Comprehensive Case Studies: Final Accounts Preparation in Accounting

1. Introduction

Final accounts summarize a business's financial performance and position. They include the Trading Account, Profit & Loss Account, and Balance Sheet. Preparing these accounts involves adjustments for accrued expenses, prepaid expenses, depreciation, and other items.

2. Case Study 1: Retail Business

Scenario:

A retail business has the following trial balance at the end of the financial year:

Adjustments:

• Closing Stock: $18,000
• Depreciation on Machinery: 10%
• Outstanding Wages: $2,000
• Bad Debts: $1,000

Preparation:

Trading Account:

          Sales                            $85,000
          Less: Opening Stock              $15,000
                Purchases                  $50,000
                Wages                      $10,000
          Add: Closing Stock              ($18,000)
          -----------------------------------------
          Gross Profit                    $28,000
      

Profit & Loss Account:

          Gross Profit                     $28,000
          Less: Office Rent                 $5,000
                Depreciation (10% of $30,000) $3,000
                Bad Debts                   $1,000
                Outstanding Wages           $2,000
          -----------------------------------------
          Net Profit                       $17,000
      

Balance Sheet:

Assets:

• Machinery (Net) = $30,000 - $3,000 = $27,000
• Debtors = $20,000 - $1,000 = $19,000
• Closing Stock = $18,000

Liabilities:

• Creditors = $10,000
• Outstanding Wages = $2,000
• Capital = $35,000 + $17,000 (Net Profit) = $52,000

3. Key Learnings

• Adjustments ensure the accuracy of financial statements.
• Depreciation, outstanding expenses, and bad debts impact profits and financial position.
• Final accounts provide a comprehensive overview of business performance.

4. Summary

Final accounts preparation involves various adjustments to accurately represent the financial health of a business. This case study highlights the steps and importance of preparing these accounts correctly.