PROJECT REPORT

ON
Financial statement

Submitted to: Dhenkanal higher secondary

school Dhenkanal
Submitted by: MAHABIR PRASAD MOHAPATRA

Roll no. IC-20-010

Regd no. DB08C20010

Under guidance of: MISS. SOUMYA NANDA

Signature of External examiner Signature of Internal examiner

 DHENKANAL HIGHER SECONDARY SCHOOL DEPARTMENT
OF COMMERCE

CERTIFICTE
This is to certify that MAHABIR PRASAD MOHAPATRA, a student of class 12th has
successfully completed the project topic “FINANCIAL STATEMENT” under the guidance of
MISS. SOUMYA NANDA during the year 2021-22 in partial fulfilment of commerce
(FINANCIAL ACCOUNTING ) project examination conducted by CHSE, Odisha.

SIGNATURE

MISS. SOUMYA NANDA

 ABSTRACT:
This paper explores the relationships among cost accounting0 systems
structure and information quality properties through an integrated framework of
cost system design and use. In our framework, cost accounting systems
structure is defined in terms of the level of detailed information existence, the
cost disaggregation according to behaviour, the scope of variances calculation
and the frequency of cost information provision. Cost information quality
expresses its perceived usefulness by the users in terms of relevance,
accuracy, timeliness, usability, compatibility with their needs, up-to-datedness,
reliability, and thoroughness for decision-making purposes. In order to
investigate the existing relationships, data was gathered from 119 leading Greek
manufacturing companies via a questionnaire survey. Our empirical findings
indicate that the majority of cost accounting systems structure characteristics
exert a statistically significant positive influence on cost information quality
dimensions. Only the systems’ ability to disaggregate costs according to
behaviour and their capability to generate customised to user specifications
reports were not found to be statistically significantly associated with
information quality. We believe that our conclusions have important
implications for researchers and professionals with respect to cost systems
design as well as cost systems evaluation. The innovation of the study lies on
the development of an integrated framework that encompasses both cost
systems structure characteristics and cost information effectiveness features.

Objective:

The preparation of a final accounting is the last stage of the

accounting cycle. It determines the financial position of the business.
Under this, it is compulsory to make a trading account, the profit and
loss account, and balance sheet.
 CONTENT:
1 Introduction

2 Analysis &
Interpretation

3 Summery & Conclusion

4 References

INTRODUCTION
Final accounts gives an idea about the profitability and financial position of a business to its
management, owners, and other interested parties. All business transactions are first recorded
in a journal. They are then transferred to a ledger and balanced. These final tallies are
prepared for a specific period. The preparation of a final accounting is the last stage of the
accounting cycle. It determines the financial position of the business. Under this, it is
compulsory to make a trading account, the profit and loss account, and balance
sheet.Financial statements or final accounts, generally refer to two statements, viz.
(1) Income Statement, Profit and Loss Statement or Profit and Loss Account and
(2) Position Statement or Balance sheet, prepared at the end of every accounting year.
The Income Statement or profit and loss account is prepared to ascertain the results of the
business operations, called net profit or net loss of the business for an accounting year The
position statement or balance sheet is prepared to know the assets, liabilities and owner's
capital of a business at the end of every accounting period These two statements are called
annual Statements or Final Accounts because they are prepared finally (Ge at the end of the
trading period, and show the financial or final results of the business.
OBJECTIVES:
 To know about Trading account
 To figure out the format of Trading account
 To know about P/L account
 To figure about the format of P/L account
 To know about Balance sheet
 To figure out the format of Balance sheet

Trading account
Trading Account is prepared for a ascertaining the gross profit or gross loss of the business
for an accounting period. In other words, it is prepared mainly to know the profitability on
account of goods purchased and sold by the business concern. The difference between the
net sales and the cost of goods sold is either gross profit or gross loss. If net sales is more
than the cost of goods sold the difference is gross profit and if cost of goods sold is more
than the net sales, the difference is gross loss In order tocalculate gross profit/gross loss, it is
necessary to know the net sales and cost of goods sold
Equations
Gross profit is the favorable difference between the net sale and cost of goods sold and this
can be expressed in the form of equation :
Gross profit = net sales – cost of goods sold
Gross profit + cost of goods sold = sales
Opening stock + net purchases + direct expenses + gross profit = sales + cost of goods
sold
Opening stock + net purchases + direct expenses = sales + cost of goods sold + gross
sales

