Balance sheet is the third financial statement which reveals the financial status of the enterprise through the total amount of resources raised and applied in the form of assets. This is the fundamental statement of the firm which explores the firm financial stature through the resources mobilized and investments applied i.e. Liabilities and Assets respectively. From the early, according to double entry concept or Duality concept, the balance sheet can be divided into two distinct sides, known as liabilities and assets.
The balance sheet can be disclosed in two different orders
Proforma Balance Sheet as on dated…………………….
(In the order of Long lastingness)
The downward arrow shows the order / arrangement of the assets and liabilities on the basis of permanence or long lastingness
The upward arrow shows the order /arrangement of the assets and liabilities on the basis of liquidity.
Methods of determining the accounting income includes:
Cash Method of Accounting
Under this method, cash receipts are matched with the cash payments irrespective of the time period in order to determine the income.
Mercantile Method of Accounting
Under this method, time period is given greater importance than the actual receipts and payments. It records the receipts and expenses pertaining to the specified period whether them are actually received /paid or not. The receipts as well as payments of the other periods should be ignored /eliminated in determining the income of the stipulated duration. It is popularly known in other words as "Accrual Accounting System".
Next stage is to classify the types of income of the enterprise:
To determine income of the business, what should be in character ? Either in accounting income or taxable income.
Taxable income can be computed from the transactions of the enterprise but they are subject to frequent modifications on the tax provisions from one year to another year. This cannot be uniquely found out unlike the accounting income. The accounting income should have to be found out only to the tune of accounting principles and concepts.
The process of final accounts diagram is illustrated in the next page for easier understanding not only to adopt the mercantile system of accounting but also to implement the duality principle of accounting throughout the transactions.
The adjustment entries are classified into three segments viz on expenses, incomes and others.
The adjustment entries on expense can be classified into two categories
From the following information extracted from the books of Jain & Co, Prepare Trading, Profit & Loss A/c for the year ended and Balance sheet as on that date.
From the following information drawn from the books of M/s Sundaran & Co prepare Trading, Profit & Loss account for the year ended 31st Mar, 2004 and Balance sheet as on dated
From the following figures extracted from the books of M/s Amal &Vimal 31st Mar, 02
a. The partners share profit and losses Amal 2/5 and Vimal 3/5
b. closing stock Rs. 15, 000
c. stock valued at Rs. 10, 000 was destroyed by fire but insurance company admitted
a claim of 8, 500 only and the claim is not yet paid.
d. Wages include Rs. 2, 000 for installation of anew machinery on 1st Dec., 2005
e. Depreciate the machinery at 10% per annum
Due to the difference in the trial balance, an examination of the goods was conducted which reveals following errors. Rs. 25 paid to the conveyance was debited to motor van maintenance account Rs. 2, 000 drawn from bank towards for establishment charges was omitted to posted in to ledger. Cash column in the cash book on the receipt side stands excess total by Rs. 400
To prepare the trial balance, the following necessary corrections should be made on the respective accounting heads given.
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