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Final Accounts for Sole Proprietors - Non-manufacturing

Balance Sheet

Preparing the final accounts is the last stage of the accounting cycle. They help in determining the financial position of the business at the end of the financial as well as the accounting year. These include Trading account, Profit and loss account, and Balance sheet.

Balance Sheet

The balance sheet is a statement which states the assets and liabilities of a firm as at a certain date. As even a single transaction can make a difference in assets or liabilities, so the balance sheet is true only at a particular period of time. This is the significance of “asset” in the balance sheet. It is based on the accounting equation that is:

Total assets = Total liabilities + Capital

As balance sheet is a statement and not an account so there is no debit or credit side. So, Assets are shown on the right-hand side and liabilities on the left-hand side of the balance sheet.

Classification of Assets and Liabilities

Assets

Assets can be classified as:

a. Long term assets:

Long-term assets are those assets which are not to be sold by the firm and to be used for a long period of time, such types of assets are also known as Fixed assets. For example, land and building, plant and machinery, vehicles, equipment, etc.

b. Current assets:

Currents assets are those assets which can be converted into cash easily from the market. Generally within a year. For example, cash in hand, cash at bank, trade receivables, inventory, etc.

c. Intangible assets:

Intangible assets are those which cannot be seen or touched. For example, goodwill, patents, copyrights, etc.

Liabilities

Liabilities can be classified as:

a. Long term liabilities:

Long-term liabilities are those which exists for one or more than one year. For example, long-term loan from the bank.

b. Current liabilities:

Current liabilities or short-term liabilities are those which are to be settled within a year. For example, trade payables, creditors, outstanding expenses, etc.

 

Balance Sheet

Proforma of the Balance Sheet is given below

In the books of XYZ

Balance sheet

As at 31st March

Liabilities Amount Assets Amount
Capital a/c: Tangible fixed assets:
Balance                xxxx Land and building Xxxx
Add: net profit/less net loss                 xxxx Plant and machinery Xxxx
Less: drawings    xxxx xxxx Vehicle Xxxx
Long term loans: Furniture and fixtures Xxxx
Term loans Xxxx Intangible assets:
Other loans Xxxx Goodwill Xxxx
Short term loans: Patents Xxxx
Cash credit Xxxx Investments:
Overdraft Xxxx Long term investment Xxxx
Other loans Xxxx Current assets:
Current liabilities: Cash in hand Xxxx
Trade payables Xxxx Cash at bank Xxxx
Outstanding expenses Xxxx Inventory xxxx
Advance taken Xxxx Trade receivables Xxxx
Provision: Prepaid expenses Xxxx
Provision for bad and doubtful debts xxxx Short term investment Xxxx
Provision for taxation xxxx Advance Xxxx
Xxxx Xxxx

Proper presentation of the balance sheet improves the understandability of the information that is to be communicated to its users.

Characteristics of the Balance Sheet

1) Balance sheet is prepared for a particular day rather than the entire period. It will be prepared by considering activities which happened on that particular day.

2) Total of both the sides i.e Assets and liabilities will tally otherwise it is considered as an error.

3) Preparation of balance sheet is only possible after the preparation of the profit and loss a/c. That is why the P& L Account, Balance Sheet and Cash flow Statement are collectively called Final Accounts.

Solved Example For You

From the following trial balance of Mr. Alfa prepare the trading account, profit, and loss account for the year ended 31st March 2018 and balance sheet as on date.

Trial balance as on 31st March 2018

Particulars Dr amount

(in Rs)

Cr amount

(in Rs)

Capital 325000
Sales 485000
Purchases 215000
Opening stock 55000
Freight inward 20000
Salaries 105000
Administration expenses 75000
Furniture 175000
Trade receivables 105000
Trade  payables 95000
Purchase return 10000
Sales return 6000
Discounts 9500 4500
Bad debts 2500
Investment 50000
Cash in hand 93500
915500 915500

Other information:

  1. Closing stock amounted to Rs. 90,000
  2. Depreciation on furniture @10%.
 Ans.                                                      

                                                      In the books of Mr. Alfa

Trading account

For the year ended 31st March 2018

Particulars   Amount Particulars   Amount
To Opening stock 55000 By Sales 485000
To Purchases 215000 Less: Sales return (10000) 475000
Less: Purchases return (6000) 209000 By Closing stock 90000
To Freight inward 20000
To Gross profit 281000
565000     565000

 

Profit and loss account

For the year ended 31st March 2018

Particulars Amount Particulars Amount
To Salaries 105000 By Gross profit b/d 281000
To Administrative expenses 75000 By Discount received 4500
To Discount allowed 9500
To Bad debts 2500
To Depreciation @10% 17500
To Net profit 76000
  285500   285500

 

Balance sheet

As at 31st March 2018

Liabilities Amount Assets Amount
Capital                     325000 Furniture                      175000
Add: Net profit        76000 401000 Less: depreciation

@10%                             (7500)

157500
Trade payables 95000 Cash in hand and Bank 93500
Closing stock 90000
Trade receivables 105000
Investment 50000
496000 496000

 

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