Pioneer Commerce Classes Final Account +2 2nd Year Commerce PDF

**THE PIONEER COMMERCE CLASSES** **FINAL ACCOUNT** **+2 2^ND^ YEAR COMMERCE** 1\. Final account:- - The account which is prepared at the end of each accounting year is called final accounts. - These are prepared to find out net result of a business during the year. - It is prepar...

**THE PIONEER COMMERCE CLASSES** **FINAL ACCOUNT** **+2 2^ND^ YEAR COMMERCE** 1\. Final account:- - The account which is prepared at the end of each accounting year is called final accounts. - These are prepared to find out net result of a business during the year. - It is prepare also to ascertain the financial position of the business. 2\. Trading account:- - It is first part of income statement. - It is nominal account in nature. - Trading account is prepared to find the gross profit or gross loss of the business. - The difference between net sales and cost of goods sold is either gross profit or gross loss. 3\. How net sale is determined? Cash Sale xxx Add: Credit sale xxx Total Sale xxx Less: Sales Return xxx Net Sale xxx 4\. How cost of goods sold is determined? Opening Stock xxx Add- Purchase xxx Less -- Purchase Returns xxx Add- Direct Expenses xxx Less -- Closing Stock xxx Cost of goods sold xxx 5\. Direct expenses:- - The expenses which are incurred in connection with purchase of goods and in the process of production are termed as direct expense. - For example:- import dusty, freight, carriage inward, octri, wages etc 6\. What is cost of goods sold? - The cost which is incurred for the goods in order to bring them in to saleable condition is termed as cost of goods sold. 7\. Gross profit:- - The excess of net sales over cost of goods sold is called gross profit. - Gross profit = Net sales -- Cost of goods sold. 8\. Gross Loss:- - The excess of cost of goods sold over net sales is called gross loss. - Gross loss = Cost of goods sold -- Net sales. 9\. Write four objective of trading account. - To ascertain the gross profit or gross loss. - To provide information on the cost of goods sold. - To measure the performance of the business. 10\. Give a specimen of trading account. **Trading Account** +-----------------+-----------------+-----------------+-----------------+ | **Particulars** | **Amount** | **Particulars** | **Amount** | +=================+=================+=================+=================+ | **To opening | **xxx** | **By sales | **xxx** | | stock** | | xxx** | | | | **xxx** | | **xxx** | | **To purchases | | **Less -- | | | -- xxx** | **xxx** | Returns xxx** | **xxx** | | | | | | | **Less: Returns | **xxx** | **By closing | **xxx** | | - xxx** | | stock** | | | | **xxx** | | | | **To direct | | **By Gross loss | | | expenses** | | c/d** | | | | | | | | **To Gross | | | | | profit c/d** | | | | +-----------------+-----------------+-----------------+-----------------+ 11\. Profit and loss account:- - It is second part of income statement. - It is nominal account in nature. - It is prepared to ascertain the net profit or net loss of the business. - It records all operating expenses & losses in debit side and all revenue incomes & gains in credit side. 12\. Write the objective/need/importance of profit and loss account - Control over expenses - Knowledge of net profit or net loss - Future planning - Comparison of profit. 13\. Features of Balance sheet:- - A balance sheet is only a statement and not an account. - This statement is prepared to know the financial position. - A balance sheet is prepared at a particular date not a particular period. - Balance sheet always balances. 14\. Write three objective/need of balance sheet:- - To ascertain the nature and value of assets of a business. - To ascertain the nature and amount of liabilities of a business. - To find out the financial solvency of an enterprise. 15\. Marshalling of balance sheet:- - Marshalling means orderly arrangement of assets and liabilities in the balance sheet. 16\. What are the methods of marshalling of asset and liabilities? - There are two methods of orderly arrangement of asset and liabilities- \(i) Permanence Method \(ii) Liquidity Method 17\. Permanence Method:- - Under this method, those assets which are more permanent come first, and those which are less permanent come next and so on - Similarly, liabilities which are more permanent come first and those which are less permanent come next and so on 18\. Liquidity Method:- - Under this method, those assets which are more liquidity come first and those less liquidity come next and so on. - Those liabilities which are payable on a priority basis come first and those payable later come next and so on. 19\. Give a classification of assets in the balance sheet. Assets Fixed asset Current Asset Wasting Asset Fictitious Asset Tangible fixed Intangible fixed Liquid Asset Non Liquid asset Asset Asset 20\. Fixed Asset:- - Those assets are acquired and intended to be retained permanently for the purpose of carrying on business is called fixed assets. - These assets are permanent in nature. - For example:- land, building, machinery, furniture, fixture etc. 21\. Tangible fixed assets:- - It refers to those fixed assets which have physical existence and can be touch and seen known as tangible fixed assets. 