Final Accounts in Horizontal format
Final Accounts in Horizontal format: The accounts produced at the conclusion of a fiscal year are known as final accounts. It provides owners, managers, and other interested parties with a detailed picture of the business’s or organization’s financial situation. Financial statements are first entered into a journal, then transferred to a ledger, and finally a final account is generated (as shown in the illustration).
The following elements are usually included in a final account in horizontal format:
- Account for Trading
- Manufacturing Expenses
- Account of Profit and Loss
- Accounts Payable
Trading accounts indicate the concern’s Gross Profit/Gross Loss from sales and purchases for a certain accounting period.
- Examination of the debit side of a trading account
(a) Opening Stock: Unsold closing stock from the previous financial year appears as “To Opening Stock” on the debit side of the Trading Account for the current financial year.
(b) Purchases: During the current financial year, total purchases (net of purchase return) of traded products, including cash and credit purchases, showed on the debit side of Trading Account as “To Purchases.”
(c) Direct Expenditures: Direct expenses are expenses spent to deliver traded items to the company premises/warehouse. Freight costs, cartage or carriage charges, customs and import tax in the event of imports, gas, electricity, fuel, water, packaging material, wages, and any other expenditures spent in this respect are shown on the debit side of the Trading Account as “To Particular Name of the Expenses.”
(d) Sales Account: The total sale of traded items, including cash and credit sales, will be shown as “By Sales” in the outer column of the credit side of the Trading Account. Net releasable value, minus Central Sales Tax, VAT, Customs, and Excise Duty, should be the basis for sales.
(e) Closing Stock: Closing stock is the total value of unsold stock for the current fiscal year, and it appears on the credit side of the Trading Account.
Opening Stock + Net Purchases – Net Sale = Closing Stock
(f) Gross Profit: Gross profit is calculated as the difference between revenue and the cost of providing services or producing goods. It is, however, determined before wages, taxes, overhead, and other interest payments are deducted. The term “gross margin” is used in American English and has the same meaning as “gross profit.”
Sales – Cost of Goods Sold = Gross Profit
(g) Operating Profit: Operating profit is defined as the difference between revenue and expenses incurred during normal operations. It is, however, computed before taxes, interest payments, investment gains/losses, and a variety of other non-recurring things are deducted.
Gross Profit – Total Operating Expenses = Operating Profit
(h) Net Profit: Net profit is the difference between the company’s total income and total costs. It’s also known as net earnings or net income.
Operating Profit – (Taxes + Interest) = Net Profit
- Account of Manufacturing
When things are made by the company, a manufacturing account is created. Manufacturing accounts are used to track manufacturing costs. The cost of manufacture is subsequently transferred to the Trading account, and other traded items are handled in the same way.
Important Factors to Consider When Managing a Manufacturing Account
Aside from the topics stated in the Trading Account section, there are a few other crucial things to consider here:
(a) Raw Material: Raw material is utilised to make goods, and it is possible to have opening stock, purchases, and closing stock. The fundamental and most basic material used to make goods is raw material.
(b) Work-in-Progress: Work-in-progress refers to items that are still in the process of being completed but are critical components of the opening and closing stock. It is vital to determine the proper cost of manufacturing in order to know the correct value.
c) Finished Product: A finished product is one that has been made by a company and then transferred to a trading account for sale.
RMC (Raw Material Used) is a measure of how much raw material is consumed. It is computed as follows:
RMC = Raw Material Opening Stock + Purchases – Closing Stock
- Account of Profit and Loss
The Gross Profit as transferred from the Trading Account on the credit side, as well as any other revenue received by the company such as interest, commission, and so on, are represented in the Profit & Loss account.
The profit and loss account’s debit side provides a summary of all indirect expenditures incurred by the company during that accounting year. Administrative costs, personal costs, financial costs, selling and distribution costs, depreciation, bad debts, interest, discount, and so on.
- Balance Sheet
A balance sheet depicts a company’s financial situation throughout a given time period. On a given date, the assets (fixed assets + current assets) and liabilities (long term obligation + current liability) are tabulated to create the balance sheet.
Final Accounts in Horizontal format
Businesses’ assets are their economic resources. It may be classified as follows:
(a) Fixed Assets: Fixed assets are assets that have been acquired or created and are utilised to generate profit not just in the present year, but also in the years ahead. However, the asset’s life and usefulness are important factors to consider. Fixed assets may be both physical and intangible. Fixed Assets include plant and equipment, land and buildings, furniture, and fixtures, to name a few.
(b) Current Assets: Current Assets are assets that can be used to pay off the firm’s current obligations quickly. Current assets include cash in the bank, stocks, and various debts.
(c) Fictitious Assets: Fictitious Assets are accumulated losses and costs that are not genuinely virtual assets. The principal examples of fictional assets are the discount on the issuing of shares, the profit and loss statement, and capitalised spending for the time being.
(d) Cash and Cash Equivalents: Cash balances, cash in the bank, and securities redeemable in the next three months are referred to as Cash and Cash Equivalents.
(e) Wasting Assets: Wasting Assets are assets whose value is reduced or depleted as a result of their usage. For instance, mining, enquiries, and so on.
(f) Tangible Assets: Tangible Assets are assets that can be touched, seen, and have a volume, such as cash, shares, or a building.
(g) Intangible Assets: Intangible assets are assets that are valuable in nature but cannot be seen, touched, or measured in terms of volume, such as patents, goodwill, and trademarks.
(h) Accounts Receivables: Accounts Receivables includes bills receivables as well as other debtors
(I) Working Capital: Working capital is the difference between current assets and current liabilities.