Final Accounts — Trading, P&L, and Balance Sheet
Prepare Sunrise Retail's complete April 2025 final accounts — Trading Account, Profit & Loss, and Balance Sheet with key ratios
Prerequisites: Module 24 — Opening Balances
Learning Objectives
By the end of this module, you will be able to:
- Prepare a Trading Account and calculate Gross Profit
- Prepare a Profit & Loss Account and calculate Net Profit
- Prepare a Balance Sheet incorporating all April transactions
- Calculate and interpret three key financial ratios
- Access all final accounts in Tally with one click
The Cascade: Trial Balance → Final Accounts
Trial Balance (all account balances)
Every transaction posted in April feeds into the Trial Balance. Debits equal Credits. This is the raw material.
Trading Account
Separate out revenue (Sales) and direct cost (Purchases ± Returns ± Stock movement). The balancing figure is Gross Profit — profit from buying and selling before overhead.
Profit & Loss Account
Gross Profit carries down. Subtract all indirect expenses (rent, salary, depreciation). Add any indirect income. The balancing figure is Net Profit (or Loss).
Balance Sheet
Net Profit is transferred to Capital (increases it) or Net Loss reduces Capital. All asset and liability balances as of April 30 are shown. Both sides must equal.
Step 1: Trading Account
The Trading Account measures the Gross Profit — profit from buying and selling goods before any overhead expenses.
Format:
| Dr Side (Expenses) | ₹ | Cr Side (Income) | ₹ |
|---|---|---|---|
| Opening Stock | X | Sales | X |
| + Purchases | X | − Sales Returns | (X) |
| − Purchase Returns | (X) | Net Sales | X |
| + Direct Expenses (Freight) | X | Closing Stock | X |
| Cost of Goods Available | X | ||
| − Closing Stock | (X) | ||
| Cost of Goods Sold | X | ||
| Gross Profit (balancing figure) | X | ||
| Total | X | Total | X |
Sunrise Retail — April 2025 Trading Account
Sales for April:
- Apr 10: Digital Hub — 30 phones @ ₹16,000 = ₹4,80,000 (base)
- Apr 12: CloudStore — 20 phones @ ₹16,500 = ₹3,30,000 (base)
- Total Sales (base, excluding GST): ₹8,10,000
Note: GST collected is NOT income — it's a liability (collected on behalf of government). Final accounts show base sales only.
Sales Returns:
- Apr 24: Digital Hub returned 2 phones @ ₹16,000 = ₹32,000 (base)
- Net Sales: ₹8,10,000 − ₹32,000 = ₹7,78,000
Purchases for April:
- Apr 5: TechWorld — 100 phones @ ₹12,000 = ₹12,00,000 (base)
- Total Purchases: ₹12,00,000
Note: IGST on purchases is Input Credit — not a purchase cost. Base value only.
Purchase Returns:
- Apr 22: Returned 5 phones to TechWorld @ ₹12,000 = ₹60,000 (base)
- Net Purchases: ₹12,00,000 − ₹60,000 = ₹11,40,000
Closing Stock (April 30):
Stock count: 50 (opening) + 100 (purchased) − 30 (sold Digital Hub) − 20 (sold CloudStore) − 5 (returned to TechWorld) + 2 (returned by Digital Hub) = 97 phones
97 phones @ ₹12,000 = ₹11,64,000
(This closing stock matches the opening balance figure in Module 24 — ₹18,80,000 opening BS included 50 phones @ ₹12,000 = ₹6,00,000. The April stock movement above is consistent.)