22\. Intangible Fixed Assets:- - It refers to those fixed assets which have no physical existence and can't be touch and seen known as intangible fixed assets. - For example :- goodwill, copyright, patent, trademark, license etc. 23\. Current Assets:- - Current assets are those assets which are likely converted into cash within one accounting year is known as current asset. - For example:- cash, inventory, sundry debtor, bills receivables etc. - These assets are temporary in nature. - It is otherwise known as floating asset or circulating asset. 24\. Liquid Asset:- - Liquid assets are those assets which are in the form of cash or can be converted into cash without loss of time is called liquid asset. - For example:- cash in hand, cash at bank, bills receivable, sundry debtors, short term loans and advances. 25\. Fictitious Asset:- - It refers to those assets which are not an actual asset but it is shown in the asset side of balance sheet. - For example:- Preliminary expenses Discount on issue of share Expenses on issue of share Debit balance of profit & loss account 26\. Non-liquid Asset:- - The assets which cannot be converted into cash without appericiable loss are termed as non-liquid assets. - For example:- stock or inventories 27\. Wasting Asset:- - The fixed assets whose value decreases with successive extraction of material from them are termed as wasting assets. - For example:- mines, quarries, oil well, sand heaps etc. 28\. Fixed Liability:- - It refers to those liability which are to be paid after a very long period, usually when the business is closed are termed as fixed liability. - For example:- owner's capital, irredeemable preference shares, irredeemable debenture. 29\. Long-term Liability:- - It refers to those liability which are payable after one year, usually within 5-10 years are called long-term liability. - For example:- debentures, long-term loans, mortgage loan etc. 30\. Current Liability:- - The liabilities which are payable within one accounting year are called current liability. - For example:- sundry creditors, bills payable, short-term loans, outstanding expenses etc. 31\. Quick liability:- - The current liabilities which are payable within one month are termed as quick or liquid liability. - For example:- bills payable due within one month, outstanding expenses etc. 32\. Deferred Liability:- - The current liabilities which are payable after one month but within one year is termed as deferred liability. - For example:- bills payable, creditors etc. 33\. Contingent Liability:- - It refers to the amounts which may or may not payable in future, future events may decide whether it is really a liability or not due to their uncertainty. - For example:- Financial cases pending against business. - It is not taken in the balance sheet, shown in the footnote. 34\. Contingent assets:- - The assets the possession of which not certain the acquisition of such assets depends on certain contingent events, so may or may not acquire such assets in future. - It is not shown in the balance sheet, shown in the footnote. 35\. Closing Stock:- - The part of the goods remains unsold at the end of the year is termed as closing stock. - Closing stock is valued at cost price or market price whichever is less. 36\. Net Profit:- - The excess of gross profit plus other incomes over total indirect expenses and losses is represents net profit. 37\. Net Loss:- - The excess of gross loss plus indirect expenses and losses over total income represents net loss. 38\. Closing Entries:- - Balance of different accounts appearing in the trial balance are to be closed by transferring those to trading account. These are called closing entries. 39\. Opening Entries:- - The entry which is passed at the beginning of the year for opening balance of assets and liabilities is termed as opening entries. 40\. What are constituents of final account? - Final accounts consist of i. Income statement or trading and profit & loss account ii. Positional statement or balance sheet 41\. Why final accounts are prepared? - To know the net profit earned or net loss suffered during the accounting year - To assess the financial position of a business i.e., its assets and liabilities. 42\. Why profit and loss account is prepared? - To find net profit or net loss - To asses tax liabilities - To prepared balance sheet. 43\. What are adjusted purchases? - When opening stock has been added and closing stock is deducted from purchase, it is called as adjusted purchases. - Adjusted purchase = Opening Stock + Purchases -- Closing Stock. 44\. Balance sheet: - Balance sheet is a summary statement which shows the financial position of a business on a particular date. It is also a statement of financial position. 45\. Write three advantages of trading account: - Trading account is prepared to find out the gross profit or gross loss. - It shows the result of trading of a business during a year. - Information about purchases, sale, direct expenses and closing stock can be known clearly from the trading account. 46\. State three items not included in profit and loss account. - Income tax - Life insurance premium - Domestic expenses 47\. Manufacturing account: - The business concern which take up production by converting raw materials into finished goods are called manufacturing concern. - This concern prepares manufacturing account to know the cost of goods sold. - The balance of the manufacturing account is transferred to trading account. 