This GSEB Class 12 Commerce Accounts Notes Part 1 Chapter 2 Final Accounts (Financial Statements) of Partnership Firm covers all the important topics and concepts as mentioned in the chapter.
Final Accounts (Financial Statements) of Partnership Firm Class 12 GSEB Notes
We studied final accounts of ownership concerns in standard XI. Similar to that in the partnership concerns final accounts are also prepare. Here, final accounts are prepare with an intention to get idea/ distribution of profit and loss among partners. With these accounts one can know profit or loss of the firm and financial status of the business.
To prepare final accounts of partnership firm, one has to take help of trial balance and has to consider the given adjustments at the end of financial year.
In the final accounts of partnership to know gross profit or gross loss Trading A/c, to know net profit or net loss Profit and Loss A/c, an account showing distribution of profit and loss among partners Profit and Loss Appropriation A/c and to know financial position of the business, Balance Sheet are to be prepared. Moreover to record accounting transactions of the partners with firm, partners’ Capital Accounts or Current Accounts are also to be prepared. In detail we will study above things in this chapter.
→ While preparing final accounts of partnership firm, Trading A/c, Profit and Loss A/c. Profit and Loss Appropriation A/c’s are prepare for the year ending on date means, they are prepared at the end of the financial year. While Balance Sheet of the firm is prepare for the year as on date Remember balance sheet is not an account, it is a statement.
→ Many a times, it is not clearly mentioned that account has debit balance or credit balance. In this situation considering these kind of balances as debit balance, give the effects e.g. Interest, Dalali, Commission, Rent, Discount, Allowance etc.
→ Pass only one effect for the balances given in the trial balance and at least two effects for every adjustments.
→ Pass only one effect for the following particulars shown in the trial balance
- Closing stock – On Asset – Receivable side of balance sheet
- Stationery stock – On Asset – Receivable side of balance sheet
- Prepaid expenses – On Asset – Receivable side of balance sheet
- Receivable incomes – On Asset – Receivable side of balance sheet
- Unpaid expenses- On Capital – Liability side of balance sheet
- Pre-received income On Capital – Liability side of balance sheet
- Depreciation fund – On Capital – Liability side of balance sheet
- Pre-received apprentice premium – On Capital – Liability side of balance sheet
- Depreciation on Asset – On Debit side of Profit and Loss Account
- Goods goes out by any means – On debit side of Trading A/c. Subtract it from Purchase A/c.
→ If closing stock value is given in the trial balance, then it implied that result of Trading A/c is given in the trial balance or corrected Trading A/c is to be prepare.
→ When Adjusted purchase is given in the trial balance then closing stock of goods given in the trial balance is to be shown on Asset-Receivables’ side of Balance sheet.
Remember, Adjusted Purchase = Opening stock of goods + Net purchase – Closing stock of goods
→ Consider closing stock of goods at cost price or market price whichever is less.
→ In the trial balance when balance is given with date or percentage (%), then it suggest hidden adjustment related with that balance.
→ If ‘Salary and wages’ is given in the trial balance write it on debit side of profit and loss A/c and if ‘Wages and Salary’ is given, write it on debit side of Trading A/c.
→ ‘Trading expense’ given in the trial balance, is to be recorded on debit side of profit and loss account. But when ‘Trading expense’ and ‘Office expense’ both are given in the trial balance then write Trading expense on debit side of Trading A/c and office expense on debit side of profit and loss A/c.
→ While calculating amount for interest on capital, Interest on drawings, depreciation on assets, insurance premium, Lease hold assets, Apprentice premium etc. consider the date factor. If specific date is not given then calculate the amount from the starting date of accounting period.
→ Goods return – debit means purchase return. It has always credit balance.
- Goods return – credit means sales return. It has always debit balance.
- Irrecoverable amount means bad debts which has always debit balance Provision for doubtful debts or Bad debts reserve has always credit balance.