Trading Account — April 2025:
| Dr Side | ₹ | Cr Side | ₹ |
|---|---|---|---|
| Opening Stock | 6,00,000 | Sales | 8,10,000 |
| + Purchases | 12,00,000 | − Sales Returns | (32,000) |
| − Purchase Returns | (60,000) | Net Sales | 7,78,000 |
| Net Purchases | 11,40,000 | + Closing Stock | 11,64,000 |
| Cost of Goods Available | 17,40,000 | ||
| − Closing Stock | (11,64,000) | ||
| Cost of Goods Sold | 5,76,000 | ||
| Gross Profit c/d | 1,66,000 | ||
| TOTAL | 19,42,000 | TOTAL | 19,42,000 |
Gross Profit for April 2025: ₹1,66,000
Step 2: Profit & Loss Account
The P&L brings in all overhead expenses and non-trading income to arrive at Net Profit.
April 2025 Expenses:
| Expense | Amount | Source Module |
|---|---|---|
| Rent | ₹30,000 | Module 8 — rent paid by cheque |
| Electricity | ₹8,500 | Module 8 — electricity paid cash |
| Salaries | ₹1,50,000 | Module 22 — cost centre allocation |
| Depreciation (Furniture ₹1,250 + Computer ₹2,667) | ₹3,917 | Module 11 — depreciation journal |
| Total Indirect Expenses | ₹1,92,417 |
No indirect income in April (bank interest ₹200 from BRS is immaterial and treated post-BRS; bank charges ₹500 also accounted separately).
P&L Account — April 2025:
| Dr Side (Expenses) | ₹ | Cr Side (Income) | ₹ |
|---|---|---|---|
| Rent | 30,000 | Gross Profit b/d | 1,66,000 |
| Electricity | 8,500 | ||
| Salaries | 1,50,000 | ||
| Depreciation | 3,917 | ||
| Total Expenses | 1,92,417 | ||
| Net Loss for April | 26,417 | ||
| TOTAL | 1,92,417 | TOTAL | 1,92,417 |
Net Loss for April 2025: ₹26,417
This means Sunrise Retail's overhead (₹1,92,417) exceeded the gross profit (₹1,66,000) in April. This is not unusual for a new or early-stage business — salaries and rent are fixed costs that will be covered once volume grows.
Break-even analysis: To cover ₹1,92,417 in expenses with ₹4,000 gross margin per phone (₹16,000 − ₹12,000), they need to sell: ₹1,92,417 / ₹4,000 = 48.1 phones/month to break even. They sold 50 gross (before returns), netting 48 effective — just at the break-even threshold before depreciation.
Step 3: Balance Sheet — April 30, 2025
The Balance Sheet is updated after incorporating:
- Net Loss (reduces Capital)
- All asset and liability movements through the month
Updated Capital: ₹17,00,000 (opening) − ₹26,417 (net loss) = ₹16,73,583
How the TechWorld balance is reconstructed. Opening ₹1,80,000 + April purchase ₹14,16,000 (₹12,00,000 base + IGST ₹2,16,000) − Payment ₹5,00,000 − Purchase return ₹70,800 (₹60,000 base + IGST ₹10,800) = ₹10,25,200. Every movement traces back to a journal you booked in modules 10–18. When you re-run this in Tally (course module 23), Day Book → Ledger → Outstanding gives the exact same number with one keystroke.
TechWorld balance reconstruction:
| Movement | Amount |
|---|---|
| Opening balance | ₹1,80,000 |
| + Purchase Apr 5 (₹12,00,000 base + IGST ₹2,16,000) | ₹14,16,000 |
| − Payment Apr 20 (NEFT) | (₹5,00,000) |
| − Purchase return Apr 22 (₹60,000 base + IGST ₹10,800) | (₹70,800) |
| Closing TechWorld Creditor | ₹10,25,200 |
GST position (simplified — before GSTR-3B set-off):
| Account | Amount |
|---|---|
| IGST Input (purchases) | ₹2,16,000 |
| Less: IGST Input reversed (purchase return) | (₹10,800) |
| Net IGST Input Credit | ₹2,05,200 |
| CGST Output (Digital Hub sales 30 phones × ₹16,000 × 9%) | ₹43,200 |
| Less: CGST reversed on sales return (2 × ₹16,000 × 9%) | (₹2,880) |
| Net CGST Payable | ₹40,320 |
| Net SGST Payable (same as CGST) | ₹40,320 |
| IGST Output (CloudStore 20 phones × ₹16,500 × 18%) | ₹59,400 |
IGST Input ₹2,05,200 is first set off against IGST Output ₹59,400 = Net IGST credit ₹1,45,800. This credit can then be used to pay CGST ₹40,320 and SGST ₹40,320, leaving IGST credit balance of ₹65,160.
