Core concepts
- 01Final Accounts = Trading A/c + Profit & Loss A/c + Balance Sheet.
- 02Trading A/c shows Gross Profit/Loss; P&L A/c shows Net Profit/Loss.
- 03Adjustments (outstanding, prepaid, accrued, depreciation, bad debts) ensure matching principle.
- 04Closing stock valued at cost or NRV, whichever is lower (AS-2).
- 05Capital + Net Profit − Drawings = Closing Capital.
Flowchart
Trial Balance | v Adjustments --> Trading A/c (GP) | | v v P&L A/c ------> Net Profit | v Balance Sheet (Assets = Liab + Cap)
Exam-critical pointers
- ⭐Every adjustment hits final accounts twice (P&L and Balance Sheet).
- ⭐Manager's commission can be on profit before or after charging — read carefully.
- ⭐Goods withdrawn for personal use: deduct from purchases, add to drawings.
- ⭐Abnormal loss of stock: credit Trading A/c at cost; insurance claim shown separately.
Make it click