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General
Accounting Principles.
Profit & Loss
A/c, Balance Sheet, Bank Reconciliation Statement.
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Following
points should be remembered
- Increase in assets is always debited.
- Decrease in assets is always credited.
- Increase in liabilities is always credited.
- Decrease in liabilities is always debited.
- Expenses and losses are debited.
- Revenues and incomes are credited.
- Provisions for liabilities and charges have credit balances
and are shown on the liabilities sides of the balance sheet.
- Provision for valuation adjustment appears on the asset
side of the balance sheet as a deduction from the assets concerned (e.g.
provisions for bad and doubtful debts are deducted from sundry debtors or
provisions for depreciation are deducted from the assets accounts).
- All reserves are credit balances, and they necessarily
appear on the liabilities side of the balance sheet.
- Provisions are also known as accumulated amounts.
- In Final accounts debit balances represent assets, expenses
or drawings and are shown in the left column of trial balance.
- In Final accounts credit balances represent income,
liabilities or capital and are shown in the right column of trial balance.
- The expenses and income are shown in the trading and profit
and loss account.
- Assets, liabilities, capital and drawings are shown in the
Balance sheet.
- The debit side of the profit and loss account include all
expenses appearing in the trial balance which can’t find a place in the
trading account, will appear.
Formats of Trading and Profit & Loss A/c and Balance Sheet are
given as
under,
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Trading
Account of ABC for the year ended 31st Dec,200…
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Particulars
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Amount
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Particulars
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Amount
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To
Opening Stock
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10000
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By
Sales
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50000
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To
Purchases
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25000
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Less
Returns Outward
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2000
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48000
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Less
Returns Outward
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5000
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20000
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By
Closing Stock
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35000
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To
Direct Expenses:
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Freight
& Carriage
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1000
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Customs
& Insurance
|
600
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Wages
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2500
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Gas,
Water and Fuel
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2000
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Factory
Expenses
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1500
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Royalty
on production
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200
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7800
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To
gross Profit c/d
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45200
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83000
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83000
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Profit
& Loss A/c of ABC for the year ended 31st Dec,200….
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Particulars
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Amount
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Particulars
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Amount
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Management
expenses:
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By
Gross Profit b/d
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45200
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To Salaries
(Administrative)
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25000
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Other
Income:
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To
Office rent, rates & taxes
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5000
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By
Discount received
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350
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To
Printing & Stationery
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200
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By
Commission received
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400
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To
Telephone charges
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100
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Non
Trading Income:
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To
Postage & Telegrams
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50
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By
Bank interest
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450
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To
Insurance
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150
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By
rent of property let-out
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3000
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To
Audit fees
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100
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By
Dividend from shares
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2500
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To
Legal charges
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50
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Abnormal
Gains:
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To
Electricity charges
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50
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By
profit on sale of machinery
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15000
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Maintenance
expenses:
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By
profit on sale of investment
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10000
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To
Repairs & Renewals
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250
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To
Depreciation:
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Office
equipment
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120
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Office
furniture
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140
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Office
building
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230
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Plant
& Machinery
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400
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Selling
& Distribution expenses:
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To
Salaries (Selling Staff)
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10000
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To
Advertisement
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200
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To
Godown rent
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350
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To
Carriage outward
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60
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To
Bad debts
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30
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To
Provision for bad debts
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20
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To
Selling commission
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35
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Financial
expenses:
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To
bank charges
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45
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To
Interest on loan
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35
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To
Discount on bills
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25
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To
Discount allowed to customer
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20
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Abnormal
Loss:
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To
Loss on sale of machinery
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1000
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To
Loss on sale of investment
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500
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To
Loss by fire
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250
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To
Net Profit (Transfer to capital A/c)
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32490
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76900
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76900
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Balance
Sheet of ABC as at 31st Dec, 200….
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Liabilities
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Amount
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Assets
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Amount
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Capital
(+Net profit-Drawings)
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126450
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Land
& Building (- depreciation)
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105000
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Reserves
& Surplus
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30000
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Plant
& Machinery (- depreciation)
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70000
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Outstanding
Expense
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12000
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Furniture
& Fixture (- depreciation)
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45000
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Loans
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40000
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Stock
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25000
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Creditors
|
50000
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Sundry
Debtors (- Bad debts - Provision for Bad debts)
|
10000
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Bills
payable
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1500
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Bills
Receivable
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500
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Other
Investment
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250
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Government
Securities
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200
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Cash
at Bank
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3000
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Cash
in Hand
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1000
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259950
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259950
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Computation
of Sundry Debtors
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Sundry
Debtors
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12000
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Less
Bad Debts
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-1000
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Less
Provision for Bad Debts
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-1000
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10000
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Computation
of Capital
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Capital
as per Trial Balance
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100000
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Less
Drawings
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-6040
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Add
Net Profit
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32490
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126450
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Watch out summary of
IAS (International Accounting Statndards)
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