Final Accounts Manufacturing Account Short Notes

2. Liabilities: Liabilities may also be shown according to the urgency with which payment has to be made. One way is to first show the capital, then long-term liabilities and ļast of all short-term liabilities like amounts due to suppliers of goods or bills payable. The other way is to start with shortterm liabilities and then show long-term liabilities and last of all, capital.

Trading account, Profit And Loss Account, Balance Sheet, Adjustment entries

Q.6. What do you mean by profit & loss account?

Ans. Profit & loss account is prepared to ascertain the ‘Net Profit’ or ‘Net Loss’ resulting from the trading operations of the period. It is debited with gross loss (if any) from the trading account and with indirect expenses (i.e. establishment, administrative selling, distribution and financial expenses) and losses connected with the business for the period and is credited with the gross profit (if any) from the trading account and with miscellaneous gains made (i.e. interest, commission, discount and rent received). The difference of the two sides of this account is either net profit or net loss. If the total of credit side exceeds the total of debit side, the difference represents net profit. In the opposite situation, the difference will represent net loss.

Q.7. Differentiate between trial balance and balance sheet.

Ans. Differences between Trial Balance and Balance Sheet

1. Objective: Trial balance is prepared with the basis objective to check the arithmetical accuracy of the books of account and compliance of principles of double entry system whereas the balance sheet is prepared to show the financial position of the business as at particular date, i.e. on the date of balance sheet.

2. Preparation: Trial balance is prepared on the basis of balances of ledger accounts, whereas balance sheet is prepared on the basis of balances shown in the trial balance.

3. Nature of Accounts: Trial balance contains the balances of ledger accounts of all types, ie. personal, real and nominal accounts, whereas balance sheet contains only those balances of ledger accounts which are related with personal accounts and real accounts.

4. Date of Preparation: Trial balance is prepared frequently, usually monthly, quarterly, halfyearly or yearly, whereas balance sheet is generally prepared at the end of the accounting year.

5. Importance: Trial balance is not regarded as a statement of utmost importance, whereas balance sheet is regarded as a statement of utmost importance, because the proprietor, creditors, investors, outsiders, and government made substantial use of balance sheet.

6. Sides: In trial balance, the debit balances are shown on the left hand side and credit balances are shown on the right hand side whereas in balance sheet left hand side is liabilities column and right hand side is assets column. Balance sheet has no debit and credit column.

7. Compulsion: It is not necessary to prepare trial balance, as it is prepared to test arithmetical accuracy of posting, whereas the preparation of balance sheet is compulsory for a business concern.

8. Projected Statement: On the basis of trial balance, projected trial balance, is not prepared whereas on the balance sheet of current year, next year’s projected balance sheet can be prepared easily for the use of bankers advancing loans to concern.

Q.8. Differentiate between trading A/c and profit & loss A/c.

Ans. Difference between Trading A/c and Profit & Loss A/C

S.No.	Basis of difference	Trading account	Profit & loss account
	Items included	Transactions related to purchase and sale of goods are recorded.	Expense and incomes or loss and profit of office and selling and distribution are recorde.
	Type of expenses	Only direct expenses are written in this account.	Only indirect expenses are written in this account.
	Preparation	It is prepared before P&L A/c and balance sheet.	It is prepared after the preparation of Trading A/c but before balance sheet.
	Nature of account	Both real and nominal account balances are written in this account.	Only balances of norminal accounts are written in the account.
Profit	Balance of trading account will be either gross profit or gross loss.		Balance of profit & loss account will be either net profit or net loss.
	Necessity	It can be prepared without the help of P&L A/c	It cannot be prepared without the help of trading A/c.

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BCOM 1st Year Final Accounts Manufacturing Account Short Question Answer Notes

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