Final Accounts

Final Accounts

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

Final Accounts are the end-of-period financial statements that determine profitability and the financial standing of a sole trader or partnership. The set comprises the Trading Account, Profit and Loss Account, Appropriation Account (for partnerships), and the Balance Sheet.

• Gross Profit = Net Sales − Cost of Goods Sold (COGS).
• Net Purchases = Purchases − Purchase Returns + Carriage Inward.
• Net Profit = Gross Profit + Other Income − Operating Expenses − Depreciation − Bad Debts.
• Closing Stock is the only adjustment not in the Trial Balance; credit it in Trading Account and list it as a Current Asset in the Balance Sheet.

WASSCE pointers: (1) Always show Carriage Inward in the Trading Account and Carriage Outward in the P&L. (2) Provision for doubtful debts reduces Sundry Debtors in the Balance Sheet. (3) Net off Accruals (add to expense, show as liability) and Prepayments (deduct from expense, show as asset).

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🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Purpose and Sequence

Final Accounts are prepared after the Trial Balance is extracted, to convert ledger balances into meaningful statements. The sequence is Trading Account → Profit and Loss Account → (Appropriation Account for partnerships) → Balance Sheet. The first two are nominal account statements (flowing to P&L), while the Balance Sheet is a personal/real account statement showing position as at the last day of the period.

Trading Account — Finding Gross Profit

It matches Net Sales against Cost of Goods Sold.

• Net Sales = Sales − Returns Inward.
• COGS = Opening Stock + Net Purchases + Carriage Inward − Closing Stock.
• Gross Profit = Net Sales − COGS. A loss occurs when COGS exceeds Net Sales.

Profit and Loss Account — Finding Net Profit

Begins with Gross Profit b/d (or Gross Loss c/d). Credits include Discount Received, Commission Received, Rent Received, Interest Received, Bad Debts Recovered, and Profit on Sale of Assets. Debits include Carriage Outward, Wages & Salaries, Rent & Rates, Insurance, Depreciation, Bad Debts, Provision for Doubtful Debts (new), Advertising, and General Expenses.

Key Adjustments from Notes

Adjustment	In P&L	In Balance Sheet
Depreciation	Debit expense	Reduce asset
New Provision for Doubtful Debts	Debit expense	Deduct from Sundry Debtors
Accrued expense	Add to expense	Current liability
Prepaid expense	Deduct from expense	Current asset
Accrued income	Add to income	Current asset
Closing Stock	Credit in Trading Account	Current asset

Balance Sheet Structure

Vertical format is preferred in WASSCE: Non-Current Assets + Current Assets − Current Liabilities − Non-Current Liabilities = Capital (Opening + Net Profit − Drawings). Always arrange items in liquidity order.

Typical WASSCE Question Patterns

Paper 2 (Essay) commonly tests: preparation of full Final Accounts from a Trial Balance and adjustments (≈20 marks), correction of misclassified items, and computation of Gross/Net Profit from summarised data. Paper 1 (Objective) frequently asks for the treatment of Closing Stock or the formula for COGS.

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🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Edge Cases in Adjustment Treatment

• Provision for Doubtful Debts with an old provision: If old = GHS 1,200 and required = GHS 1,800, increase by GHS 600 in P&L. If required = GHS 900, decrease by GHS 300 (credit P&L, debit old provision).
• Provision for Discount on Debtors: Same logic as doubtful debts; deducted from Debtors after deducting the doubtful-debts provision.
• Depreciation methods: Straight-Line produces equal annual charges; Reducing Balance writes off a fixed percentage of the diminishing book value. WASSCE almost always uses Straight-Line, with the formula (Cost − Scrap Value) ÷ Useful Life.
• Drawings and Capital: Drawings reduce capital directly; goods taken by the owner (Drawings of stock) are added to Purchases in the Trading Account at cost price.

Links to Adjacent Topics

Final Accounts depend on the Trial Balance (summarised ledger balances), connect to Depreciation of Fixed Assets (non-current asset topic), and feed into Ratio Analysis (Gross Profit Margin, Net Profit Margin, Current Ratio, Acid Test). Mastery here makes Partnership Accounts (introduction of Appropriation Account for salaries, interest on capital, and profit-sharing ratios) far easier.

Common Mistakes

1. Treating Carriage Inward as a P&L expense — it is a trading account item.
2. Omitting Closing Stock from the Balance Sheet after crediting it in the Trading Account.
3. Showing the new Provision for Doubtful Debts as a liability instead of deducting it from Sundry Debtors.
4. Forgetting to add back the old provision when computing the increase to charge in P&L.
5. Placing accrued expenses on the wrong side of the Balance Sheet.

Worked Micro-Example

Given: Sales GHS 80,000; Returns Inward GHS 2,000; Opening Stock GHS 6,000; Purchases GHS 50,000; Returns Outward GHS 1,000; Carriage Inward GHS 1,500; Closing Stock GHS 7,000.

• Net Sales = 80,000 − 2,000 = 78,000.
• Net Purchases = 50,000 − 1,000 + 1,500 = 50,500.
• COGS = 6,000 + 50,500 − 7,000 = 49,500.
• Gross Profit = 78,000 − 49,500 = GHS 28,500.

Exam Strategy

In Paper 2, allocate about 35 minutes to a 20-mark Final Accounts question: 10 minutes for adjustments, 20 minutes for the four statements, 5 minutes for cross-checking totals. Always label every column, separate Trading from P&L, and remember that Balance Sheet is as at a date, not for a period.

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