Page 168 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes 12.7 Summary

z Final accounts include the Trading and Profit & Loss Account and Balance Sheet. Trading

and Profit and Loss Account is prepared to calculate the net profit earned by business

during a period.

z Balance Sheet of a business is prepared to disclose the financial picture of the business. The

Trading Account shows the gross profit which is the difference of sales and cost of sales.

z Profit & Loss Account shows the net profit which is computed by matching the total
revenues and expenses of the business.
z Balance Sheet is a statement which has two sides – Liability side and Assets side. Before

preparing the final accounts of the business some adjustments are also done (if required).
12.8 Keywords

Balance Sheet: It is nothing but a positional statement of assets and liabilities of the firm on a
particular date
Gross Loss: It is the excess of cost of sales over sales.

Gross Profi t: It is calculated by comparing the sales and cost of sales. It is the excess of sales over
cost of sales.
Net Loss: Excess of expenditures over revenues is called net loss.
Net Profi t: It is the excess of revenues over expenses. It is depicted by P & L A/c.

Trading account: It is the accounting statement of revenues and expenses

12.9 Self Assessment

Fill in the blanks:
1. Trade unions are the part of ………………… of fi nancial statement.
2. The creditors want to see two things (i) Regularity of income and (ii) ………………… .

3. ………………… help while computing National Income statistics etc.
4. ………………… are meant for dealing in share/securities.
5. Discount on the issue of shares/debentures is ………………… .
6. Preliminary expenses are shown in the balance sheet as ………………… .
7. All the nominal accounts of the ………………… are used to prepare the Trading and Profi t
& Loss Account.
8. Trading Account shows the ………………… which is the difference of sales and cost of
sale.
9. The excess of credit side over debit side is called ………………… .
10. The Balance Sheet depicts the ………………… of the business on a fi xed date.
State whether the following statements are true or false:
11. Rent outstanding is a nominal account.

12. Insurance prepared is a personal account.

162 LOVELY PROFESSIONAL UNIVERSITY