To get an understanding and feel of the process of final accounting, let us go through an example of an organisations accounting consisting of a few transactions during an accounting period.

Following are the transactions relating to M/s Trinity Foods, a newly set up business, over the accounting period from 1^st June 20_5 to 30^th June 20_5.

Started business with Capital 1,00,000
Paid into Bank 10,000
Bought Furniture and paid cash 25,000
Bought goods for cash 50,000
Bought goods from Ram on Credit 15,000
Sold a part of the goods for 75,000 and paid the proceeds into bank directly
Sold the remaining goods on credit for 50,000 to Rahim
Paid Salaries and Wages 5,000
Paid rent by cheque 8,000

Journal

The journal entries pertain to the whole of the accounting period.

Use of the date, V/R No. and L/F columns is avoided to make the presentation look unclutterd.

Journal in the books of M/s Trinity Foods for the period from 1^st June 20_5 to 30^th June 20_5
Particulars		Amount (Dr)	Amount (Cr)
Cash a/c To Capital a/c	Dr	1,00,000	1,00,000
[For the amount brought in by the proprietor towards his capital contribution.]		1,00,000	1,00,000
Bank a/c To Cash a/c	Dr	10,000	10,000
[For the amount paid into bank.]		10,000	10,000
Furniture a/c To Cash a/c	Dr	25,000	25,000
[For the amount paid towards purchase of Furniture.]		25,000	25,000
Purchases a/c To Cash a/c	Dr	50,000	50,000
[For the amount paid towards purchase of goods/stock.]		50,000	50,000
Purchases a/c To Ram a/c	Dr	15,000	15,000
[For the value of goods bought from Ram on credit.]		15,000	15,000
Bank a/c To Sales a/c	Dr	75,000	75,000
[For the sales made for cash and the proceeds paid into bank directly.]		75,000	75,000
Rahim a/c To Sales a/c	Dr	50,000	50,000
[For the value of goods sold on credit to Rahim.]		50,000	50,000
Salaries and Wages a/c To Cash a/c	Dr	5,000	5,000
[For the amount paid in cash towards salaries and wages.]		5,000	5,000
Rent Paid a/c To Bank a/c	Dr	8,000	8,000
[For the amount paid towards rent by cheque.]		8,000	8,000

Ledger Accounts

Use of the column J/F and the suffix a/c after the name of the account head is avoided to make the presentation look unclutterd.

Cash a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Capital	1,00,000		By Bank By Furniture By Purchases By Salaries & Wages By By Balance c/d	10,000 25,000 50,000 5,000 10,000
	Total	1,00,000		Total	1,00,000
30/06/_5	To Balance b/d	10,000

Capital a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_5	To Balance c/d	1,00,000	01/06/_5	By Cash	1,00,000
	Total	1,00,000		Total	1,00,000
			30/06/_5	By Balance b/d	1,00,000

Bank a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Cash To Sales	10,000 75,000	30/06/_5	By Rent Paid By Balance c/d	8,000 77,000
	Total	85,000		Total	85,000
30/06/_5	To Balance b/d	77,000

Furniture a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
1^st-30^th	To Cash a/c	25,000	30/06/_5	By Balance c/d	25,000
	Total	25,000		Total	25,000
30/06/_5	To Balance b/d	25,000

Purchase a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Cash a/c To Ram a/c	50,000 15,000	30/06/_5	By Balance c/d	65,000
	Total	65,000		Total	65,000
30/06/_5	To Balance b/d	65,000

Ram a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_5	To Balance c/d	15,000		By Purchases a/c	15,000
	Total	15,000		Total	15,000
			30/06/_5	By Balance b/d	15,000

Sales a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_5	To Balance c/d	1,25,000		By Bank a/c By Rahim a/c	75,000 50,000
	Total	1,25,000		Total	1,25,000
			30/06/_5	By Balance b/d	1,25,000

Rahim a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Sales a/c	50,000	30/06/_5	By Balance c/d	50,000
	Total	50,000		Total	50,000
30/06/_5	To Balance b/d	50,000

Salaries and Wages a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Cash	5,000	30/06/_5	By Balance c/d	5,000
	Total	5,000		Total	5,000
30/06/_5	To Balance b/d	5,000

Rent Paid a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Bank a/c	8,000	30/06/_5	By Balance c/d	8,000
	Total	8,000		Total	8,000
30/06/_5	To Balance b/d	8,000

The trial balance is a statement of ledger account balances as on a particular date or to be more specific as at a particular instance.