- Discount fund-debit means Discount reserve on debtors, which has always credit balance. Discount fund-credit means Discount reserve on creditors, which has always debit balance.
→ Providend fund is a liability for the business, and it is to be shown on Capital – Liability side of Balance sheet.
Investment of Providend fund is an asset for the business and it is to be shown on Asset side of Balance sheet.
Interest on investment of Providend fund will be added in the balance of Providend fund on capital liability side of balance sheet.
→ Contribution to Providend fund is an expense for the business, and is to be shown on debit side of profit and loss account.
→ While calculating depreciation on asset, remember,
- Calculate depreciation on the opening balance of an asset.
- During the year, if there is an increase in the asset, then calculate depreciation from the date of purchase of asset to the last date of financial year. Similarly, if there is decrease in the asset then calculate depreciation from the first date of the accounting year to the date of asset decreased. And on remaining asset calculate depreciation for the full year.
- When depreciation amount is given in the trial balance, write it on debit side of profit and loss account. Do not try to subtract it from the concern asset on the asset- receivable side of balance sheet .
- When asset is revalued then difference between original value and revalued value will be considered as depreciation.
- To get written off value/depreciation amount for leasehold asset, divide the given value by number of years for which asset is taken on lease.
- When depreciation on asset is to be calculated by straight line method or equal installment method, calculate it on cost price of an asset. Here, amount of depreciation remains same for every year. But if depreciation on asset is to be calculated by diminishing balance method or by reducing balance method. Calculate it on book value of an asset i.e. opening balance of an asset. Here, amount of depreciation changes every year.
→ When depreciation fund on asset is given in the sum, then amount of depreciation on asset will be recorded on debit side of Profit and Loss A/c and will be added in depreciation fund amount on capital-liability side of balance sheet. In this situation, asset is shown in the balance sheet at its cost price only.
→ When depreciation amount is given in the trial balance for some asset and as per adjustment, depreciation is required to be increased. Then add depreciation amount given in the trial balance to the depreciated value of asset and then calculate depreciation (new) as per given percentage in the adjustment. Show this new depreciation amount on the debit side of Profit and Loss A/c and subtract this new depreciation amount from the total amount of asset.
→ If depreciation is required to be decreased then add depreciation amount given in the trial balance to the depreciated value of asset and then calculate depreciation (new) as per given percentage in the adjustment. Show this new deprecation amount on the debit side of Profit and Loss A/c and subtract this new depreciation amount from the total amount of asset.
→ From the debtors subtract bad debts, bad debts reserve and discount reserve on debtors respectively and show these amounts on the debit side of Profit and Loss A/c (As per format). Write net amount in the outer column. If answer of the format comes to negative (-) then show this amount on the credit side of Profit and Loss A/c. Remember that bad debts reserve is to be calculated always on goods debtors, not on doubtful debts.
→ When bad debts reserve is given in the trial balance only and during the accounting year if bad debts is not incurred and in the adjustments also if bad debts reserve adjustment is not given then B.D.R.(old) shown in the trial balance will be deducted from the debtors amount on asset- receivable side of balance sheet. If bad debts reserve amount is given in the trial balance only and in the adjustments, it is given that ‘Bad debts reserve is not required now’ then write B.D.R. (Old) on the credit side of profit and loss account.
→ After giving effects of all adjustments related to debtors, give the effects of Bad debts (A), B.D.R. (A) and Discount reserve on debtors [D.R.D. (A)] respectively.
→ When there is difference in the total of two sides of trial balance then write difference amount to ‘suspense Account’.
If suspense account has debit balance, show it to Asset-Receivable side of Balance sheet and if it has credit balance, show it to capital-liability side of Balance sheet. If ‘suspense account’ balance is given in the trial balance, then also follow the same process.
→ Sales Tax amount-write it on debit side of Profit and Loss A/c. While Income Tax amount consider it as a partner’s drawings.