Objectives
The main objectives of trading account are :
 Ascertain the gross profit or gross loss as a result of buying and selling of goods
during current year.
 To provide information about the direct expenses like carriage, freight, wages, other
manufacturing expenses.
 To provide information on the cost of goods sold.
 To measure the efficiency or performance of the business, which is indicated by gross
profit or gross loss.
 To facilitate the comparison of the trading result of the current year with that of the
previous year
Advantages
A trading account has certain advantages. These are :
 A trading account helps the trader to know the results of the trading (i.e. buying and
selling of goods) called the gross profit or gross loss and find out whether the line of
business is profitable or not.
 The gross profit revealed by the trading account helps the trader to ascertain the gross
profit turnover ratio i.e. percentage of gross profit to sales.
 The trading account facilitates the comparison of the sales figures of current year with
those of previous years and helps the trader to ascertain whether the business is
progressing or declining
 The trading account facilitates the comparison of the purchases figures of the current
year with those of previous years and enables the trader to ascertain whether the
purchases are being made judiciously or not.
 The trading account facilitates the comparison of the closing stock of current year with
that of previous year and helps the trader to know whether the stocks are being held at
reasonablelevels or not

Preparation of the trading account :

The preparation of a Trading Account requires the passing of entries to transfer the balances
ofaccounts of all the concerned items to the Trading Account. The entries required for such
transfers are called "Closing Entries', since such entries will close the accounts of all
concerned items. The following entries are passed to give effect to such transfer of balances
The closing entries may be divided into two classes simple and compound journal entries. A
simple closing entry is one in which only two accounts are affected i.e one account is debited
and others credited with an equal amount.
For example, a closing entry in the purchases account which appears on the debit side of the
trial balance and is closed by transferring it to the Trading Account as under:

Trading Account. Dr.

To Purchases A/c.
(Being Purchases account transferred to trading account)

In compound entry,
there may be several accounts to be debited and several accounts to be credited. It must be
made clear that in all cases, the sum of debits must be equal to the sum of credits. For
example, to close the opening stock account, purchases account, wages account and carriage
inwards account, only one closing entry is passed
Trading Account……Dr
To Opening Stock A/c.
To Purchases A/c.
To Wages A/c.
To Carriage Inward A/c

In adjusting entry
This entry is passed fir adjustment of the value of closing stock
Closing stock A/c………… Dr
To Trading A/c

Format of Trading account

FORMAT OF TRADING ACCOUNT
Dr. Trading Account of… for the period ending ..Cr .

Particulars Amount (Rs) Particulars Amount (Rs)

To Opening Stock ……… By Sales ............

To Purchases Less : Returns Inward ………

Less: Returns outward ………
By closing stock ………
To Carriage/Cartage/Carriage
Inward/Carriage on purchases ……… By Gross loss c/d ………
(balancing figure)
To Wages Productive Wages/ Wages
& Salaries/Manufacturing
wages/Direct wages Factorywages ………

To Coal, gas and water ………

To Factory insurance ………

To Motive power ………

To Octroi ………

To Import duty & clearing chares To

Stores consumed Consumable stores ………

To Dock charges
………
To Packing charges (Direct)
………
To Transit insurance on purchases
………
To Commission on purchases
………
To Royalty on production
...........
To Excise duty
………
To Factory lighting
………
To Foreman's salary
………
To Works manager's salary
………
To Gross profit c/d
(balancing figure) ………

Profit and loss account

Every businessman is interested in knowing the net profit. The net profit is his income,
which increases his capital. So after preparing the Trading Account, the next step is to
prepare the Profit and Loss Account with a view to ascertaining net profit or net loss during
an accounting period. The balance of the Trading Account is either gross profit or gross loss,
which is transferred to profit and loss account, which is the starting point of the preparation
of this account. Net profit represents the excess of gross profit plus other revenue gains over
sales expenses including sales cost and other expenses, which are essential for the smooth
running of the business. The expenses shown in profit and loss account are called “Indirect
Expenses” and such expenses are not shown in the Trading Account. Those revenue incomes
(gains) and indirect expenses which have not yet been accounted for in the Trading Account,
are shown in the Profit and Loss Account. According to Carter “A Profit and Loss Account
is an account into which all gains and losses are collected in order to ascertain the excess of
gains over the losses or vice-versa”.

