GNDU B.Com (Bachelor of Commerce)
GNDU B.Com (Bachelor of Commerce)

GNDU B.Com (Bachelor of Commerce) — Semester 1

Semester 1 · 24 chapters
Summary, key terms, extra questions with answers and a practice quiz with AI diagnosis for each.

Chapter 4: Preparation of Final Accounts of a Sole Proprietor Semester 1 — summary, notes, extra questions & MCQ quiz

Summary

Final accounts are the statements prepared at the end of an accounting period to determine the profit or loss and the financial position of a sole proprietorship. They are built from the trial balance after passing the necessary adjusting entries. The first part is the Trading Account, which matches sales and closing stock against opening stock, purchases and direct expenses (such as wages, carriage inward and freight) to arrive at the gross profit or gross loss. The gross profit is carried down to the Profit & Loss Account, which then sets all indirect or operating expenses (rent, salaries, depreciation, interest, bad debts) against indirect incomes to compute the net profit or net loss for the period. The net profit is transferred to the owner's capital account. Finally, the Balance Sheet lists assets and liabilities on a particular date to show the firm's financial position; it is not an account but a statement, and its two sides must agree. Common adjustments include closing stock, outstanding and prepaid expenses, accrued and unearned income, depreciation, bad debts and provision for doubtful debts; each adjustment affects two places, preserving the dual aspect. Correctly prepared final accounts let the proprietor judge profitability, solvency and the adequacy of capital.

Trading Account and gross profitProfit & Loss Account and net profitBalance Sheet preparationAdjustments: outstanding and prepaidDepreciation and bad debtsProvision for doubtful debts

Key terms

Trading Account
Account that computes gross profit by matching sales and closing stock against cost of goods sold.
Gross profit
Excess of net sales over the cost of goods sold, found in the Trading Account.
Profit & Loss Account
Account that deducts indirect expenses from gross profit and other incomes to find net profit.
Balance Sheet
A statement of assets and liabilities showing the financial position on a given date.
Direct expenses
Expenses incurred to bring goods to saleable condition, such as wages and carriage inward.
Adjusting entry
An entry made to record items like outstanding expenses or depreciation before final accounts.

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