Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 1 Final Accounts (without adjustment), NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
Every business needs to know if it is earning money or losing it. To understand this, it makes certain reports called Final Accounts or Financial Statements. These reports show how much money a business makes and what it owes or owns at the end of the year.
Final Accounts include three important parts: Trading Account, Profit and Loss Account, and Balance Sheet.
The Trading Account checks if the business made a profit by selling goods. It shows the money spent on buying and making goods and the money received from selling them. If the money from sales is more, the business earns a profit. If the money spent is higher, it faces a loss.
A Profit and Loss Account tells how much money is left after paying all the other costs of running the business. It includes expenses like salaries, rent, electricity bills, and advertisement costs. If there is money left after paying all these, it means the business earned a net profit. But if expenses are more, the business faces a net loss.
The Balance Sheet shows what the business owns (assets) and what it owes to others (liabilities) on a certain day, usually the last day of the accounting year. Assets include money in the bank, goods not yet sold, buildings, and machinery. Liabilities are amounts the business must pay to others, like loans from banks or payments due to suppliers.
Though these reports are helpful, they also have some limits. They only measure things in money and miss important facts like how happy the workers are or how well managers lead the team. Different companies may follow different ways to count costs and profits, which can cause confusion. They also don’t show how price changes affect business or consider the value of people who work there. Lastly, they mostly focus on the owner’s interests and do not show the needs of other groups like customers or the government.
When making these accounts, businesses first record all their dealings carefully in journals and ledgers, then use this information to create a trial balance. The trial balance helps in making the final accounts correctly.
The Final Accounts are necessary for every business. They clearly show the earnings, expenses, and how strong or weak the financial position of a business is at a given point. These statements help business owners and others understand whether the business is healthy or facing problems.
Textbook solutions
Multiple Choice Questions (MCQs)
1. A creditor is a person who:
a. Sells good to the business on credit
b. Owes money to the business
c. Receives benefit from the business
d. Collects money on behalf of sellers
Answer : a. Sells good to the business on credit
2. A debtor is a person:
a. To whom goods are sold for cash
b. Who owes money to the business
c. Who gives some money to the business
d. Who acts on behalf of the business
Answer : b. Who owes money to the business
3. Which of the following is not an advantage of bookkeeping?
a. It helps in tracing a transaction
b. It helps in recording non-monetary transactions
c. It keeps a check on regularity of staff
d. It is helpful in accurate recording
Answer : b. It helps in recording non-monetary transactions
4. The statement of assets and liabilities is a:
a. Balance sheet
b. Trial balance
c. Trading account
d. Profit and loss account
Answer : a. Balance sheet
5. Final accounts are prepared:
a. At the end of calendar year
b. At the end of assessment year
c. At the end of accounting year
d. On Christmas
Answer : c. At the end of accounting year
Very Short Answer Type Questions
1. What are the stages of a Final Account?
Answer: The stages of a Final Account include:
i. Trading Account
ii. Profit & Loss Account, and
iii. Balance Sheet
2. Name three items that should come on the credit side of a Debtor’s account.
Answer: Three items that should come on the credit side of a Debtor’s account are:
A. Bills receivable
B. Discount allowed
C. Return inwards
3. How are expenses on acquiring goods treated?
Answer: Expenses on acquiring goods are treated as direct expenses and appear in the trading account of the final accounts and are critical to ascertain gross profit.
4. Give three points of difference between Bookkeeping and Accountancy.
Answer: Three points of difference between Bookkeeping and Accountancy are:
i. Bookkeeping is an activity to record financial transactions in a systematic manner while accountancy is orderly recording and reporting of the financial transactions for a particular period.
ii. Bookkeeping does not show the financial position of business while accountancy presents the financial position of the business.
iii. Bookkeeping doesn’t need any special skill sets while accountancy does need special skill sets to prepare it.
5. Show any two differences between Profit & Loss Account and Balance Sheet.
Answer: Two differences between Profit & Loss Account and Balance Sheet are:
i. Only nominal accounts are entered in the profit and loss account while balance sheet records personal and real accounts.
ii. The objective of preparing profit and loss account is to ascertain the net profit or loss of the business. On the other hand, The purpose of preparing the balance sheet is to understand the financial position of the business.
Short Answer Type Questions
1. What are the main rules for debiting and crediting various accounts?
Answer: The main rules for debiting and crediting various accounts are:
i. In the case of personal accounts, debit is the receiver of benefit and credit is the giver of benefit.
ii. In the case of real accounts, debit is what comes in and credit is what goes out.
iii. In the case of nominal accounts, debit is all expenses and losses while credit is all gains and incomes.
