HOW TO PREPARE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET IN LESS THAN TEN MINUTES
Hi friends, here we are going to learn how to do balance sheet and statement of profit and loss in less than ten minutes.
Let us begin the topic with trail balance.
Trail Balance is a statement of debit and credit balances of various ledger accounts at the end of the financial year or any given date.As it is prepared by taking all ledger account balances , both debit and credit sides of the trail balance are always equal.Trail balance is used to prepare final accounts of entity.
ADJUSTMENTS:-
Let us begin the topic with trail balance.
Trail Balance is a statement of debit and credit balances of various ledger accounts at the end of the financial year or any given date.As it is prepared by taking all ledger account balances , both debit and credit sides of the trail balance are always equal.Trail balance is used to prepare final accounts of entity.
TRIAL BALANCE
PARTICULAR
|
DEBIT
|
CREDIT
|
Capital
|
80000
|
|
Sales
|
1000000
|
|
Petty
Cash
|
10000
|
|
Debtor
Balance
|
120000
|
|
Salaries
|
24000
|
|
Carriage
Inward
|
4000
|
|
Discount
Allowed
|
10000
|
|
Building
|
80000
|
|
Prepaid
Insurance
|
2000
|
|
Depreciation
|
4000
|
|
Bank
Overdraft
|
10000
|
|
Creditor
Balance
|
60000
|
|
Outstanding
Expenses
|
10000
|
|
Loan
A/C
|
66000
|
|
Interest
Received
|
18000
|
|
General
Reserve
|
20000
|
|
Cash
At Bank
|
40000
|
|
Opening
Stock
|
60000
|
|
Profit
And Loss A/C (Cr) opg.balance
|
20000
|
|
Accrued
Interest
|
4000
|
|
Purchase
|
900000
|
|
Investment
|
20000
|
|
Carriage
Outward
|
6000
|
|
TOTAL
|
1284000
|
1284000
|
CLOSING
STOCK Rs.120000/-
From
above trail balance we segregate the ledgers into two categories
- Balance sheet items
- Profit and loss A/C items
TRIAL BALANCE AFTER ARRANGING THE ITEMS
PARTICULAR
|
DEBIT
|
CREDIT
|
Balance sheet items
|
||
Capital
|
80000
|
|
Petty
Cash
|
10000
|
|
Debtor
Balance
|
120000
|
|
Building
|
80000
|
|
Prepaid
Insurance
|
2000
|
|
Bank
Overdraft
|
10000
|
|
Creditor
Balance
|
60000
|
|
Outstanding
Expenses
|
10000
|
|
Loan
A/C
|
66000
|
|
General
Reserve
|
20000
|
|
Cash
At Bank
|
40000
|
|
Opening
Stock
|
60000
|
|
Profit
And Loss A/C (Cr) opg.balance
|
20000
|
|
Accrued
Interest
|
4000
|
|
Investment
|
20000
|
|
Profit and loss a/c items
|
||
Sales
|
1000000
|
|
Salaries
|
24000
|
|
Carriage
Inward
|
4000
|
|
Discount
Allowed
|
10000
|
|
Interest
Received
|
18000
|
|
Purchase
|
900000
|
|
Carriage
Outward
|
6000
|
|
Depreciation
|
4000
|
|
TOTAL
|
1284000
|
1284000
|
After
rearranging ledgers in trail balance into balance sheet and profit & loss
items.
Prepare
a mini profit and loss statement to the results it will take less than moment.
MINI PROFIT AND
LOSS ACCOUNT
PARTICULAR
|
AMOUNT
|
Income
|
|
Sales
and other income
|
1018000
|
Less:- Expense
|
|
Material
consumed
|
|
(Opening
stock + purchase - Closing stock)
|
840000
|
Other
Expenses*
|
48000
|
(add
all expenses from profit & loss a/c items)
|
|
Profit
|
130000
|
If
difference between income and expense is positive than it will be treated as
profit and vice versa
*other expense:- Salaries, Carriage Inward, Discount Allowed,Carriage Outward and depreciation |
After
arriving profit or loss we have to prepare a mini statement of balance sheet
to know whether it is tallying.
MINI STATEMENT OF BALANCE SHEET
LIABILITIES
|
AMOUNT
|
ASSETS
|
AMOUNT
|
Capital 80000
Add:-
Profit 130000
|
210000
|
Closing
stock
|
120000
|
Other
Liabilities*
|
186000
|
Other
assets*
|
276000
|
(add
all liabilities from balance sheet items on credit side) excluding capital
|
(add
all assets from balance sheet items on debit side ) excluding opening stock
|
||
Total
|
396000
|
Total
|
396000
|
* Other Liabilities:- Bank Overdraft, Creditor Balance, Outstanding
Expenses, Loan A/C,
General Reserve and Profit And Loss A/C (Cr)
opg.balance.
* Other assets:- Petty Cash, Debtor
Balance, Building, Prepaid Insurance, Cash At Bank, Accrued Interest and Investment.
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