Karthik and Jones are partners sharing profits and losses in equal ratio. From the following Trial Balance you are required to prepare Trading and Profit & Loss account for the year ended 31st March, 2014 and Balance Sheet as on that date after taking into consideration the additional information.

Financial Statements for Karthik & Jones

Financial Statement Preparation

Trial Balance as on 31st March, 2014

Additional Information (Adjustments)

  1. Closing stock on 31st March was valued at cost ₹60,000 or market price ₹50,000. (Note: Stock is always valued at cost or market price, whichever is lower).
  2. Provide 10% p.a. interest on Capital.
  3. Depreciate plant at 10% p.a.
  4. Jones’s withdrawal of goods worth ₹1,000 for personal use was not recorded in the books.

Solution: In the books of Karthik & Jones

Trading A/c for the year ended 31.03.14

Profit and Loss A/c for the year ended 31.03.14

Partners' Capital A/c

Balance Sheet as on 31.3.14

Glossary of Terms

Assets
Economic resources owned by the business that have future economic value. Examples: Land, Plant, Cash, Debtors.
Bad Debts
An amount owed to a business that is written off because it is unlikely to be collected from the debtor.
Balance Sheet
A financial statement that reports a company's assets, liabilities, and owner's equity at a specific point in time. It shows what a company owns and owes.
b/d (brought down)
An opening balance in an account that has been brought down from the previous accounting period or from the top of the account.
Capital
The money or other assets invested in a business by its owners (partners or shareholders).
c/d (carried down)
A closing balance in an account that will be carried down to the next accounting period as the opening balance (b/d).
Credit
An entry on the right side of an account. It increases liability, equity, and revenue accounts, and decreases asset and expense accounts.
Creditors
Persons or companies to whom the business owes money for goods or services supplied on credit (also known as Accounts Payable).
Debit
An entry on the left side of an account. It increases asset and expense accounts, and decreases liability, equity, and revenue accounts.
Debtors
Persons or companies who owe money to the business for goods or services sold on credit (also known as Accounts Receivable).
Depreciation
The systematic allocation of the cost of a tangible asset over its useful life. It represents the wear and tear of an asset.
Drawings
The withdrawal of cash or goods from the business by its owner(s) for personal use.
Expenses
The costs incurred in the process of earning revenue. Outstanding Expenses are costs that have been incurred but not yet paid.
Gross Profit
The profit a company makes after deducting the costs associated with making and selling its products. It is calculated as Sales minus the Cost of Goods Sold.
Liabilities
The financial obligations or debts owed by the business to other entities. Examples: Creditors, Loans.
Net Profit
The actual profit of the business after all operating expenses, interest, and taxes are deducted from the gross profit.
p.a. (per annum)
An abbreviation for 'per annum', which means "for each year" or "annually".
Partners' Capital Account
A separate ledger account maintained for each partner. It tracks the partner's initial investment, plus any additions (like interest, profit share) and minus any deductions (like drawings), to determine their final capital balance at the end of the period.
Profit and Loss A/c (Account)
A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period. It shows the net profit or net loss of the company.
Purchases
The total amount of goods bought by a business for the purpose of resale.
Reserve for Doubtful Debts
An amount set aside from profits to cover potential future bad debts. It is an estimate of the debts that may not be recoverable from customers. An existing reserve from a Trial Balance is used to offset the current year's bad debts expense.
Salaries
Fixed regular payments made by an employer to an employee, typically for administrative or managerial roles.
Sales
The total revenue generated from selling goods or services.
Stock (Inventory)
The goods and materials that a business holds for the ultimate purpose of resale. Opening Stock is the stock at the beginning of an accounting period, and Closing Stock is the stock at the end.
Trading Account
The first stage in preparing final accounts. It is prepared to find out the gross profit or gross loss made from the buying and selling of goods.
Trial Balance
A bookkeeping worksheet in which the balance of all ledgers are compiled into debit and credit account column totals that are equal. It is used to check the arithmetical accuracy of the books.
Wages
Payments made to employees for their labor, typically calculated on an hourly, daily, or piecework basis and related to direct production.
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