Final Accounts – Revision

Trading Account

• Purpose: Compute Gross Profit.
• Key Formula: Gross Profit = (Sales + Closing Stock) – (Opening Stock + Purchases + Direct Expenses).
• Key Items: Opening Stock, Purchases, Direct Expenses, Sales, Closing Stock.

Profit & Loss Account

• Purpose: Adjust Gross Profit for all expenses to get Net Profit/Loss.
• Key Formula: Net Profit = Gross Profit – (Direct Expenses + Indirect Expenses).
• Key Items: Direct Expenses, Indirect Expenses, Other Incomes.

Closing Entries

• Transfer balances of temporary accounts (Revenue, Gains, Expenses, Losses) to Profit & Loss Account.
• Move Net Profit/Loss to Capital/Retained Earnings.
• Reset temporary accounts to zero.

Balance Sheet

• Purpose: Show financial position at period‑end.
• Equation: Assets = Liabilities + Equity.
• Components:
  • Assets: Current (Cash, Debtors, Stock) + Fixed (Land, Buildings, Machinery).
  • Liabilities: Current (Creditors, Short‑term loans) + Long‑term (Mortgage, Bonds).
  • Equity: Capital, Reserves, Retained Earnings (adjusted for Net Profit/Loss).

Quick Checklist

• Trading Account balanced.
• Profit & Loss Account shows Net Profit/Loss.
• All temporary accounts closed.
• Balance Sheet balances.
• Disclosures for adjustments (depreciation, doubtful debts, contingencies).

Mini‑Quiz

💡 Final Wisdom: "Think of the final accounts as a puzzle – each piece (Trading, P&L, Closing, Balance Sheet) must fit perfectly to reveal the complete financial picture."