Financial Statements of a Sole Proprietorship Concern

Here we detail about the five steps for preparation of financial statements of a sole proprietorship concern.

Step 1. Prepare Pro-Forma Final Accounts:

The first stage in preparing final accounts is to prepare pro-forma Trading Account, Profit & Loss Account and Balance Sheet as per the requirement of the question. The final accounts may be prepared in vertical or horizontal format.

Step 2. Examine all Items of Trial Balance very Carefully:

After carefully examining each and every item of the Trial Balance, identify the items which are to be shown in the Trading Account, Profit & Loss Account and Balance Sheet.

Step 3. Allot T, ‘P’ or ‘B’ to all Items of Trial Balance:

Allot ‘T’ to the items pertaining to Trading Account, ‘P’ to the items pertaining to Profit & Loss Account and ‘B’ to the items pertains to Balance Sheet. Mark ‘T’, ‘P’ or ‘B’ on the one side of these items in the Trial Balance itself.

Step 4. Put Asterisk (*) Mark to Items Affected by Adjustments:

Analyse the adjustments given outside the Trial Balance. It is advisable to put an asterisk (*) mark on the other side of those items of Trial Balance which are affected by these adjustments. If any item is affected by two adjustments, put two asterisk marks and so on.


Step 5. Place all Items of Trial Balance into their Appropriate Position in Trading Account, Profit & Loss Account and/or Balance Sheet:

Now after examining, analyzing and putting proper marks the important step is to put all items of Trial Balance into their appropriate positions in Trading Account, Profit & Loss Account and/or Balance Sheet. Put all ‘T’, ‘P’ and ‘B’ items in Trading Account, Profit & Loss Account or Balance Sheet at their appropriate positions.

In this regard following sub-points need consideration:

(i) Debit items of Trial Balance having ‘T’ and ‘P’ signs but without asterisk (*) mark are to be shown on debit side of the-Trading Account or Profit & Loss Account and items having ‘B’ signs on the assets side of the Balance Sheet directly.

(ii) Debit items of Trial Balance having ‘T’ and ‘P’ signs and with asterisk (*) mark, are to be shown on debit side of the Trading Account or Profit & Loss Account and items having ‘B’ signs on the assets side of the Balance Sheet after making necessary year end adjustments.

(iii) Credit items of Trial Balance having ‘T’ and ‘P’ signs but without asterisk (*) mark are to be shown on credit side of the Trading Account or Profit & Loss Account and items having ‘B’ signs on the liabilities side of the Balance Sheet directly.

(iv) Credit items of Trial Balance having ‘T’ and ‘P’ signs and with asterisk (*) mark are to be shown on credit side of the Trading Account or Profit & Loss Account and items having ‘B’ signs on the liabilities side of the Balance Sheet after making necessary year end adjustments.

(v) To calculate gross profit and net profit, balance the Trading Account and Profit & Loss Account respectively.

(vi) The net profit calculated as above is to be transferred to the capital section of the Balance Sheet.

(vii) Total the Balance Sheet.

We shall now proceed to solve an illustration on the basis of above guidelines.

Comprehensive

Solution

Solution

shopify traffic stats