48\. Difference between gross profit and net profit +-----------------------+-----------------------+-----------------------+ | **Point of** | **Gross profit** | **Net profit** | | | | | | **difference** | | | +=======================+=======================+=======================+ | **1. Meaning** | The difference | Excess of gross | | | between net sales and | profit and other | | **2. Source** | cost of goods sold is | income over indirect | | | termed as gross | expenses and losses | | **3. Transfer** | profit. | is called net profit | | | | | | **4. Nature of** | Gross profit is | Net profit is | | | disclosed by trading | disclosed by profit & | | **Expenses** | account. | loss account. | | | | | | | Gross profit is | Net profit is | | | transferred to profit | transferred to | | | & loss account. | capital account in | | | | the balance sheet. | | | While calculating | | | | gross profit only | While calculating net | | | direct expenses are | profit only indirect | | | considered. | expenses are taken | | | | into account. | +-----------------------+-----------------------+-----------------------+ 49\. Difference between trading account and profit & loss account. +-----------------------+-----------------------+-----------------------+ | **Point of** | **Trading account** | **Profit & loss | | | | account** | | **difference** | | | +=======================+=======================+=======================+ | **1. Purpose** | The purpose of | The purpose of | | | preparing trading | preparing profit & | | **2. Measuring** | account is to find | loss account is to | | | out gross profit or | find out net profit | | **Efficiency** | gross loss. | or net loss. | | | | | | **3. Sequence** | Trading account | It measures the | | | measures the | overall efficiency of | | **4. Opening** | efficiency of | a business. | | | purchase and sales | | | **Balance** | only. | Profit and loss | | | | account is prepared | | **5. Error** | Trading account is | after preparation of | | | prepared before | trading account. | | | preparation of profit | | | | and loss account. | Profit and loss | | | | account starts with | | | Trading account does | the balance of gross | | | not start with any | profit or gross loss. | | | opening balance. | | | | | An error in profit | | | An error in trading | and loss account | | | account affects the | affects the balance | | | profit and loss | sheet. | | | account. | | +-----------------------+-----------------------+-----------------------+ 50\. Difference between balance sheet and trial balance. +-----------------------+-----------------------+-----------------------+ | **Point of** | **Trial balance** | **Balance sheet** | | | | | | **difference** | | | +=======================+=======================+=======================+ | **1. Meaning** | Trial balance is a | It is a statement of | | | statement of balances | assets and | | **2. Purpose** | of different ledger | liabilities. | | | accounts. | | | **3. When prepared** | | Its purpose is to | | | Its purpose is to | assess the financial | | **4. Form** | check the | position of a | | | arithmetical accuracy | business concern. | | **5. Type of account | of the books of | | | dealt** | accounts. | It is prepared at the | | | | end of accounting | | | Trial balance can be | year. | | | prepared at any time | | | | after 3 month, 6 | Balance sheet has two | | | months etc. | sides :, assets are | | | | recorded on the right | | | It has two columns- | side and liabilities | | | one for debit | are recorded on left | | | balances and the | side. | | | other for credit | | | | balances. | Balance sheet dealt | | | | with only personal | | | Trial balance deals | and real accounts. It | | | with all accounts- | does not contain any | | | real, personal and | nominal account. | | | nominal | | +-----------------------+-----------------------+-----------------------+ 51\. Difference between profit and loss account and balance sheet +-----------------------+-----------------------+-----------------------+ | **Points of** | **Profit and loss | **Balance sheet** | | | account** | | | **Difference** | | | +=======================+=======================+=======================+ | **1. Purpose** | The purpose of | Its purpose is to | | | preparing profit and | find out the | | **2. Nature** | loss account is to | financial position of | | | find out net profit | a business. | | **3. Content** | or net loss. | | | | | It is not an account | | **4. Order** | Profit and loss | but a statement of | | | account is a nominal | real and personal | | **5. Period** | account. | account. | | | | | | | Profit and loss | It contains assets | | | account contains | and liabilities. | | | expenses, incomes and | | | | gains. | It is prepared after | | | | profit and loss | | | Profit and loss | account is prepared. | | | account is prepared | | | | before preparation of | Balance sheet is | | | balance sheet. | prepared on a | | | | particular date.i.e. | | | Profit and loss | at the end of an | | | account is prepared | accounting period. | | | for a particular | | | | period usually one | | | | year. | | +-----------------------+-----------------------+-----------------------+ 52\. What do you mean by adjustment in final account? - Recording of the items which have not been included in the trial balance is termed as adjustments. - These are to be considered while preparing final accounts in order to find correct profit and actual financial position. 