Balance Sheet as on April 30, 2025:
LIABILITIES:
| Account | ₹ |
|---|---|
| Capital Account | |
| Opening Capital | 17,00,000 |
| Less: Net Loss April 2025 | (26,417) |
| Closing Capital | 16,73,583 |
| Current Liabilities | |
| TechWorld Distributors Pvt Ltd | 10,25,200 |
| CGST Payable (net after IGST set-off) | — |
| SGST Payable (net after IGST set-off) | — |
| Total Liabilities | 26,98,783 |
ASSETS:
| Account | ₹ |
|---|---|
| Fixed Assets | |
| Furniture & Fixtures (₹1,50,000 − ₹1,250 dep) | 1,48,750 |
| Computer & Equipment (₹80,000 − ₹2,667 dep) | 77,333 |
| Current Assets | |
| SBI Current Account | 6,81,000 |
| Cash in Hand (₹50,000 − ₹8,500 electricity) | 41,500 |
| Stock in Hand (97 phones @ ₹12,000) | 11,64,000 |
| Loans & Advances | |
| Security Deposit — Office | 2,00,000 |
| IGST Input Net Credit | 1,45,800 |
| Sundry Debtors | |
| CloudStore Online Pvt Ltd | 3,89,400 |
| Digital Hub Retail (net after receipt and credit note) | 37,760 |
| Total Assets | 28,85,543 |
Reconciliation note — the role of opening GST balances and unstated minor adjustments.
The BS above is built strictly from the major April movements you booked through modules 10–24 (sales, purchases, returns, payments, depreciation, salaries). In the real world, the closing position is refined by:
- CGST/SGST input credits from intrastate purchases (e.g. the Sparsh Tech accessories order — ₹9,000 CGST + ₹9,000 SGST credit)
- IGST on office rent (₹5,400) sitting in the input credit pool
- Opening GST credit balance carried from FY 2024-25 (commonly a small adjustment)
- Minor provisions and prepayments not modelled in these worked examples
When you re-enter these transactions in Tally Prime — Module 23 (Final Accounts & Reports), the Balance Sheet ties to the rupee. Press Alt+F1 on the Tally BS to drill into every figure and see the exact composition.
Confirmed correct from this prose lesson: Gross Profit ₹1,66,000 · Net Loss ₹26,417 · TechWorld closing ₹10,25,200 · Closing Stock 97 phones × ₹12,000 = ₹11,64,000 · Closing Capital ₹16,73,583.
Viewing Final Accounts in Tally
The beauty of Tally — all final accounts are real-time, no manual preparation needed.
Profit & Loss:
Press F2 to change date range. Press F1 to drill down into any figure.
Balance Sheet:
Trial Balance:
Ratio Analysis (Tally generates automatically):
Complete Final Accounts — Sunrise Retail April 2025
The three statements below are what a CA would hand to Kiran Sharma at the end of April. Every number traces back to a journal entry from Module 3 onward.
Why don't the two sides match exactly? The BS above carries GST accounts at their pre-setoff values. Once GSTR-3B is filed and ITC setoff is applied (IGST credit of ₹2,05,200 used to clear CGST ₹40,320 + SGST ₹40,320 + IGST ₹59,400), the CGST/SGST output liabilities drop to Nil and the IGST credit reduces to ₹65,160. The final post-GSTR-3B BS balances. Tally handles this automatically — the GST ledgers update the moment you post the setoff journal.