If income tax refund is there transfer that amount to partner’s capital A/c.
If Partners Current account is given, write income tax refund amount on the credit side of partners’ Current account.
→ In the trial balance when opening stock of stationery and purchase of stationery is given and in the adjustments closing stock of stationery stock is given then, (1) Show the amount of consumption of stationery on the debit side of profit and loss A/c. Where consumption of stationery = Opening stock of stationery + purchase of stationery – closing stock of stationery. (2) Show the amount of closing stock of stationery on the Asset- receivable side of Balance sheet.
→ While giving the effects of adjustment for rectification then pass first effect of wrong things done and then only pass the effect for correct things.
→ When it is not clearly mention for the preparation of profit and loss appropriation A/c, then particulars of Profit and Loss Appropriation A/c is to be shown in the profit and loss A/c and transfer divisible profit or loss amount to Partners’ Capital/Current A/c.
→ In the sum when Partners’ Capital Accounts are only given then prepare partners’ capital accounts and give effects of transaction of partners with the firm in the partners’ capital accounts only. Final balance of these partners’ capital accounts are shown on the capital liability side of balance sheet.
→ In the sum when Partners’ Capital accounts and Current accounts both are given, then show capital account balance directly in the balance sheet as capital of partners and in current account give the effects of transactions of partners with the firm in the current account and final balance of current account will be shown in the Balance sheet.
When partners current account shows credit balance then show it on the capital = liability side of balance sheet and if it shows debit balance then show it on the asset- receivable side of balance sheet.
→ When rate of interest on loan of partner is not clearly mention then calculate it at 6% p.a. and show interest on loan on debit side of profit and loss account considering it as an expense for the business.
→ When partner of a firm is to be paid commission on net profit after charging such commission, then calculate it by using following formula.
Partner’s commission = Net Profit (Before commission) × \(\frac{\% \text { of Commission }}{100+\% \text { of Commission }}\)
→ In the partnership final accounts, show the capitals, drawings, current account balance etc. of every partner with their name only. E.g. Akash’s capital, Alap’s salary, Alap’s drawings
Adjustment, Adjustment Entry and Its Effects in Annual Accounts
| Adjustment | Adjustment Entry | Effects in Annual Accounts |
| 1. Closing stock | Closing stock A/c Dr. To Trading A/c |
1. Credit side of the Trading A/c 2. Assets side of Balance Sheet |
| 2. Outstanding expenses | Expenses A/c Dr. To Outstanding exp. A/c |
1. Add in the particular exp. in the debit side of Trading A/c or P & L A/c 2. Liability side of the Balance Sheet |
| 3. Pre-paid exp. or Expense paid in advance | Pre-paid exp. A/c Dr. To Respective Exp. A/c |
1. Deduct it from respective exp. on debit side of Trading or P&L A/c 2. Assets side of the Balance Sheet |
| 4. Receivable incomes. (Incomes due but not received) | Receivable income A/c Dr. To Respective income A/c | 1. Add in the respective income of credit side of the P&L A/c 2. Assets side of the Balance Sheet |
| 5. Incomes received in Advance | Income A/c Dr. To Income received Adv.A/c |
1. Deduct from the income of credit side of P&L A/ c 2. Liability side of the Balance Sheet |
| 6. Depreciation on assets | Depreciation A/c Dr. To Respective Assets A/c |