Trial Balance of M/s Trinity Foods" as on 30^th June 20_5
Particulars	L/F	Amount (Dr)	Amount (Cr)
Cash Capital Bank Furniture Purchases Ram Sales Rahim Salaries and Wages Rent Paid	— — — — — — — — — —	10,000 77,000 25,000 65,000 50,000 5,000 8,000	1,00,000 15,000 1,25,000
Total		2,40,000	2,40,000

Use of the suffix a/c after the name of the account head is avoided to make the presentation look unclutterd.

Consider the above Trial Balance. There are a total of 4 nominal accounts with either debit or credit balances.

Purchases - Debit Balance
Sales - Credit Balance
Salaries and Wages - Debit Balance
Rent Paid - Debit Balance

To ascertain the profit or loss made by the organisation, the balance in these accounts should be transferred to the "Trading and Profit & Loss a/c".

The journal entries for these transfers would be:

Journal Entries

Journal in the books of M/s Trinity Foods for the period from 1^st June 20_5 to 30^th June 20_5
Date	Particulars		Amount (Dr)	Amount (Cr)
June 30^th	Trading and Profit & Loss a/c To Purchases a/c To Salaries & Wages a/c To Rent Paid a/c	Dr	78,000	65,000 5,000 8,000
June 30^th	[For the transfer of debit balances in nominal accounts at the end of the accounting period to the Trading and Profit & Loss a/c for the purpose of ascertaining profits.]		78,000	65,000 5,000 8,000
June 30^th	Sales a/c To Trading and Profit & Loss a/c	Dr	1,25,000	1,25,000
June 30^th	[For the transfer of credit balances in nominal accounts at the end of the accounting period to the Trading and Profit & Loss a/c for the purpose of ascertaining profits.]		1,25,000	1,25,000

Ledgers

Trading and Profit & Loss a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_5 30/06/_5 30/06/_5	To Purchases To Salaries & Wages To Rent Paid	65,000 5,000 8,000	30/06/_5	By Sales	1,25,000
	sub-total	78,000		sub-total	1,25,000
30/06/_5	To Balance (Profit)	47,000
	Total	1,25,000		Total	1,25,000

In a simplified form this account would be as below.

Trading and Profit & Loss a/c
DrCr
Particulars	Amount	Particulars	Amount
To Purchases To Salaries & Wages To Rent Paid To Balance (Profit)	65,000 5,000 8,000 47,000	By Sales	1,25,000
Total	1,25,000	Total	1,25,000

Since the credit side total is greater, the account has a credit balance. Since a credit balance in a nominal account indicates a gain, we can say that there is a profit.

Other affected Ledger Accounts (Nominal)

Purchases a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Cash To Ram	50,000 15,000	30/06/_5	By Trading and P/L a/c	65,000
	Total	65,000		Total	65,000

Sales a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
30/06/_5	To Trading and P/L a/c	1,25,000		By Bank By Rahim	75,000 50,000
	Total	1,25,000		Total	1,25,000

Salaries and Wages a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Cash	5,000	30/06/_5	By Trading and P/L a/c	5,000
	Total	5,000		Total	5,000

Rent paid a/c
DrCr
Date	Particulars	Amount	Date	Particulars	Amount
	To Bank a/c	8,000	30/06/_5	By Trading and P/L a/c	8,000
	Total	8,000		Total	8,000

The trial balance is a list of ledger account balances at an instance. If we consider the instance after having prepared the Trading and Profit & Loss a/c, we do not find a balance in any nominal account since all the nominal accounts would have been closed by transfer to the Trading and Profit & Loss a/c.

Trial Balance after closing Nominal Accounts

The Trading and Profit & Loss a/c is also a nominal account and has a credit balance if there is a profit and a debit balance if there is a loss. If we make a trial balance after having prepared the Trading and Profit & Loss a/c we will find only real and personal accounts in it apart from the nominal account Trading and Profit & Loss a/c.

Trial Balance of M/s Trinity Foods" as on 30/06/20_5
[after closing Nominal accounts]
Particulars	L/F	Amount (Dr)	Amount (Cr)
Cash Capital Bank Furniture Ram Rahim Trading and Profit & Loss	— — — — — — —	10,000 77,000 25,000 50,000	1,00,000 15,000 47,000
Total		1,62,000	1,62,000

Preparing Trading and Profit & Loss account :: Illustration

Illustration - Problem

Illustration - Solution [Journal and Ledger]

Journal

Ledger Accounts

Illustration - Solution [Trial Balance]

Preparing Trading and Profit and Loss Account : Journal & Ledger

Journal Entries

Ledgers

Other affected Ledger Accounts (Nominal)

Trial Balance Redrawn/Remade

Trial Balance after closing Nominal Accounts