53\. What is outstanding expense? - The expense incurred in a particular period which has not been paid in that year is termed as outstanding expenses. - It is liability for the business. 54\. Show the treatment of outstanding expenses. - It is shown in the debit side of trading and profit and loss account by adding it to the concerned expenses. - It is shown as a liability in the balance sheet. - Adjustment entry:- Expenses A/c Dr. To outstanding Expenses A/c 55\. What is prepaid expenses? - The expenses which are paid in advance the benefit of which will come in the coming year are known as prepaid expenses. - It is an asset for the business. 56\. Show the treatment of prepaid expenses. - It shown in the debit side of trading and profit and loss account by deducting it to the concerned expenses. - It will be shown as an asset in the balance sheet. - Adjustment entry:- Prepaid expenses A/c Dr. To Expenses A/c 57\. What is accrued income? - The income which have been earned in the current year but not received till the end of the year are termed as accrued income. - It is an asset for the business. 58\. Show the treatment of accrued income. - It is shown in the credit side of profit and loss account by added to the concerned income. - It is shown in the asset side of balance sheet. - Adjustment entry: Accrued Income A/c Dr. To Income A/c 59\. What is income received in advance? - The income which is not earned but received as advance in the current year is termed as income received in advance. - It is a liability for the business. 60\. Show the treatment of Income received in advance. - It is shown in the credit side of profit and loss account by deducting to the concerned income. - It appears as a liability in the balance sheet. - Adjustment entry:- Income A/c Dr. To Income received in advance A/c 61\. What is closing stock? - The goods which remain unsold at the end of the year is termed as closing stock. - It becomes the opening stock of the coming year. - Closing stock is valued at cost price or market price whichever is less. 62\. Show the treatment of closing stock. \(a) *If closing stock is given below the trial balance* \(i) It is recorded on the credit side of trading account. \(ii) It appears as an asset in the balance sheet. \(iii) Adjustment entry:- *Closing stock A/c Dr.* *To Trading A/c* \(b) *If closing stock appears inside the trial balance* \(i) It means closing stock has already been deducted from purchase and hence no further entry will be Require. \(ii) Closing stock will go to the Balance sheet only. 63\. What is depreciation and show its treatment in final account. - It refers to the decrease in the value of fixed asset due to use, wear and tear and passage of time is termed as depreciation. - It is a non-cash expense and charged to profit and loss account in order to find correct profit. - Treatment:- i. It is shown on the debit side of profit and loss account. ii. The amount of depreciation is deducted from the particular asset in the balance sheet. iii. Adjustment entry: *Depreciation A/c Dr.* *To Asset A/c* 64\. What is interest on capital and show its treatment in final account. - The amount of interest is allowed on the capital contributed by the owner is called interest on capital. - It is an expense for the business. - Treatment:- i. It is shown in the debit side of profit and loss account. ii. It is added to the capital in the balance sheet. iii. Adjustment entry: *Interest on capital A/c Dr.* *To Capital A/c* 65\. What is interest on drawings and show its treatment in final account. - The amount of interest is charged by the business on the amount drawn by the proprietor from the business for his personal use. - It is a gain to the business. - Treatment:- i. It is shown on the credit side of profit and loss account. ii. It is added to drawings, then deducted from capital in the balance sheet. iii. Adjusting entry: *Drawings A/c Dr.* *To interest on drawings A/c* 66\. Bad Debt:- - The amount of money irrecoverable from the customers to whom earlier credit sales were made is known as bad debt. - It is a loss for the business. - It is a nominal account in nature. - Adjustment entry: *Bad debt A/c Dr.* *To Sundry Debtor A/c* 67\. What is provision for bad debts? - Doubtful debts may become bad or may prove good. One cannot known how much the doubtful debt will be bad. Therefore at the end of the year a part of profit is kept aside in the form of provision to meet the possible debt. This is known as provision for bad debt. - Adjustment entry: *Profit and loss A/c Dr.* *To provision for bad debt A/c* 68\. Difference between Manufacturing account and Trading account. +-----------------------------------+-----------------------------------+ | **MANUFACTURING ACCOUNT** | **TRADING ACCOUNT** | +===================================+===================================+ | \(i) The purpose of | The purpose of trading account is | | manufacturing account is to | to find out the gross profit or | | find out the cost of | gross loss. | | production. | | | | The balancing figure of this | | \(ii) The balancing figure of | account is transferred to profit | | this account is transferred to | and loss account. | | trading account. | | | | This account is prepared by both | | \(iii) This account is prepared | corporate and non corporate | | by non-corporate manufacturing | business entity. | | business entity. | | +-----------------------------------+-----------------------------------+