Features
 Profit and Loss Account is a nominal account prepared at transactions of revenue
nature and does not contain items of capital nature.
 Incomes and expenses relating to current year are shown in it.
 It includes outstanding expenses and accrued incomes relating to current year prepaid
expenses and incomes received in advance
 It includes all expenses paid during the previous year but related to current year and all
incomes received during the previous year but related to current year.
Need to prepare
The profit and loss account is prepared with the am to find out the net profit or net loss of the
business for the accounting period. The following points will throw light on the need and
importance ofprofit loss account
 Knowledge of net profit or net loss : The profit and loss account is prepared to
ascertain the amount of net profit or net loss for a particular period of time The net
profit is transferred to the capital account
 Comparison of profits : The net profit for the current year as disclosed by profit and
loss account is compared with the net profit of the last year Any decline in profit is a
matter of concern for the management and the reasons for the variation in profits are
probed
 Control over expenses : The profit and loss account helps in comparing the indirect
expensesof the current year with the previous year's expenses If the indirect steps
should be taken to control the expenses
 Future planning: On the basis of information disclosed by the profit and loss
account, thefuture course of action may be decided by the management
 Income tax : The income tax is levied by government on the net income of the
business The net profit disclosed by profit and loss account serves as the basis of
determining business income for tax purposes
  Helpful in the preparation of balance sheet: The net profit or net loss ascertained
from profit and loss account is transferred to capital account The capital account is
shown in the liabilities side of balance sheet. Thus, profit and loss account helps in the
preparation of balance sheet

Items not shown in Profit and Loss Account

Following expenses relating to the proprietor of a business are not shown in profit and loss
account
 Life insurance premium : If an insurance policy is taken on the life of either the
proprietor or his dependants, the premium paid out of business cash is not treated as
business expenses but as drawing by the proprietor
 Income tax : Income tax charged by income tax authorities on the business income is a
businessexpense and is charge to Profit and Loss Account. However, if an income tax
is paid by the business on the income of the proprietor, it should be debited to his
drawings account and not the profit and loss account
 Domestic expenses: All the household expenses of the proprietor such as payment of
personal telephone bill, marriage expenses, children's education expenses etc are not
to be treated as business expenses and should not be debited to profit and loss account.
Rather, these should be debited to drawings account
Closing Entries for Profit and Loss Account:
The preparation of Profit and Loss Account requires (a) to bring down the gross profit gross
loss and (b) to pass the necessary entries to transfer the balances of accounts of all the
concerned items to the Profit and Loss Account. The entries required for such transfers are
called, closing entries, since such entries will close the accounts of concerned items. The
following closing entries are passed to give effect to such transfers :

Case Accounting Entry to be passed

 To close the accounts of indirect  P/L Account. Dr
revenue expenses (other than those To indirect Expenses
which have been shown in Trading Account
A/c.)

 To close the accounts is revenue  Incomes/Gains Account.

incomes and gains Dr
To P/L Account

Difference between Trading and P/L account

TRADING ACCOUNT PROFIT & LOSS ACCOUNT
** Trading account is prepared to The P/L account is prepared to know
find out the trend of the business the ultimate result of the business for a
period
** Trading account is prepared
before preparing P/L account P/L account is prepared after
** preparing trading account
The trading account shows gross
profit or gross loss of the P/L account shows net profit or net
** organization loss of the organization

The trading account reflects P/L account reflects all round

** efficiency in purchases and sales efficiency of business as a whole
only
The results disclosed by P/L account
The results disclosed by trading are complete and final
account are partial

