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Notes/CA Foundation/Principles & Practice of Accounting

CA Foundation · Principles & Practice of Accounting

Final Accounts of Sole Proprietors

Chapter 4 · 4 formulas · 4 exam-critical pointers

Core concepts

  1. 01Final Accounts = Trading A/c + Profit & Loss A/c + Balance Sheet.
  2. 02Trading A/c shows Gross Profit/Loss; P&L A/c shows Net Profit/Loss.
  3. 03Adjustments (outstanding, prepaid, accrued, depreciation, bad debts) ensure matching principle.
  4. 04Closing stock valued at cost or NRV, whichever is lower (AS-2).
  5. 05Capital + Net Profit − Drawings = Closing Capital.

Flowchart summary

Trial Balance | v Adjustments --> Trading A/c (GP) | | v v P&L A/c ------> Net Profit | v Balance Sheet (Assets = Liab + Cap)

Exam-critical pointers

  • ⭐Every adjustment hits final accounts twice (P&L and Balance Sheet).
  • ⭐Manager's commission can be on profit before or after charging — read carefully.
  • ⭐Goods withdrawn for personal use: deduct from purchases, add to drawings.
  • ⭐Abnormal loss of stock: credit Trading A/c at cost; insurance claim shown separately.

Make it click

Formula sheet

  • Gross Profit = Net Sales − Cost of Goods Sold
  • Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses − Closing Stock
  • Net Profit = Gross Profit + Other Incomes − Indirect Expenses
  • Closing Capital = Opening Capital + Net Profit + Additional Capital − Drawings

More from Principles & Practice of Accounting

  1. Ch 1Theoretical Framework
  2. Ch 2Journal, Ledger and Trial Balance
  3. Ch 3Depreciation Accounting
  4. Ch 5Partnership Accounts
  5. Ch 6Company Accounts — Issue of Shares
All CA Foundation notes →
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