2. What is a Trading Account?
Ans: An income statement prepared with the cost of raw materials, purchases and direct expenses (expenses on acquiring and manufacturing goods) to ascertain gross profit or loss is known as a ‘Trading Account’.
3. What is the purpose of a Balance Sheet?
Answer: The main objectives of a Balance Sheet is to assess the financial position of a firm. It is the list of assets and liabilities of a firm on a specific date. The short-term
long-term financial positions of a firm can be studied by analysing a Balance Sheet’
4. How do you calculate Gross Profit? Explain in brief.
Answer: The main purpose of preparing a trading account is to ascertain gross profit or gross loss. Excess of the credit side over the debit side of a trading account is gross profit. It is the company’s profit before operating expenses, payment of interest and taxes and reflects total revenue minus the cost of goods sold.
5. Name some direct and indirect expenses.
Answer: Some direct expenses are: Carriage and cartage (inward), Freight inward, Octroi and local taxes, Excise duty, Import duty, landing and clearing charges. Some indirect expenses are: Salaries, Office expenses, Staff Welfare Expenses, Establishment expenses, Carriage on sales, audit fee etc.
Long Answer Type Questions
1. What is the utility of Financial Statements? Why are they important?
Answer: Financial statements are prepared to ascertain a firm’s income as well as to assess the position of its assets and liabilities. They are important because of the following reasons:
i. They are important because every firm needs to measure the performance of its business operations in terms of profit or loss.
ii. They are also important because a business also needs to know the values of its assets and liabilities on the closing date of the accounting period which the financial statements facilitate.
iii. Final accounts consist of trading account, profit and loss account, and balance sheet. A trading account shows the gross profit or gross loss, while a profit and loss account shows net profit or net loss. The balance sheet exhibits the position of a firm’s assets and liabilities on a particular date.
2. What are the objectives of Accountancy?
Answer: The main objectives of accountancy are as follows:
i. Record of Financial Transactions and Events: The main objective of accountancy is to keep a systematic record of financial transactions or events of an organisation in the books of accounts according to the specified rule.
ii. Determine Financial Position: For a businessman, merely ascertaining profit or loss of the business is not sufficient. The businessman must also know the financial health of the business. To achieve this objective, after preparing the Profit & Loss Account, a Position Statement (also called Balance Sheet) is prepared.
iii. Communicating Accounting Information to Users: Another main objective of accountancy is to communicate accounting information to the various interested parties like owners, investors, creditors, bankers, employees and government authorities, etc. who analyse them as per their individual requirements.
iv. Determine Profit or Loss: The main objective of accountancy is to determine the financial performance, i.e., profit earned or loss incurred, for the accounting period. For this purpose Trading and Profit & LossAccount or Statement of Profit and Loss (in case of companies) is prepared at the end of each accounting year.
v. Assisting the Management: Another objective of accountancy is to assist the management by providing financial information to it. The information helps the management in taking sound and judicious decisions about the business entity.
3. Explain the following terms:
i. Current assets
ii. Current liabilities
iii. Working capital
Answer: i. Current assets represent all the assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations, which can lead to their conversion to a cash value over the next one year period. Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre- paid liabilities and other liquid assets.
ii. Current liabilities are a company’s debts or obligations that are due within one year or within a normal operating cycle. Furthermore, current liabilities are settled by the use of a current asset, such as cash, or by creating a new current liability. Current liabilities appear on a company’s balance sheet and include short-term debt, accounts payable, accrued liabilities, and other similar debts.
iii. Working capital, also known as net working capital, is the difference between a company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, like accounts payable.