1. Debit side of the P&L A/c 2. Deduct from respective assets of Assets side of Balance Sheet |
| 7. Bad debts written off (new/additional) | Bad debts A/c Dr. To Debtors A/c |
1. Debit side of P&L A/c add. in the old B.D. 2. Deduct from the debtors assets side of Balance Sheet. |
| 8. Provisions for Bad Debt Reserve | P & L A/c Dr. To Bad debt reserve A/c |
1. Debit side of P & L A/c 2. Deduct from the debtors, Assets side of Balance Sheet. |
| 9. Provisions for Discount Reserve on the Debtors (Dr. Discount Fund) | P & L A/c Dr. To Discount reserve |
1. Show in the Debit side of the P & L A/c or add. in old discounts. 2. Deduct from the debtors from Assets of Balance Sheet. |
| 10. For unrecorded credit purchase | Purchase A/c Dr. To Creditors A/c |
1. Add. in the purchase at debit side of Trading A/c. 2. Add. in the Creditors of Liability side of Balance Sheet. |
| 11. For unrecorded credit sales | Debtors A/c Dr. To Creditors A/c |
1. Add. in the sale of credit side of Trading A/c 2. Add. in the Debtors of Assets side in Balance Sheet |
| 12. For unrecorded credit purchase return | Creditors A/c Dr. To Purchase return A/c |
1. Liability side of Balance Sheet deduct it from Creditors 2. Debit side of Trading A/c, deduct from purchase |
| 13. For unrecorded credit sales return | Sales return A/c Dr. To Debtors A/c |
1. Credit side of Trading A/c deduct from sales 2. Assets side of balance sheet deduct from debtors |
| 14. Purchase return recorded to sales book | 1. Sales A/c Dr. To Debtors A/c |
1. Credit side to Trading A/c deduct from Sales 2. Asset side of Balance Sheet deduct from Debtors |
| 2. Creditors A/c Dr. To Purchase return A/c |
1. Liability side of Balance Sheet deduct from Creditors 2. Debit side of Trading A/c deduct from Purchase A/c |
|
| 15. Sales return recorded in purchase book | 1. Creditors A/c Dr. To Purchase A/c |
1. Liability side of Balance, Sheet deduct from Creditors 2. Debit side of Trading A/c deduct from Purchase |
| 2. Sales return A/c Dr. To Debtors A/c |
1. Credit side of Trading A/c deduct from sales 2. Asset side of Balance Sheet deduct from Debtors |
|
| 16. Credit purchase recorded in sales book | 1. Sales A/c Dr. To Debtors A/c |
1. Debit side of Trading A/c, deduct from Sales. 2. Asset side of Balance Sheet deduct from Debtors |
| 2. Purchase A/c Dr. To Creditors A/c |
1. Debit side of Trading A/c Add. it to Purchase 2.. Liability side of Balance Sheet add it to Creditors |
|
| 17. Credit sales recorded in purchase book | 1. Creditors A/c Dr. To Purchase A/c |
1. Liability side of Balance Sheet, deduct it from Creditors 2. Debit side of Trading A/c deduct it from Purchase |
| 2. Debtors A/c Dr. To Sales A/c |
1. Asset side of Balance Sheet, add it to Debtors 2. Credit side of Trading A/c, add it to Sales |
|
| 18. Purchase return recorded in sales return book | 1. Debtors A/c Dr. To Sales return A/c |
1. Add in Sales on credit side of Trading A/c. 2. Add in Debtors on Asset side of Balance Sheet |
| 2. Creditors A/c Dr. To Purchase return A/c |
1. Deduct from purchase on debit side of Trading A/c 2. Deduct from creditors on liability side of Balance Sheet |
|
| 19. Sales return recorded in purchase return book | 1. Purchase return A/c Dr. To Creditors A/c |
1. Add in purchase on debit side of Trading A/c 2. Add in creditors on liability side in Balance Sheet |
| 2. Sales return A/c Dr. To Debtors A/c |
1. Deduct from sales on credit side of Trading A/c 2. Deduct from debtors on Asset side of Balance Sheet |
|
| 20. Goods taken for personal use recorded as sates | 1. Sales A/c Dr. To Debtors A/c |
1. Deduct from sale on credit side of Trading A/c. 2. Deduct from Debtors on Asset side of Balance Sheet |
