additional Information :-

Closing stock amounted to 120000
Provide interest on drawing ( on average of 6 month) and interest on capital at the rate of 6% and 4 % respectively.
Y is get a salary of Rs 400Pm
X is got commission at the rate of 2% on gross sales
50% of the profit is to be transfer to general reserve fund
Depreciation on funiture at the rate of 10%pa .
The partner X and Y shares profit in the ratio of 1:1.

You are required to calculate the net profit and loss for the year 2022-23. and how much amount of profit is to be distributed between the partners X & Y. and also state the capital balance of the partners as on 31 st march 2023, what is the value of total assets on 31 st march 2023

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