Practical Questions
Questions
1. Prepare the Trading Account of Mr. Atsu Kense from the following balances for the year ending December 31, 2010:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| Sales | 2,45,800 | Factory rent | 3,200 |
| Purchases | 1,18,700 | Wages | 63,000 |
| Return Outward | 3,200 | Fuel and Power | 2,800 |
| Return Inward | 4,300 | Stock on January 1 | 16,600 |
| Carriage Inward | 900 | Stock on December 31 | 13,400 |
| Manufacturing Expenses | 1300 |
Solution: Check below
2. Using the following information derived from the books of Otoka, prepare a Trading Account as on December 31, 2011:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| Opening Stock | 4,465 | Wages of warehouse workers | 3,848 |
| Purchases | 14,886 | Customs duty on imported purchases | 1,520 |
| Sales | 31,884 | Warehouse expenses | 2,145 |
| Carriage inward | 325 | Closing stock | 3,668 |
| Purchases returns | 715 | ||
| Sales returns | 535 |
Solution: Check below
3. From the following information, prepare a trading account for the year ending December 31, 2013, in the books of Keval Sema:
| Particulars | Amount (₹) |
| Salaries | 6,000 |
| Opening Stock | 64,600 |
| Purchases | 94,600 |
| Rent and taxes | 1,800 |
| Freight and carriage on goods purchases | 11,700 |
| Carriage on goods sold | 2,300 |
| Sales | 1,84,000 |
| Purchase returns | 2,000 |
| Closing stock | 60,000 |
| Wages | 11,780 |
Solution: Check below
4. From the following details extracted from the books of Tania Tep, prepare her Trading Account for the year ending December 31, 2016:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| Purchases | 56,800 | Motive power (gas, electricity, water etc.) | 5,800 |
| Productive wages | 23,000 | Fuel (coal and coke) | 2,500 |
| Sales | 1,62,400 | Royalties | 6,000 |
| Purchases returns | 2,300 | Excise duty | 2,400 |
| Sales returns | 4,500 | Factory rent and lighting | 3,200 |
| Carriage inward | 5,600 | Opening stock | 12,800 |
| Stores consumed | 1,200 | Closing stock | 17,400 |
Solution: Check below
5. From the following balances extracted from the books of Hilo Bamboo Farms, prepare a trading and profit and loss account as on December 31, 2014:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| Purchases | 1,50,000 | Rent, rates and taxes | 2,450 |
| Sales | 2,70,000 | Interest received | 540 |
| Returns outward | 20,000 | Discount allowed | 600 |
| Returns inward | 30,000 | Discount received | 460 |
| Wages | 25,000 | Insurance charges | 500 |
| Salaries | 15,000 | Bad debt | 650 |
| Carriage inwards | 3,000 | Trade expenses | 200 |
| Duty and clearance charges | 500 | Advertisement | 900 |
| Carriage outwards | 2000 | Depreciation: on plant | 1,250 |
| on furniture | 300 | ||
| Factory rent | 2,500 | Stock on 1.1.14 | 37,000 |
| Office rent | 1,500 | Stock on 31.12.14 | 55,000 |
| Fuel and power | 1,000 | ||
| Travelling and conveyance | 950 |
Solution: Check below
6. Ikalo is a retail trader. From the following trial balance, please prepare Ikalo’s Trading Account and Profit and Loss Account for the year ended December 31, 2016, as well as a Balance Sheet as of that date.
Trial Balance as of December 31, 2016:
| Particulars | ₹ (Dr) | ₹ (Cr) |
| Ikalo’s capital | 14,400 | |
| Stock on January 1, 2016 | 9,600 | |
| Rent and rates | 4,560 | |
| Purchases | 51,120 | |
| Carriage inwards | 840 | |
| Fixtures and fittings | 4,800 | |
| Sales | 87,840 | |
| Cash at bank | 6,480 | |
| Returns inward | 1,800 | |
| Trade expenses | 2,040 | |
| Sundry creditors | 9,600 | |
| Cash in hand | 360 | |
| Discount received | 2,160 | |
| Discount allowed | 960 | |
| Sundry debtors | 2,760 | |
| Ikalo’s drawings | 6,600 | |
| Salaries | 11,280 | |
| 1,12,800 | 1,12,800 |
The stock in hand on December 31, 2016, was valued at ₹ 11,000.
Solution: Check below
7. The following trial balance was taken from the books of Wekong Timber Industries Ltd. on December 31, 2009.
| Particulars | ₹ | ₹ |
| Stock on January 1, 2009 | 67,600 | |
| Bank overdraft | 10,270 | |
| Purchase and sales | 1,17,000 | 1,69,000 |
| Discount | 910 | |
| Rent and rates | 9,230 | |
| Capital | 91,000 | |
| Motor vans | 6,890 | |
| Return inwards | 2,600 | |
| Return outwards | 1,560 | |
| Bad debts | 628 | |
| Furniture and fittings | 4,810 | |
| Drawings | 3,770 | |
| Insurance | 572 | |
| Salaries | 12,350 | |
| Sundry debtors and creditors | 92,950 | 50,960 |
| Trade debts | 5,300 | |
| 3,23,780 | 3,23,780 |
Closing stock on December 31, 2009 was ₹ 46,670. Prepare the trading account, profit and loss account, and balance sheet from the above trial balance.