Format of Profit and Loss Account

 Particulars Amount(Rs) Particulars Amount(RS)
To Gross Loss b/d ......... By Gross Profit b/d ...........
By Interest received ………
office & Management Expenses; By Commission received ………
By Discount received ………
To Office Salaries/Staff …… By Dividend received ………
salaries/Salaries ....... By Apprenticeship premium ………
and wages/Indirect salaries …… By Bad debts recovered ……….
To Insurance Office insurance …… By Sale of old news papers ………
To Rent, rates & taxes ……. By Profit on sale of fixed assets ……….
To Printing & Stationery ……. By Interest on drawings ……….
To Misc. other expences …… By Sundry receipts ………

Selling and Distribution Expenses: By Net Loss ………

(transferred to capital account)
To Advertisement …….
To Salaries and commission of sales …….
dept. …….
To Showroom rent …….
To Showroom lighting ……..
To Travelling expenses .........
To Misc. selling expences ……..

Financial Expenses

To Interest on loan ........

To Bank charges ........
To Interest on capital ........
To Discount allowed ……
To Commission paid for raising …….
loan...

Repairs & Depreciation:

To Repairs to furniture …….

To Repairs to machinery ……..
To Depreciation on furniture .........
To Depreciation on machinery .........

Losses and Miscellaneous

Expenses :
..........
To Charity .........
To Donations ........
To Gifts & presents

To Net Profit ..........

(transferred to capital account)
BALANCE SHEET
The Balance sheet is a classified summary of accounts balances remaining open in the ledger
after the nominal accounts relating to incomes and expenses have been closed by transferring
either to the trading account or profit and loss account, This statement is prepared to know
the financial status of the business concern. The capital and liabilities of the business are
shown on the left hand side, whereas assets and other items of debit balance are shown on
the right hand side.
Definitions :
Balance Sheet has been defined as follows:
Palmer, “The Balance Sheet is a statement on a given date showing on one side the trader’s
property and on the other hand the possessions and the liabilities.”
Freeman, “A Balance Sheet is an itemised list of the assets, liabilities and proprietorship of
business or an individual on a certain date.”
Characteristics
A Balance Sheet has the following characteristics
 A Balance Sheet is only a statement and not an account. It has no debit or credit sides.
The headings of the two sides are Assets and Liabilities
 A Balance Sheet is prepared at a particular date and not for a particular period. The
information contained in a Balance Sheet is true only at that particular point of time at
which it is prepared.
 A Balance Sheet is a summary of balances of those ledger accounts, which have not
been closed by transfer to the Trading and Profit and Loss Account
 A Balance Sheet shows the nature and value of assets and the nature and the amount
of liabilities, at a given date
Need for the preparation of balance sheet
The purpose of preparing a Balance Sheet are as follows:
 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. An enterprise is considered to be solvent
if its assets exceed its external liabilities
Contents of Balance sheet
Asset (side):-
1 .Fixed assets : The assets of durable nature which are used in business intended to be
retained permanently for the purpose of carrying on the business, such as land, building.
Machinery and furniture etc. They are also sometimes called as capital assets or fixed capital
expenditures or long lived assets. Fixed assets are collectively known as 'Block'

 Tangible fixed assets : Those fixed assets which have physical existence and which
can be see and touched are known as tangible fixed assets eg building, machinery,
furniture, motor vehicles.
 Intangible fixed assets : The fixed assets which have no physical existence and which
cannot be seen or touched are known as intangible fixed assets eg goodwill, patents,
trademarks etc. However, they are not fictitious assets, as they are represented by
value
 Wasting assets: Wasting assets are those fixed assets, whose value gradually reduces
on account of use and finally, they exhaust completely, e g mines, forests, leasehold
property, oil wells etc. Strictly speaking, all fixed assets except land are wasting
assets, because they gradually decrease in value on use. However, only mines, forests,
oil wells etc. fully exhausted in value, are known as wasting assets.
 Contingent assets : Contingent assets are such assets which are not, at present, under
the possession of the business, but which may may not be acquired on happening of a
certain event in future. For example, the business has claimed damages from one of its
supplier and the matter is pending in the court. If, ultimately, the judgment is in the
favour of business, it will be entitled to receive certain amount as compensation in
future. These assets are not shown in the balance sheet.

