Partnership final accounts are prepared in a similar way
as sole proprietorship accounts. They include Trading A/c, Profit & Loss
A/c and the Balance Sheet.
Final accounts are prepared for the following purpose:-
i. To find out the gross profit or loss for the period
ii. To find out the net profit or loss for the period
iii. To know the
financial position of the business as on a particular date
iv. To prepare
various statements to plan for the future
v. To know how much are the debtors and creditors of the firm
vi. To know the sources of funds (liabilities) and the
application of funds (assets)
vii. To calculate various ratios for analysis
viii. To provide audited financial statements and other
documents to the bank for obtaining loans
ix. To value goodwill of the firm in cases of admission,
retirement or death of a partner and on dissolution of the firm
x. To find the tax payable and make advance tax payments.
Preparation
of Final Accounts
Final accounts of a partnership firm are similar to that
of a sole trader. Only difference is that the profit is distributed among the
partners whereas in a sole proprietorship it is added to the proprietor’s
capital. First a trial balance is to be prepared from all the debit and credit
balances of all the ledger accounts. From this, trading and profit & loss
accounts are generated. Finally, a balance sheet is prepared to reflect the
position as at period end. A trading account shows the gross profit or loss
whereas a profit & loss account reflects the net position.
I.
Manufacturing Account
It is prepared only for manufacturing concerns. It shows
the cost of production.
II.
Trading Account
Trading account is prepared in a trading concern and is a
part of the profit & loss account. It records all transactions related to
goods and direct expenses. If the credit side is greater than the debit side,
the gross profit thus arrived at is transferred to the credit side of profit
& loss account. On the other hand, if the debit side is greater than the
gross loss is transferred to the debit side of the profit & loss account.
a.
Debit side of Trading Account
• Opening
stock
• Purchases
after deducting amounts for goods destroyed by fire, goods withdrawn by
partners, goods distributed as free samples, etc.
• Direct
expenses meaning those expenses directly related to production or purchases of
goods such as wages, freight inwards, factory rent, octroi, import duty,
customs duty, manufacturing expenses such as electricity of factory, etc.
b.
Credit side of Trading Account
• Sales of
goods
• Closing
stock
• Goods
destroyed by fire, goods withdrawn by partners, goods distributed as free
samples, etc. may alternately be shown here instead of as a deduction from
purchases.