| 2. Drowings A/c Dr. To Purchase A/c |
1. Add in partner’s drawings on Liability side in B/S or on debit side of Partners capital/current A/c as amount of drawings. 2. On debit side of Trading A/c deduct from purchase (original value of drawings) |
|
| 21. If sales of assets is done but the entry has been done as credit sale in the books of A/c. | 1. Sale’s A/c Dr. To Debtors A/c 2. Debtors for sales of assets A/c Dr. (loss + depreciation) To Respective Assets A/c |
1. Deduct the selling cost from the sale on Cr. side of Trading A/c. 2. Deduct the selling price from the Debtors of Assets side of Balance Sheet 3. Show separately debtors for sale of assets in the assets side of Balance Sheet at book value. 4. Show loss by selling of assets and Depreciation up to date of sale in the debit side of P & L 5. Deduct book value of sold asset from the Assets of asset side of Balance Sheet. |
| 22. Expense on purchase of asset debited to other expense A/c | Asset A/c Dr. To Expense A/c |
1. Deduct from respective expense on debit side of Trading P&L A/c 2. Add to respective asset on Asset side of Balance Sheet. |
| 23. Written off the loss of cash balance | Misc Loss A/c Dr. To Cash A/c |
1. Misc loss on debit side of P & L A/c 2. Deduct from cash balance on asset side of Balance Sheet. |
| 24. Amount of Bad debts return credited to Debtors A/c | Debtors A/c Dr. To Bad debts return A/c |
1. Bad debts return on credit side of P & L A/c 2. Add in debtors on asset side of Balance Sheet. |
| 25. Amount of interest of EF. investment included in interest received | Interest A/c                               Dr. To Providend Fund A/c |
1. Deduct from interest deceived on credit side of P & L A/c 2. Add to providend fund on Asset side of Balance Sheet. |
| 26. Insurance company has accepted the claim by short amount in case of destroyed of goods by fire. | Insurance Co. A/c Dr. Goods loos by fire A/c Dr. To Purcahse A/c |
1. Deduct from purchase at original cost lost under goods destroyed by fire on debit side of Trading A/c 2. Loss amount debit side of P&L A/c 3. Claim amount on the assets side of Balance Sheet under Insuranse Co. A/c |
| 27. Goods issued for free sample | Advertisement Exp. A/c Dr. To Purchase A/c |
1. Debit side of P & L A/c 2. Debit side of Trading A/c, deduct from purchase |
| 28. Carry forward the certain amount of apprentice premium | Apprentice premium A/c Dr. To Received in advance Appre. premium A/c | 1. Deduct from apprentice premium on credit side of P & L A/c 2. On Liability side of Balance Sheet |
| 29. Closing stock of the printing & stationery | Stationery stock A/c Dr. To Stationery exp. A/c |
1. Deduct from the exp. of stationery on debit side of P & L A/c 2. Assets side of Balance Sheet closing stock of stationery |
| 30. Writting off the certain amount on lease hold property | P & L A/c Dr. To Lease hold propearty A/c |
1. Written off amount on the debit side of the P&L A/c. 2. Deduct from lease hold property on Assets side of Balance Sheet. |
| 31. Receivable Interest/ dividend on shares and other investments | Investment A/c Dr. To Interest/dividend A/c |
1. Credit side of Profit and Loss A/c 2. Asset side of Balance Sheet add. in investment |
| 32. Interest on borrowed loan | Interest A/c Dr. To Borrowed loan A/c |
1. Interest amount on debit side of P & L A/c 2. Add in borrowed loan on Liability side of Balance Sheet |
| 33. Interest on given (lend advanced) loan | Loan given A/c Dr. To Interest A/c |
1. Interest amount on credit side of P & L A/c 2. Add in Advanced loan on Asset side of Balance Sheet |