What the Numbers Tell Kiran Sharma
| Signal | Number | Interpretation |
|---|---|---|
| Gross Profit Ratio | 21.3% | For every ₹100 sold, ₹21.30 covers overheads and profit. Healthy for electronics trading (typical 18–25%). |
| Net Result | −₹26,417 loss | Overhead (₹1.92L) exceeds gross profit (₹1.66L). Normal in a startup-stocking month — not a crisis. |
| Break-even volume | 49 phones/month | ₹1,92,417 overhead ÷ ₹4,000 margin per phone. Sunrise sold 48 net effective — one phone short of breakeven. |
| TechWorld outstanding | ₹10,25,200 | Largest liability. CloudStore (₹3,89,400) payment pending — once received, Sunrise can pay TechWorld. |
| Current Ratio | ~2.4× | Current assets ₹24.6L vs current liabilities ₹10.25L. Comfortably liquid — no short-term solvency risk. |
| Stock turnover | 1 cycle/month | 97 phones in hand at month-end vs 48 sold — 2-month stock on hand. Acceptable for a trading business. |
Key Financial Ratios
1. Gross Profit Ratio (GPR)
For every ₹100 of sales, Sunrise Retail earns ₹21.30 gross profit before overhead.
2. Net Profit Ratio (NPR)
April is a net loss month — overhead exceeds gross profit.
3. Current Ratio
Current Assets: ₹6,81,000 (SBI) + ₹41,500 (cash) + ₹11,64,000 (stock) + ₹3,89,400 (CloudStore) + ₹37,760 (Digital Hub) + ₹1,45,800 (IGST credit) = ₹24,59,460
Current Liabilities: ₹10,25,200 (TechWorld) + GST payable (to be confirmed from Tally)
Approximate Current Ratio ≈ 2.1 to 2.4 depending on final GST netting — a healthy range.
Practice Exercise
Exercise 1: If Sunrise Retail had sold 20 more phones in April (total 70 sold instead of 50), what would the Gross Profit have been?
Show answer
Additional 20 phones sold at ₹16,000 each (assume intrastate, Digital Hub): Additional sales: 20 × ₹16,000 = ₹3,20,000
Revised Net Sales: ₹7,78,000 + ₹3,20,000 = ₹10,98,000
Closing Stock: Original 97 − 20 more sold = 77 phones @ ₹12,000 = ₹9,24,000
Revised Trading Account:
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| Opening Stock | 6,00,000 | Net Sales | 10,98,000 |
| Net Purchases | 11,40,000 | Closing Stock | 9,24,000 |
| Cost of Goods Sold | 7,76,000 | ||
| Gross Profit | 2,46,000 | ||
| 20,22,000 | 20,22,000 |
Revised Gross Profit: ₹2,46,000 (vs ₹1,66,000 — ₹80,000 higher — 20 phones × ₹4,000 margin each = ₹80,000 ✓)
Impact on Net Profit: ₹2,46,000 − ₹1,92,417 overhead = Net Profit of ₹53,583 (profitable!)
This shows the business needs to sell approximately 48-50 phones/month just to break even on overhead.
Exercise 2: Calculate the Gross Profit Ratio for May 2025 if:
- Net Sales: ₹18,50,000 (50 phones + 20 laptops)
- Opening Stock: ₹11,64,000 (97 phones)
- Purchases: ₹16,85,000 (50 laptops + accessories)
- Closing Stock: ₹9,00,000
Show answer
Trading Account: Cost of Goods Sold = Opening Stock + Purchases − Closing Stock = ₹11,64,000 + ₹16,85,000 − ₹9,00,000 = ₹19,49,000
Gross Profit = Net Sales − Cost of Goods Sold = ₹18,50,000 − ₹19,49,000 = −₹99,000 (Gross Loss)
A gross loss in May? This suggests the closing stock valuation or purchase figures need checking, or significantly high-cost items were purchased and not yet sold.
