Page 88 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 4: Final Accounts

4.5 Summary Notes

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.
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.
Profit & Loss Account shows the net profit which is computed by matching the total
revenues and expenses of the business.
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).

4.6 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 Profit: 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 Profit: 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.

4.7 Self Assessment

Fill in the blanks:
1. Trade unions are the part of ………………… of financial 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
Profit & 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 fixed date.
State whether the following are true or false:
11. Rent outstanding is a nominal account.
12. Insurance prepared is a personal account.

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