Solution: Check below
8. The following balances were extracted from the books of Kohino Textiles Ltd. as on March 31, 2024. Please prepare a Trial Account, Profit and Loss Account, and Balance Sheet on that date. The closing stock on that date was ₹ 15,000.
| Particulars | Dr. (₹) | Cr. (₹) |
| Capital | 1,28,200 | |
| Household expenses | 10,000 | |
| Sales | 1,80,000 | |
| Return inwards | 4,000 | |
| Return outwards | 6,000 | |
| Purchases | 1,60,000 | |
| Cash at shop | 1,600 | |
| Bank overdraft | 15,000 | |
| Creditors | 17,800 | |
| Stock at the commencement | 18,000 | |
| Freight | 8,500 | |
| Rent and taxes | 7,000 | |
| Debtors | 32,600 | |
| Commission (Dr.) | 3,000 | |
| Commission (Cr.) | 2,200 | |
| Freehold property | 11,500 | |
| Sundry expenses | 3,900 | |
| Salaries and wages | 11,500 | |
| Life insurance premium | 1,800 | |
| Insurance premium | 1,600 | |
| Motor vehicle | 39,800 | |
| Typewriter | 8,000 | |
| Interest (Cr.) | 800 | |
| Carriage inwards | 2,000 | |
| Carriage outwards | 800 | |
| Power | 2,200 | |
| Audit fee | 1,700 | |
| Lighting | 2,000 | |
| Total | 3,50,000 | 3,50,000 |
Hint: Life insurance premium is treated as drawings.
Solution: Check below
9. From the following trial balance of Neiphiu Tetseo, prepare a Trading Account, and profit and Loss Account as on December 31, 2011, as well as a Balance Sheet as on that date:
| Particulars | Dr. (₹) | Cr. (₹) |
| Capital | 17,800 | |
| Cash in hand | 168 | |
| Cash at bank | 6,348 | |
| Stock as on January 1, 2011 | 9,000 | |
| Sales returns and Sales | 2,000 | 59,000 |
| Purchases and purchases returns | 35,000 | 238 |
| Debtors and Creditors | 11,980 | 20,000 |
| Discounts allowed and received | 1,000 | 200 |
| Wages | 2,400 | |
| Carriage inwards | 240 | |
| Electricity | 4,150 | |
| Rent and rates | 3,000 | |
| Miscellaneous expenses | 1,000 | |
| Salaries | 2,856 | |
| Drawings | 4,000 | |
| Office expenses | 1,600 | |
| Freehold premises | 3,000 | |
| Motor vehicle | 4,000 | |
| Fixtures and fittings | 5,200 | |
| Depreciation | 700 | |
| Interest and commission received | 404 | |
| Total | 97,642 | 97,642 |
Solution: Check below
10. A Trial Balance shows the following balances as of March 31, 2016:
| Dr. Balances ₹ | Cr. Balances ₹ | |
| Purchases | 60,000 | |
| Sales returns | 1,500 | |
| Plants and machinery | 90,000 | |
| Opening stock | 40,000 | |
| Discount allowed | 350 | |
| Bank charges | 100 | |
| Sundry Debtors | 45,000 | |
| Salaries | 7,000 | |
| Wages | 10,000 | |
| Freight in | 1,000 | |
| Freight out | 1,200 | |
| Rent, rates and taxes | 2,000 | |
| Advertisement | 2,000 | |
| Cash at bank | 7,000 | |
| Capital | 1,13,075 | |
| Sales | 1,27,000 | |
| Purchases returns | 1,275 | |
| Discount received | 800 | |
| Sundry creditors | 20,000 | |
| Bills payable | 5,000 | |
| Total | 2,67,150 | 2,67,150 |
Closing stock was valued at ₹ 35,000. Prepare Trading Account, Profit and Loss Account, and Balance Sheet as on March 31, 2016.
Solution: Check below
Solutions
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Extras
Additional questions and answers
1. Define financial statements.
Answer : Financial statements are statements prepared to ascertain a firm’s income as well as to assess the position of its assets and liabilities. These statements are also known by their traditional name as ‘Final Accounts’.
54. Explain the importance of maintaining provisions and reserves in a profit and loss account.
Answer : The importance of maintaining provisions and reserves in a profit and loss account is:
- To meet future uncertainties by setting aside amounts from the net profit earned by the firm.
- To ensure effective provision for unforeseen events, enabling the business to handle risks and contingencies.
Additional MCQs
1. What are Final Accounts also known as?
A. Financial statements
B. Income books
C. Ledger entries
D. Journal entries
Answer: A. Financial statements
58. A Trial Balance is best described as a:
A. Final statement
B. List of ledger balances
C. Draft Balance Sheet
D. Profit summary
Answer: B. List of ledger balances
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