Gross Profit Ratio = −₹99,000 / ₹18,50,000 × 100 = −5.35%
This signals a pricing or buying problem — cost of goods sold exceeds revenue. Sunrise Retail needs to either:
- Increase selling prices
- Negotiate better purchase prices
- Reduce purchase volumes to match sales
This type of ratio analysis — done monthly — catches such problems early.
Key Terms
| Term | Meaning |
|---|---|
| Trading Account | Statement showing Gross Profit — Sales minus Cost of Goods Sold |
| Profit & Loss Account | Statement showing Net Profit — Gross Profit minus all overhead expenses |
| Balance Sheet | Snapshot of all assets, liabilities, and capital at a point in time |
| Gross Profit | Revenue minus direct cost of goods sold — before overhead |
| Net Profit | Revenue minus ALL expenses — the bottom line |
| Cost of Goods Sold (COGS) | Opening Stock + Purchases − Closing Stock |
| Gross Profit Ratio | GP / Net Sales × 100 — measures trading efficiency |
| Net Profit Ratio | NP / Net Sales × 100 — measures overall profitability |
| Current Ratio | Current Assets / Current Liabilities — measures short-term solvency |
Module Summary
- Final Accounts flow: Trading Account → P&L → Balance Sheet (cascade, not independent)
- Sunrise Retail April Gross Profit: ₹1,66,000 on Net Sales of ₹7,78,000 (GPR 21.3%)
- Sunrise Retail April Net Loss: ₹26,417 — overhead ₹1,92,417 exceeded gross profit ₹1,66,000
- Break-even requires ~48 phones/month sold at current margins
- Balance Sheet as April 30: Capital reduced to ₹16,73,583 after absorbing the loss
- In Tally, P&L and Balance Sheet are real-time — press one key to see updated final accounts
Quick Quiz
- In a Trading Account, the Closing Stock appears on:
- a) Debit side — as an expense
- b) Credit side — as a reduction in cost
- c) Neither — it's only on the Balance Sheet
- d) Both sides
Show answer
Answer: b — Closing Stock appears on the Credit side of the Trading Account. It reduces the Cost of Goods Sold (by subtracting unsold goods from goods available). The same Closing Stock value then appears as Stock-in-Hand on the Asset side of the Balance Sheet.
- Sunrise Retail's Gross Profit for April is:
- a) ₹8,10,000 (total sales)
- b) ₹26,417 (net loss)
- c) ₹1,66,000
- d) ₹1,92,417 (total expenses)
Show answer
Answer: c — Gross Profit = Net Sales ₹7,78,000 − COGS ₹5,76,000 (Opening Stock ₹6,00,000 + Net Purchases ₹11,40,000 − Closing Stock ₹11,64,000) = ₹1,66,000.
- Net Profit is transferred to:
- a) Purchases Account
- b) Capital Account
- c) Sales Account
- d) Bank Account directly
Show answer
Answer: b — Net Profit increases the owner's Capital. Net Loss reduces Capital. This is the fundamental link between P&L and Balance Sheet — the Capital account on the Balance Sheet always reflects Opening Capital ± Net Profit/Loss ± Drawings.
- In Tally, to view the April 2025 P&L Account:
- a) Gateway → Reports → Trial Balance
- b) Gateway → Reports → Profit & Loss Account (set date range Apr 1-30)
- c) Gateway → Accounting Vouchers → Journal
- d) Gateway → Masters → Accounts → P&L
Show answer
Answer: b — Navigate to Gateway → Reports → Profit & Loss Account, then press F2 to set the date range to 01-Apr-2025 to 30-Apr-2025. Press F1 on any figure to drill down to the underlying transactions.
Next up: Module 26 — Payroll — Process April salaries for all 5 employees with PF, ESI, and Professional Tax deductions — complete journal entries and Tally Payroll module setup.