BBA Notes Bookkeeping Profit and Loss Final Account
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Trading Account (BBA Bookkeeping Notes And Study Material)
This account is prepared to final out gross profit or gross loss on the basis of purchases and sales. From the sales of a specific period (mostly of one year), the cost of sales (of the same period) is deducted and the balance is treated as gross profit.
Cost of goods sold or cost of sales = Opening stock + Purchases + All direct Exp.
The trading account is a nominal account and is closed by transferred gross profit or loss to profit and loss account.
Manufacturing Account (BBA Study Material)
A manufacturer purchases raw materials and sells it after converting it into finished product. He has to incur many expenses in doing so, for the purpose of finding and cost of manufacture, he prepares manufacture account. Opening and closing stock in the case of manufacturing, he may be three types namely, raw material, work-in-progress and finished goods.
Profit and Loss Account (Bookkeping And Accounting)
Profit and loss account is prepared to find out net profit and net loss. All those expenses and losses, incomes and gains are not recorded in trading account but they are recorded in profit and loss account.
Classification of Assets
- Fixed Assets : These assets refer to the assets of permanent character. They are acquired with a view that they will help in business year after year. Any asset which is acquired for permanent use is a fixed assets. Examples are land, building etc. but these are not fixed assets for those who acquire them for selling and not for permanent use e.g. if a person’s business is to purchase and sell machinery, then machinery is not a fixed asset for him.
Fixed asset may be tangible or intangible. Tangible assets are those are those which have existence, i.e. they can be seen, touched and felt like buildings and machinery etc. while intangible assets are such which cannot be seen, touched throught they have a definite value, like goodwill etc. According to schedule VI of the Companies Act, 1956 these tangible and intangible assets have been treated as fixed assets and in the list of fixed assets of this schedule, goodwill occupies the first position.
- Current Assets : Current assets include cash or such other assets which can be converted into cash or cash can be realised from them within the period of one year, but if the operating cycle of the business is less than one year, they can be realised in cash during this shorter period. Example of current assets are stock, debtors and B/R/A/cetc.
- Wasting Assets : The assets which are exhausted completely by use and cannot be replaced in the normal way or regarded as wasting assets e.g. mines. If there is a coal mine, whole of the coal of this mine has been taken out, then fresh coal cannot be created, therefore the mine is treated as wasting assets.
- Fictitious Assets : The assets which are really speaking not assets but shown in the assets side are called fictitious assets, e.g. underwriting commission, brokerage discount one issue of share, interest paid out of capital during construction, development expenditure not adjusted, preliminary expenses etc. All these expenses have debit balances and they are written off through profit and loss account gradually during some years, hence unamortised amount of these expenses appear in balance sheet.
- Contingent Assets : An asset whose existence and ownership depends on the happening or non-happening of a specific event, e.g. a right to use for infringement of trade-mark or a suit for claiming a certain amount. If this suit is won, the amount will be received. Thus, the right to have or claim some property on the happening of an even is contingent asset. These asset are not shown in balance sheet because one of the conventions of accountancy is that provision for future losses is made but no consideration is made for uncertain future property or income.
BBA Notes Bookkeeping Profit and Loss Final Account
Liabilities : Liabilities are the amounts which a business entity has to pay. Liabilities may be internal or external. All amounts which a business entity has to pay to proprietor or owner’s are internal liabilities, these liabilities include capital and undistributed profits.
Classification of Liabilities
- Fixed Liabilities : All long-term liabilities are treated as fixed liabilities whether they are payable by enterprise to the proprietor or to outsider, namely capital, long-term loans and debentures etc.
- Current Liabilities : All short-term liabilities, i.e. the amount which are payable within one year are termed as current liabilities, namely creditors, bills payable etc.
- Contingent Liabilities : The liabilities, which are not the real liabilities of the business on the date of balance sheet but may become liabilities in future on happening of an uncertain event, are called contingent liabilities. For example : Guarantee given for paying a loan on default of the principal debtor.
Adjustments (BBA 1
All such transactions which are related with the accounting period of final accounts but are not included in the trial balance of that period as their records have not taken place. Are adjustments. The transaction whose incomplete records have taken place or the transaction Entries for adjustments are made at the time of preparing final accounts. Important adjustments are depreciation, outstanding expenses etc. provision for bad doubtful debts, prepaid expenses, income received in advance etc.
Final Account with Adjustment
In order to ensure that final accounts of a firm depicts its correct position, it is necessary that all expenses and incomes related to the year for which accounts are being prepared, are taken into consideration, it is therefore, necessary that :
- All expenses related to the current year, whether paid or not are included.
- All incomes related to the current year, whether received or not, are included.
- All expenses related to the succeeding year are excluded.
- All incomes related to the succeeding year are excluded.
All the above items which need to be brought into books of accounts at the time of preparation that accounts are called adjustment. Journal entries passed to give effects to the required adjustments are knows as adjustment entries.
Some important entries of given items are :
Closing Stock BBA Bookkeeping
It is the value of goods on the closing date of the accounting period. Stock is value at cost price or market price, which even is lower. Closing stock in case of manufacturing concerns in also classified as raw material, work in progress and finished goods.
In adjustment it shown at two place, i.e. the credit side of trading account and the assets of the balance sheet.