| 34. Amortization of intangible assets like goodwill, patent, trademark, copy right | Profit and Loss A/c Dr. To Respective intangible asset A/c |
1. Debit side of P & L A/c 2. Asset side of Balance Sheet deduct it from intangible asset |
| 35. Some amount written off frbm deferred revenue expenditure | P & L A/c Dr. To Deferred Revenue Exp. A/c |
1. Written off amount on debit side of P & L A/c 2. Deduct from deferred revenue exp. on Asset side of Balance Sheet |
| 36. Stock of advertisement material | Stock of Advt. material A/c Dr. To Advt. Exp. A/c | 1. Deduct from advt. exp. on debit side of P & L A/c 2. Stock of Advt. material on Asset side of Balance Sheet |
| 37. Written off the amount of Advt. suspense A/c | Written off Advt. Suspense A/c Dr. To Advt. Suspense A/c |
1. Written off amount of Advt. suspense A/c on debit side of P & L A/c 2. Deduct from Advt. Suspense A/c on Asset side of Balance Sheet |
| 38. Discounted Bills receivable is dishonoured | Debtors A/c Dr. To Bank A/c |
1. Add in Debtors on Asset side of Balance Sheet 2. Deduct from bank balance on Asset side or Add in bank overdraft on Liability side of Balance Sheet |
| 39. Dishonoured of endorsed bill | Debtors A/c Dr. To Creditors A/c |
1. Add in Debtors on Asset side of Balance Sheet 2. Add in Creditors on Liability side of Balance Sheet |
| 40. Unrecorded Bank Overdraft interest | Interest on Bank Overdraft A/c Dr. To Bank Overdraft A/c |
1. Debit side of P & L A/c 2. Add to Bank Overdraft on Liability side of Balance Sheet |
| 41. Wages of machinery set up debited to Wages A/c | Machinery A/c Dr. To Wages A/c |
1. Deduct from wages on debit side of Trading A/c 2. Add in price of machinery on Asset side of Balance Sheet |
| 42. Partners brought personnel assets in Business but entry is not done | Asset A/c Dr. To Partners Capital A/c |
1. Add in the capital or current A/c on Liability side in Balance Sheet 2. Assets side of the Balance Sheet |
| 43. Unrecorded goods withdrawn for personal use | Drawings A/c Dr. To Purchase A/c |
1. Debit side of Trading A/c, deduct from purchase 2. Liability side of Balance Sheet add to drawings |
| 44. Interest on Capital | Interest on capital A/c Dr. To Partners’ capital A/c |
1. Debit side of Profit and Loss Appropriation A/c 2. Liability side of Balance Sheet, add to capital or current A/c |
| 45. Interest on Drawings | Drawings A/c Dr. To Interest on drawing A/c |
1. Credit side of Profit and Loss Appropriation A/c 2. Liability side of Balance Sheet, add to drawings |
| 46. Interest on loan given by partner | Interest loan given by Parmer A/c Dr. To Unpaid interest on loan of partner A/c |
1. Debit side of P & L A/c 2. Liability side of Balance Sheet |
| 47. Salary to be paid to the partners. | Salary to partners A/c             Dr.
To Partners’ capital/current A/c |
1. Show in the debet side of P & L A/c or L App. A/c 2. Add. in the capital or current A/c on Liability side of Balance Sheet |
| 48. Interest on current A/c balance of partner 1. Debit balance 2. Credit balance |
Partners’ current A/c Dr. To Interest on partners’ current A/c |
1. Credit side of P & L App. A/c. 2. Deduct from current A/c Balance of partner |
| Interest on partners’ current A/c Dr. To Partners’ current A/c | 1. Debit side of P & L App. A/c 2. Add to current A/c balance of partner |
|
| 49. Commission payable on net profit to partners | Partners commission A/c Dr. To Unpaid commission A/c | 1. Debit side of P & L App. A/c 2. Add to partners capital/current A/c balance on Liability side of Balance Sheet |
| 50. Transfer to general reserve from profit | P & L Appropriation A/c Dr. To General reserve A/c | 1. Debit side of P & L App. A/c 2. Liability side of Balance Sheet, add to general reserve |