Final accounts of Sole Proprietorship Notes for ICSE Class 10 Commercial Studies Chapter 9

You can check the current scope in the official CISCE Commercial Studies syllabus for Examination Year 2027.

Final accounts are prepared at the end of an accounting period to determine the profit or loss of a business and to show its financial position.

For a sole proprietorship, the sequence is:

Trial Balance → Trading Account → Profit and Loss Account → Balance Sheet

The Trial Balance is the starting point for preparing final accounts. It is not itself one of the final accounts.

The Trading Account is prepared first. It records items directly connected with the goods traded by the business and shows whether the trading activity has produced a gross profit or gross loss.

Debit side: Opening Stock, Net Purchases and Direct Expenses.

Credit side: Net Sales and Closing Stock.

The gross profit or gross loss obtained from the Trading Account is transferred to the Profit and Loss Account.

The Profit and Loss Account contains indirect expenses such as salaries, office rent, carriage outwards, advertising and bad debts, together with other incomes such as commission received or rent received when such items appear in the Trial Balance.

If total income is greater than total indirect expenses, the business earns a net profit. If expenses exceed income, the business suffers a net loss.

The Balance Sheet is prepared after the Profit and Loss Account. It shows the financial position of the sole proprietorship on a particular date.

The liabilities side contains proprietor’s capital and outside liabilities such as creditors or loans. The assets side contains resources owned by the business, such as cash, bank balance, debtors, closing stock, furniture, machinery and buildings.

For a sole proprietor, net profit increases capital and drawings reduce capital.

Closing stock means the value of goods that remain unsold at the end of the accounting period.

When closing stock is given as an adjustment outside the Trial Balance, it has a double effect:

1. It appears on the credit side of the Trading Account.
2. It appears on the assets side of the Balance Sheet.

This double treatment is one of the most important points to remember while solving an ICSE Final Accounts question.

Gross Profit = ₹54,000. This amount is transferred to the credit side of the Profit and Loss Account.

Net Profit = ₹30,000.

Adjusted Capital = ₹98,000 + ₹30,000 − ₹5,000 = ₹1,23,000.

Model Answer:

• Opening Stock: Debit side of Trading Account.
• Wages: Debit side of Trading Account as a direct expense.
• Carriage Outwards: Debit side of Profit and Loss Account.
• Debtors: Assets side of Balance Sheet.
• Creditors: Liabilities side of Balance Sheet.
• Closing Stock: Credit side of Trading Account and assets side of Balance Sheet when given as an adjustment.

1. Using Sales without deducting Returns Inwards.
2. Using Purchases without deducting Returns Outwards.
3. Putting Carriage Inwards in the Profit and Loss Account instead of the Trading Account.
4. Putting Carriage Outwards in the Trading Account.
5. Forgetting that closing stock has a double effect when given as an adjustment.
6. Forgetting to add net profit to capital or deduct drawings from capital.
7. Using company terms such as shareholders’ equity in a sole-proprietorship Balance Sheet.
8. Practising adjustments that are outside the prescribed Class 10 Commercial Studies scope.