Final Accounts of Sole Proprietorship: Practical Problem and Solution

Practical Problem Using the balances extracted from the books of John Enterprises (run by Mr. John), prepare the final accounts (i.e., manufacturing trading and profit and loss account) for the year ended 31 March 2020. Also, prepare a balance sheet as on 31 March 2020. Stock on 31 March 2020 is as follows: $ Raw materials 35,600 Work-in-pr0gress 17,400 Finished goods 96,500 Packing materials 1,25…

Read more

Classification of Assets and Liabilities

What Are Assets and Liabilities? A balance sheet is a statement that outlines the financial position of an enterprise. It is necessary for the balance sheet to show the enterprise’s assets and liabilities based on their characteristic features. If assets are the property and possessions of the business, liabilities are its legal obligations (i.e., the claim by outsiders on the assets of a business…

Read more

Accounts Payable Ledger

Accounts Payable Ledger: Definition The accounts payable ledger is a subsidiary ledger that lists the individual accounts of creditors. It is also referred to as the creditors’ ledger. A subsidiary ledger is a ledger that contains only one type of account, such as the accounts payable ledger. Accounts Payable Ledger: Explanation When a business has only a few creditors, it is possible to maintain…

Read more

Company Final Accounts: Practical Problems and Solutions

This set of problems and solutions on Company Final Accounts is intended to help students understand concepts relating to Final Accounts in greater depth. Problem 1 For the year ended 31 December 2019, the profit of Kerbs Ltd. before changing depreciation on fixed assets and managerial commission amounted to $300,000. Depreciation for the year amounted to $60,000 and a commission of 10% of the pro…

Read more

Accounts Payable

Accounts Payable: Definition Accounts payable is a liability account that represents debts owed to the creditors of a business. Most purchases take place on credit, and under the accrual basis of accounting, the liability must be recorded at the time the title passes for the assets purchased or when the services are received. Proper internal control procedures require the use of subsidiary account…

Read more

Provision for Discount on Debtors

At the end of the trading period, there are typically outstanding debtors or accounts receivable. To motivate debtors to pay their debts, companies may sometimes offer a cash discount. For this purpose, it is necessary for the company to create a provision or allowance for the discount on debtors or accounts receivable. In other words, it is an anticipated loss that a trader willingly bears by all…

Read more

Difference Between Trial Balance and Balance Sheet

The following table summarizes the main differences between the trial balance and balance sheet. Trial Balance Balance Sheet Prepared to check the arithmetical accuracy of the ledger accounts Prepared to show the financial position of the business on a particular date Includes the balances of all the accounts in the ledger Includes only the assets, liabilities, and capital account balances Prepare…

Read more

Difference Between Profit & Loss Account and Balance Sheet

A summary is given below of the differences between the profit and loss account and balance sheets. Profit and Loss Account Balance Sheet An account Not an account—it is a statement of assets and liabilities The second stage of final accounts, prepared before the balance sheet The last stage of final accounts, prepared after the Profit & Loss account Prepared for a period of time (so the headi…

Read more

Functions and Limitations of Balance Sheet

Balance Sheet: Definition A balance sheet is a statement of the assets, liabilities, and capital prepared on the last date of the accounting period to show the financial position of the business. It is prepared with a view to measure the exact financial position of the business on a certain fixed date. A balance sheet is prepared from the trial balance after the balances of nominal accounts are tr…

Read more

Marshalling of Balance Sheet

Marshaling: Definition The arrangement of assets and liabilities on the balance sheet in a particular order is called marshaling. Marshaling: Explanation The main purpose of the balance sheet is to show the financial position of the business. Therefore, assets and liabilities on the balance sheet should be shown in the proper order that facilitates a good understanding of the firm’s financial posi…

Read more