PREPARATION OF FINAL ACCOUNT · One-liners

1 What is March 2026?

is paid in April 2026.

2 What is 31 March 2026?

is drawn purely from the 'Rent Paid' ledger balance, the March rent will be missing — profit will be overstated.

3 31-Mar-2026 — Particulars / Amount (₹)?

Particulars: Rent Paid A/c …….. Dr. To Rent Payable A/c (Being rent for March 2026 outstanding); Amount (₹): Dr. 50,000 Cr. 50,000

4 Outstanding Expenses — Meaning / Banking Example / Adjustment Entry?

Meaning: Expenses incurred during the period but not yet paid.; Banking Example: Salary for March 2026 (₹4,00,000) earned by staff but paid only in April 2026 — debit Salary Expense, credit Salary Payable.; Adjustment Entry: Expense A/c …….. Dr. To Outstanding Expense A/c

5 Prepaid Expenses — Meaning / Banking Example / Adjustment Entry?

Meaning: Expenses paid in advance that do not relate to the current period.; Banking Example: Annual insurance premium of ₹60,000 paid on 1 January 2026 — only ₹15,000 (Jan–Mar) belongs to the current year; ₹45,000 is prepaid for 2026–27.; Adjustment Entry: Prepaid Expense A/c …….. Dr. To Expense…

6 Accrued / Outstanding Income — Meaning / Banking Example / Adjustment Entry?

Meaning: Income earned in the period but not yet received.; Banking Example: Interest accrued on a fixed deposit of ₹10,00,000 @ 7% p.a. for the quarter ended March = ₹17,500 — earned but credited by the bank only on maturity.; Adjustment Entry: Accrued Income A/c …….. Dr. To Income A/c

7 Income Received in Advance — Meaning / Banking Example / Adjustment Entry?

Meaning: Income received but not yet earned — should not be taken to P&L of the current period.; Banking Example: Three months' advance rent of ₹90,000 received from a tenant on 1 March 2026 — only ₹30,000 belongs to the current year; ₹60,000 is liability.; Adjustment Entry: Income A/c …….. Dr. To…

8 Gross Sales?

Total selling price of goods sold and services rendered during the year, INCLUDING excise duty paid on goods sold.

9 Net Sales?

Gross Sales − Excise duty (and other indirect taxes that are part of the gross figure). This is the comparable revenue used in ratio analysis.

10 Cost of Goods Sold (COGS)?

Sum of costs incurred in MANUFACTURING the goods sold during the period — direct material + direct labour + factory overheads. Closing inventory is deducted; opening inventory and purchases are added.

11 Gross Profit?

Net Sales − COGS. The first profit measure; reflects manufacturing/trading efficiency before administrative costs.

12 Operating Expenses?

General administrative expenses + Selling & distribution expenses + Depreciation. Recurring expenses tied to running the business.

13 Operating Profit (EBIT pre-non-op)?

Gross Profit − Operating Expenses. Reflects core operating efficiency, independent of how the firm is financed or taxed.

14 Non-operating Surplus / Deficit?

Gains or losses from sources OTHER than normal operations — e.g. gain on sale of fixed assets, dividend income on investments, foreign-exchange revaluation gain.

15 Profit Before Interest & Tax (EBIT)?

Operating Profit + Non-operating Surplus − Non-operating Deficit. The most-cited measure for inter-firm comparison because it is independent of capital structure and tax regime.

16 Interest?

Finance cost on borrowed funds — term loans, debentures, public deposits, working-capital advances, lease liabilities. A statutory deduction from EBIT before tax is computed.

17 Profit Before Tax (PBT)?

EBIT − Interest. The taxable base after finance cost is recognised.

18 Tax?

Income tax payable on the year's taxable profit, including current tax + deferred tax adjustment.

19 Profit After Tax (PAT) / Net Profit?

PBT − Tax. The bottom line — what is available for shareholders, retention, or further appropriation.

20 Balance of surplus brought forward from the previous year Net Profit for the year (transferred from P&L Account) Amount withdrawn from General Reserve or any other Reserve Income tax provision no…?

Transfer to Reserve / General Reserve Transfer to Debenture Redemption Reserve Transfer to Interim Dividend / Proposed Dividend Dividend Distribution Tax (legacy — now replaced by dividend in shareholder's hand from FY 2020-21) Income tax of previous year(s) not provided for Surplus carried to the…

21 What is Balance Sheet?

is a statement of position — it lists what the entity owns (Assets) and what it owes (Liabilities) at a single point in time, typically the last day of the financial year.

22 Equity Capital?

contribution of equity shareholders, who are the owners of the firm; no fixed rate of dividend is payable. They bear residual risk and enjoy voting rights.

23 Preference Capital?

dividend rate may be fixed and cumulative; preference shareholders rank ahead of equity in dividend and on liquidation, but typically have no voting rights on routine matters.

24 Revenue Reserves?

accumulated, retained earnings from normal business operations. Examples: General Reserve, Investment Allowance Reserve, Dividend Equalisation Reserve.

25 Capital Reserves?

gains NOT related to normal operations. Examples: Revaluation Reserve, premium on issue of shares, profit on re-issue of forfeited shares.

26 Surplus?

balance in the P&L Account not yet appropriated to any specific reserve.

27 Share Capital / Partners' Capital / Paid-up Capital — Owner's Funds Reserves: General Reserve, Capital Reserve, Revaluation Reserve, etc. (Brought in by promoters or generated and retained within the…?

FIXED ASSETS Land & Building, Plant & Machinery, Furniture, Vehicles Original value − Less: Depreciation = Net / Book / Written Down Value (Purchased for long-term use; depreciated every year) NON-CURRENT ASSETS Investments in non-quoted shares / securities Investments in associate or sister…

28 Current Liabilities?

liabilities due for payment OR which will fall due for payment within 12 months from the Balance Sheet date.

29 Current Assets?

assets which change form within 12 months. Also known as Working Capital (Gross WC).

30 Bonus shares are issued by capitalisation of General Reserves?

they do NOT change the Net Worth (only its composition).

31 Rights issue?

Net Worth CHANGES (because fresh cash comes in) and Current Ratio CHANGES (Current Assets increase via cash).

32 Adjustment Entry?

Touches one P&L A/c and one Balance Sheet A/c; passed at period end on accrual basis.

33 Outstanding Expense?

Expense incurred but not paid; Dr. Expense, Cr. Outstanding Expense (Current Liability).

34 Prepaid Expense?

Paid in advance; Dr. Prepaid Expense (Current Asset), Cr. Expense.

35 Accrued Income?

Earned but not received; Dr. Accrued Income (Current Asset), Cr. Income.

36 Income Rec'd in Advance?

Received but not earned; Dr. Income, Cr. Income Rec'd in Advance (Current Liability).

37 Trading A/c Output?

Gross Profit / Gross Loss.

38 P&L A/c Output?

Net Profit / Net Loss for the period.

39 P&L Appropriation A/c?

Distribution of Net Profit — dividends, transfers to reserves, surplus c/f.

40 Net Worth?

Equity Share Capital + Preference Share Capital + Reserves & Surplus − Accumulated Losses & Intangibles.

41 Working Capital (Gross)?

Total Current Assets.

42 Working Capital (Net)?

Current Assets − Current Liabilities.

43 Outside Liabilities?

All liabilities owed to non-owners = Long-term + Short-term Liabilities.

44 Bonus Issue?

Capitalisation of reserves — no change in Net Worth.

45 Rights Issue?

Fresh capital — Net Worth and Current Ratio both change.

One-linersPREPARATION OF FINAL ACCOUNT