2 . Floating assets :
Those temporarily assets which frequently undergo change cash, stock, stores, debtors
receivable. Floating again sub-divided into two parts, liquid assets and non-liquid assets.
Liquid be readily converted cash without appreciable Cash hand examples assets. Other
assets which cannot readily converted without appreciable stock, stores.

3 . Fictitious assets :
Those assets which are not represented by anything concrete or tangible . Preliminary
expenses, debit balance of profit and loss account are the examples of such assets. These are
also called as ‘nominal’ or ‘imaginary’ assets.

Liabilities(side) :
 liabilities : Those obligations which are required to be paid after s very long period of
time, ie on the termination of the business are termed as fixed liabilities. The liability
of the lower, Leg. On the termination of the business are termed as fixed liabilities.
The liability to the owner, Capital is fixed liability
 long-term liabilities : Those labilities which are not payable within one accounting
period bu will be payable within next five to ten years are called long-term liabilities,
Those include debentures, long-term loans etc
 current liabilities : Those liabilities which are required to be paid out of current
assets within one accounting period are called current liabilities. These include bills
payable, sundry creditors, short term loans, bank overdraft, outstanding expenses etc.
 Contingent liabilities : These are not actual liabilities but are becoming actual
liability on the happening of a certain event. In other words, they would become
liabilities in the future provided the contemplated event occurs. If it does not occur, no
liability is incurred. Since such a liability is not an actual liability, it is not shown in
the balance sheet. Usually, it is mentioned in the form of a footnote under the balance
sheet.
 Liquid or quick liabilities : Debts which are repayable within a period of one month
are called quick or liquid liabilities. They include outstanding expenses, creditors, bills
payable etc.
Marshalling of balance sheet
‘Marshalling’ denotes the sequence of assets and liabilities to be shown in the balance sheet.
There are no statutory guidelines for the sequence or order of assets and liabilities for the
preparation of balance sheet of sole proprietor and partnership firm. In case of balance sheet
of joint stock companies, there is a specific performa prescribed by the Companies Act.
There are two prominent methods to prepare the balance sheet of sole proprietor and
partnership firms.
These methods are:
 Permanence Method : Under this method, assets and liabilities having high
permanence character are shown first, followed by the items having less permanence
character. Accordingly, on the assets side, fixed assets are shown on the top, followed
by current assets. On the liabilities side, the capital of the proprietor is shown on the
top, followed by reserves, long term liabilities and current liabilities.
  Liquidity Method : This is the reverse of permanence method. Under this method,
the assets having more liquidity are shown on the top. Followed by those assets which
have less liquidity. It means cash, bank, debtors, stock and other current assets are
shown first and the fixed assets are shown next to the current assets. Similarly, on the
liabilities side, the outsiders’ claim which is payable first in the form of current
liabilities is shown on the top, followed by long term liabilities and capital

Importance of Marshalling
The main advantages of marshalling are as follows
 It shows the relationship between the capital and fixed assets and the amount of
workingcapital, if any, provided by the proprietor
 Marshalling expresses the relationship between current assets and current liabilities.
The modern practice is to avoid general headings of 'Assets' and 'Liabilities' but to
arrange assets and liabilities in groups under appropriate headings with sub-totals to
show the amount of :
( 1 ) . Fixed assets
( II ) . Current assets
(III) . liabilities and Current liabilities on the liabilities side.

