Financial Accounting (For Basics)
Basic Adjustments
- Ledger balances appeared in trial balance:
A) Debit- appear only debit side of manufacturing a/c / trading a/c / profit and loss a/c or will appear in Asset side of balance sheet.
B) Credit – appear only credit side of manufacturing a/c / trading a/c / profit and loss a/c or will appear in Liability side of balance sheet.
2. Trial balances items will appear only one time in the above-mentioned final a/c.
3. Adjustments will be either added or deducted with concerned expenses or incomes and again it will appear in Asset side or Liability side of Balance Sheet.
{Out standing expenses: Expenses paid in advance: Outstanding incomes: Income received in advance}
4. Returns inwards and outwards are treated as sales returns and purchase returns.
5. Carriage inwards and outwards are treated as manufacturing cost and selling cost.
6. Trading expenses and office expenses are treated as trading cost and revenue cost.
7. Trading expenses only given: - treat as trading cost.
8. Wages and salaries will be treated as manufacturing cost and routine or revenue cost.
9. Salaries and wages will be treated as routine or revenue cost.
10. Works manager’s salary will be treated as manufacturing cost.
11. Expenses directly related to production will be taken into manufacturing a/c.
12. Expenses related to office and administration and selling and distribution will be taken into profit and loss a/c.
13. Discount allowed and received will be treated as expenses and income and will appear in profit and loss a/c.
14. Dividend will appear only in credit side of profit and loss a/c.
15. Assets will be shown in balance sheet after depreciation. (Cost less depreciation).
16. Bad debts will be adjusted in profit and loss a/c and then the balance will appear after adjustment with debtor in asset side of balance sheet.
17. Goods withdrawn for personal use will be deducted from purchases and again will deduct from capital.
18. Goods distributed as free samples are treated as capital loss; it will be shown in trading a/c. credit and will be treated as advertisement. So it will be appear in debit side of profit and loss a/c.
19. Goods destroyed by fire also will be treated as capital loss; it will be shown in trading a/c. credit and the actual loss will be treated as revenue loss hence will appear in profit and loss a/c. debit and the amount to be received as claim will be shown in asset side of balance sheet.
20. Unrecorded purchases will be added to purchases in manufacturing a/c and again it will be added to creditors.
21. Unrecorded sales will be added to sales in trading a/c and again it will be added to debtors.
22. Goods in transit will be treated, as stock and it will be shown along with closing stock in trading a/c. credit and asset side in balance sheet.
23. Expenses incurred in connection with installation of machinery or wages for erection of machinery will be added to the cost of the machinery.
24. Expenses in connection with purchases of raw materials will be treated as revenue and purchase of fixed assets will be treated as capital.
25. Interest on loan taken and interest on loan given will be treated as expenses and incomes and it will appear in profit and loss a/c.
From the following details, prepare Manufacturing, Trading and Profit and Loss Account and for the year ended 31st March 2006 and a Balance Sheet as on the same date.
| Particulars | Dr. (Rs.) | Cr. (Rs.) |
| Opening Stock: | | |
| Raw Materials | 60,000 | |
| Work- in – Progress | 5,000 | |
| Finished Goods | 20,000 | |
| Purchases: | | |
| Ram Materials | 2,10,000 | |
| Finished Goods | 10,000 | |
| Cash | 2,000 | |
| Factory Rent | 12,000 | |
| Office Rent, Rates and Taxes | 3,000 | |
| Factory Salary | 18,000 | |
| Office Salary | 13,100 | |
| Debtors | 78,000 | |
| Creditors | | 56,000 |
| Sales | | 4,00,000 |
| Selling Expenses | 17,000 | |
| Interest | 4,000 | |
| Discount | 3,000 | 1,100 |
| Capital | | 98,000 |
| Wages | 50,000 | |
| Machinery | 45,000 | |
| Furniture | 5,000 | |
| Total | 5,55,100 | 5,55,100 |
Adjustment:
a) Provide 10% depreciation on Machinery and Furniture.
b) Closing Stock: Raw Materials Rs. 50,000, Work-in- Progress Rs. 10,000, and
Finished goods Rs. 35,000.
c) Salary outstanding as on 31st March 2006:
Factory Rs. 2,000, Office Rs.1,000.
d) Outstanding factory rent is Rs.1,000.
(Ans: Cost-Rs.3,02,500; G.P: 1,02,500; N.P: 62,000, B/S Rs.2,20,000)
From the following details, prepare Manufacturing, Trading and Profit and Loss Account and for the year ended 31st March 2005 and a Balance Sheet as on the same date.
| Particulars | Dr. (Rs.) | Particulars | Cr. (Rs.) |
| Goodwill | 5,000 | Capital Account | 19,500 |
| Factory Shed | 2,000 | Loan from Bank @ 6% | 30,000 |
| Machinery | 13,000 | Creditors | 15,000 |
| Furniture: | | Net Sales | 1,10,000 |
| Factory | 500 | Miscellaneous Receipts | 400 |
| Office | 300 | Bad Debts Reserve | 500 |
| Investments @ 4% | 1,000 | | |
| Stock on 1-1-05 : | | | |
| Materials & Stores | 13,000 | | |
| Work-in- Progress | 750 | | |
| Finished Goods | 8,250 | | |
| Debtors | 13,500 | | |
| Purchases: | | | |
| Materials & Stores | 85,000 | | |
| Finished Goods | 1,000 | | |
| Freight and Duty on Materials | 5,000 | | |
| Electricity and Power | 1,500 | | |
| Salaries, Wages & Bonus: | | | |
| Factory | 15,000 | | |
| Office | 6,500 | | |
| Repairs & Renewals | 250 | | |
| Rent, Rates & Taxes | 1,650 | | |
| Insurance | 390 | | |
| General Charges | 1,810 | | |
| | 1,75,400 | | 1,75,400 |
Additional Information:
a) Closing Stock: Materials and Stores Rs. 21,000; Work-in- Progress Rs.1,250 and Finished goods Rs. 20,750.
b) Depreciation to be provided: Factory Shed 2%, Machinery 10% & Furniture 15%.
c) Outstanding expenses: Salaries, Wages and Bonus- Factory Rs.400 and Office Rs. 100 and General charges Rs.100.
d) Amount of insurance premium covers a period of one month in advance.
e) Electricity and Power, Repairs and Renewals and Rent, Rates and Taxes are to be apportioned between factory and office in the ratio of 4:1.
f) Reserve for bad debts to be provided @ 4% on debtors.
(Ans: Cost of production Rs. 1,01,035, G.P. 20,465, N.P. 9,473, B/S Rs. 76,373.)
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