Final Accounts with Adjustments Made Super Simple!

(Perfect for FYBCom, BBA, and Accounting Students)

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What are Final Accounts? Think Report Card 📝

Imagine your business is like your college semester:

• Trading Account = Your subject-wise marks
• P&L Account = Your final CGPA
• Balance Sheet = Your overall academic status

Final Accounts = Financial Report Card showing yearly performance!

✅ Why Adjustments?
Like correcting exam answers – we add forgotten items (unpaid rent, unsold stock) to show true results!

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Image 1: Final Accounts Flow

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Step 1: Trading Account (Your “Gross Profit Calculator”)

What it does:
Calculates profit from buying and selling goods.

Simple Formula:

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Gross Profit = Sales - Cost of Goods Sold  

What goes inside?

Debit Side (Costs)	Credit Side (Income)
• Opening Stock	• Sales
• Purchases	• Closing Stock (Adjustment!)
• Direct Expenses

Key Adjustment:

• Closing Stock: Value of unsold goods → Add to credit side

💡 Example:
Bought goods ₹50,000, Sold for ₹80,000, Unsold stock ₹10,000
Gross Profit = 80,000 – (50,000 – 10,000) = ₹40,000

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Image 2: Trading Account Format

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Step 2: Profit & Loss Account (Your “Net Profit Finder”)

What it does:
Calculates final profit after all expenses.

Simple Formula:

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Net Profit = Gross Profit + Other Income - All Expenses  

Common Adjustments:

Adjustment	Where to Put
Outstanding Rent	Add to Expenses
Prepaid Insurance	Reduce Expenses
Depreciation	Add to Expenses
Bad Debts	Add to Expenses

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Image 3: P&L Account Format

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Step 3: Balance Sheet (Your “Financial Selfie” 📸)

What it shows:

• What you OWN (Assets)
• What you OWE (Liabilities)
• Your NET WORTH (Capital)

Adjustment Impact:

Adjustment	Balance Sheet Effect
Closing Stock	Asset ↑
Outstanding Rent	Liability ↑
Prepaid Insurance	Asset ↑
Depreciation	Asset ↓

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Image 4: Balance Sheet Format

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5 Must-Know Adjustments (With Examples)

1. Closing Stock (₹20,000 not recorded)textCopyDownloadClosing Stock A/c Dr. 20,000 To Trading A/c 20,000 → Adds to Trading Cr. & Balance Sheet Asset
2. Outstanding Salary (₹15,000)textCopyDownloadSalary A/c Dr. 15,000 To Outstanding Salary A/c 15,000 → Adds to P&L Expense & Liability
3. Depreciation (10% on ₹1,00,000 Machinery)textCopyDownloadDepreciation A/c Dr. 10,000 To Machinery A/c 10,000 → Adds to P&L Expense & Reduces Asset Value
4. Prepaid Rent (₹5,000)textCopyDownloadPrepaid Rent A/c Dr. 5,000 To Rent A/c 5,000 → Reduces Rent Expense & Becomes Asset
5. Bad Debts (Customer won’t pay ₹8,000)textCopyDownloadBad Debts A/c Dr. 8,000 To Debtors A/c 8,000 → Adds to P&L Expense & Reduces Debtors

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Pizza Shop Example 🍕

Trial Balance:

• Sales: ₹3,00,000
• Purchases: ₹1,80,000
• Rent: ₹24,000

Adjustments:

1. Closing Stock: ₹40,000
2. Rent Prepaid: ₹4,000
3. Equipment Depreciation: ₹10,000

Solution:
Trading Account:

Expenses	₹	Income	₹
Purchases	1,80,000	Sales	3,00,000
Gross Profit c/d	1,60,000	Closing Stock	40,000
Total	3,40,000	Total	3,40,000

P&L Account:

Expenses	₹
Rent (24k-4k)	20,000
Depreciation	10,000
Net Profit	1,30,000

Balance Sheet:

Assets	₹	Liabilities	₹
Closing Stock	40,000	Capital	XXXX
Prepaid Rent	4,000	Add: Net Profit	1,30,000
Equipment (Net)	90,000

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Image 5: Adjustment Impact

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3 Golden Rules for Exams ✨

1. Closing Stock:
   • Trading Account (Credit side)
   • Balance Sheet (Asset)
2. Prepaid Expenses:
   • Deduct from expense in P&L
   • Show as Asset in Balance Sheet
3. Depreciation:
   • Add to P&L Expenses
   • Deduct from Asset value

💡 Pro Tip:
Create a checklist:
“Did I remember Closing Stock? Outstanding Expenses? Depreciation?”

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Why This Matters?

• 50% of your accounting exam marks
• Used by real businesses every month
• Foundation for CA/CMA/CS courses

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Conclusion

Master final accounts with adjustments to:

1. Score 90%+ in exams 📚
2. Understand business finances 💼
3. Build a great career in finance 🚀

Start Today: Solve 1 adjustment problem daily!