Limitation of balance sheet

There is no doubt that every business prepares yet it suffers from the following limitations:
 Some of the current assets are valued on estimated basis, so the balance sheet is not in
a position to reflect the true financial position of the business
 Fixed assets are shown in the balance sheet at original cost less depreciation up-to-the-
date. Thus, balance sheet does not show true value of fixed assets.
 Balance sheet can not reflect those assets which cannot be expressed in monetary
terms such as skill, honesty and loyalty of workers.
 Intangible assets like goodwill are shown in the balance sheet at imaginary figures
which maybear no relationship to the market value.
Format of Balance sheet
 Permanence Method
BALANCE SHEET AS ON …….
Liabilities Amount(Rs) Assets Amount(Rs)
Capital :……. Fixed Assets :
Add Net profit. Goodwill ..........
……. Land and buildings ……..
............ …….
Add Interest on capital. Plant and machinery
……. Loose tools and stores …….
Less Drawings. …….. Furniture, fixtures and fittings …….
……. Vehicles …….
Patents, designs etc. …….
Fixed Liabilities : …….. ……
Live stock
Loans (Long term) Investments …….
………
Reserves : Current Assets :
……… …….
General reserve, etc. Closing stocks :
……… …….
……… Raw materials
Current Liabilities : Work-in-progress …….
Sundry creditors ……… …….
Finished goods
Bills payable Stock of goods sent on ........
Bank overdraft consignment ……
Outstanding expenses Sundry debtors ……
Incomes received in advance Bills receivable ……
Pre-paid expenses …….
………… Incomes due but not received ……
Cash-at-bank ……
Cash-in-hand ……
Losses & expenses not written ………..
off
Liquidity Method

BALANCE SHEET AS ON ………

Liabilities Amount(Rs) Assets Amount(Rs)
Current liabilities: Current Assets :
Income received in advance ……. Cash in hand ……..
Outstanding expenses …….. Cash at bank ……
Bank overdraft …….. Short term investments ……..
Bills payable ……. Bills receivable ……..
Sundry creditors ……. Book debts …….

Fixed Liabilities : Closing stocks :

Long term loans ……. Finished goods …….
Goods sent on consignment ……..
Reserves : Work-in-progress …….
……. ……
General reserve ……. Raw materials
Other specific reserves Pre-paid expenses …….
Long term investments ……..
Capital
Add (a) Net Profit. Fixed Assets :
……. ……… ……
Loose tools & stores …….
(b) Interest on capital …… Live stock
Less Drawings …….
Motor vehicles ….....
......... Furniture .........
Plant and machinery …….
Land & buildings …...
Patents .......
Goodwill
………….. Fictitious Assets : …….
Losses & expenses not
written of .................

CASE STUDY
From the following Trial Balance of Shri Hemant Babu prepare Trading and Profit and Loss AC for the year ending
31st March 2016 and Balance Sheet as on that date. The closing Stock on 31 st March 2016 was valued at Rs. 25,000

Particulars Debit Credit

Stock (1-4-2015) 20,000

Purchases 75,000

Sales Return 8,000

Sundry Creditors 15,000

Purchase Returns 3,000

Sales 2,50,000

Freight and Carriage 7,500

Wages 36,500

Salaries 12,000

Repairs 1.200

Trade Expenses 4,000

Rent and Taxes 24,000

Cash in Hand 5,700

B/R 4,000

Debtors 55.000

Plant and Machinery 160,000

Withdrawals (Drawings) 16,600

Bank Deposit 20,500

Commission 3,300

Capital 1,70,500

Interest on Bank Deposit 2,000

B/P 6,200
4,50,000 4,50,000
Total

Solution
Dr. Trading And Profit and Loss Account. Cr.
the year ending 31st, March 2016

Particulars Amount(Rs) Particulars Amount(Rs)

To Opening Stock 20,000 By Sales Return. 2,50,000
To Purchases 75000 Less : Sales Return. 8,000 2,42,000
Less : Purchase Returns.3,000 72,000 By Closing Stock 25,000
To Freight & Carriage. 7,500
To Wages 36,500
To Gross Profit c/d 1,31,000
2,67,000 2,67,000

To Salaries 12,000 By Gross Profit b/d 1,31,000

To Repairs 1,200 By Commission 3,300
To Trade Expenses 4,000 By Interest on BankDeposit 2,000
To Rent & Taxes 24,000
To Net Profit transferred to Capital 95,100
A/c

1,36,300 1,36,300

Balance Sheet as on 31st March, 2016

Liabilities Amount (Rs) Assets Amount (Rs)

B/P 6,200 Cash in Hand 5,700
Sundry Creditors 15,000 B/R 4,000
Capital. 1,70,000 Sundry Debtors 55,000
Add: Net Profit. 95,100 Closing Stock 25,000
Less: Drawings. 16,600 2,49,000 Bank Deposit 20,500
Plant & Machinery 1,60,000
2,70,200 2,70,200