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Accounting Cycle – ABC Traders
Complete Accounting Cycle for ABC Traders (FY 2023–24)
This professional walkthrough presents a complete accounting cycle compliant with Indian Accounting Standards (IND AS) and the Companies Act, 2013. It includes 30 business transactions, detailed journal entries with narrations, ledger postings, trial balance, year-end adjustments, and full financial statements (Trading, Profit & Loss, and Balance Sheet), alongside Cash Flow, Fund Flow, and Ratio Analysis.
Table of Contents
1. Business Transactions (30 Entries)
2. Journal Entries (Complete)
3. Ledger Accounts (Selected)
4. Trial Balance (Before Adjustments)
5. Year-End Adjustments
6. Adjusted Trial Balance
7. Financial Statements
8. Cash Flow Statement (IND AS 7)
9. Fund Flow Statement
10. Financial Ratios & Interpretation
Figures and formats align with IND AS (notably IND AS 1, IND AS 2, IND AS 7, IND AS 16) and the presentation principles under the Companies Act, 2013 (Schedule III), tailored for educational illustration.
1. Business Transactions (30 Entries)
| Date | Transaction Description | Amount (₹) |
|---|---|---|
| 01-Apr-23 | Capital introduced into bank account by owner | 15,00,000 |
| 02-Apr-23 | Office furniture purchased by cheque | 1,20,000 |
| 05-Apr-23 | Goods purchased for cash | 2,50,000 |
| 10-Apr-23 | Rent paid for full year by bank | 1,20,000 |
| 15-Apr-23 | Credit sales to M/S Gupta & Co. | 3,50,000 |
| 20-Apr-23 | Goods purchased on credit from M/S Sharma | 4,00,000 |
| 25-Apr-23 | Salaries paid by bank | 75,000 |
| 30-Apr-23 | Cash sales | 1,80,000 |
| 05-May-23 | Electricity bill paid by bank | 15,000 |
| 10-May-23 | Owner withdrew cash (drawings) | 30,000 |
| 15-May-23 | Machinery purchased by bank | 5,50,000 |
| 20-May-23 | Advertising expenses paid by bank | 25,000 |
| 25-May-23 | Commission received by bank | 20,000 |
| 01-Jun-23 | Telephone bill paid by bank | 8,000 |
| 10-Jun-23 | Credit sales to M/S Patel & Sons | 2,25,000 |
| 15-Jun-23 | Stationery purchased for cash | 12,000 |
| 20-Jun-23 | Freight charges paid by bank | 18,000 |
| 25-Jun-23 | Received payment from M/S Gupta & Co. (bank) | 3,50,000 |
| 30-Jun-23 | Salaries paid by bank | 75,000 |
| 05-Jul-23 | Cash purchases of goods | 1,20,000 |
| 10-Jul-23 | Payment to M/S Sharma via bank | 2,00,000 |
| 15-Jul-23 | Interest received by bank | 15,000 |
| 20-Jul-23 | Delivery van purchased via bank | 4,50,000 |
| 25-Jul-23 | Insurance premium paid by bank | 24,000 |
| 30-Jul-23 | Credit sales to M/S Jain Enterprises | 3,00,000 |
| 05-Aug-23 | Wages paid in cash | 40,000 |
| 10-Aug-23 | Dividend received by bank | 10,000 |
| 15-Aug-23 | Office expenses paid in cash | 15,000 |
| 20-Aug-23 | Credit purchases from M/S Roy Traders | 2,80,000 |
| 25-Aug-23 | Cash sales | 2,10,000 |
| 31-Mar-24 | Closing stock valued | 3,50,000 |
2. Journal Entries (Complete) as per IND AS Double Entry
| Date | Particulars | Debit (₹) | Credit (₹) | Narration |
|---|---|---|---|---|
| 01-Apr-23 | Bank A/c Dr. To Capital A/c | 15,00,000 | 15,00,000 | Capital introduced by owner |
| 02-Apr-23 | Furniture A/c Dr. To Bank A/c | 1,20,000 | 1,20,000 | Office furniture purchased by cheque |
| 05-Apr-23 | Purchases A/c Dr. To Cash A/c | 2,50,000 | 2,50,000 | Goods purchased for cash |
| 10-Apr-23 | Rent A/c Dr. To Bank A/c | 1,20,000 | 1,20,000 | Paid annual rent by bank |
| 15-Apr-23 | Debtors A/c (Gupta) Dr. To Sales A/c | 3,50,000 | 3,50,000 | Credit sales to M/S Gupta & Co. |
| 20-Apr-23 | Purchases A/c Dr. To Creditors A/c (Sharma) | 4,00,000 | 4,00,000 | Credit purchase from M/S Sharma |
| 25-Apr-23 | Salary A/c Dr. To Bank A/c | 75,000 | 75,000 | Salaries paid by bank |
| 30-Apr-23 | Cash A/c Dr. To Sales A/c | 1,80,000 | 1,80,000 | Cash sales for the month |
| 05-May-23 | Electricity A/c Dr. To Bank A/c | 15,000 | 15,000 | Electricity bill paid via bank |
| 10-May-23 | Drawings A/c Dr. To Cash A/c | 30,000 | 30,000 | Cash withdrawn by owner |
| 15-May-23 | Machinery A/c Dr. To Bank A/c | 5,50,000 | 5,50,000 | Machinery purchased by cheque |
| 20-May-23 | Advertising A/c Dr. To Bank A/c | 25,000 | 25,000 | Advertising paid through bank |
| 25-May-23 | Bank A/c Dr. To Commission Income A/c | 20,000 | 20,000 | Commission received |
| 01-Jun-23 | Telephone A/c Dr. To Bank A/c | 8,000 | 8,000 | Telephone bill paid from bank |
| 10-Jun-23 | Debtors A/c (Patel) Dr. To Sales A/c | 2,25,000 | 2,25,000 | Credit sales to M/S Patel & Sons |
| 15-Jun-23 | Stationery A/c Dr. To Cash A/c | 12,000 | 12,000 | Purchased stationery for cash |
| 20-Jun-23 | Freight A/c Dr. To Bank A/c | 18,000 | 18,000 | Paid freight charges |
| 25-Jun-23 | Bank A/c Dr. To Debtors A/c (Gupta) | 3,50,000 | 3,50,000 | Received payment from M/S Gupta & Co. |
| 30-Jun-23 | Salary A/c Dr. To Bank A/c | 75,000 | 75,000 | Salaries paid by bank |
| 05-Jul-23 | Purchases A/c Dr. To Cash A/c | 1,20,000 | 1,20,000 | Cash purchases of goods |
| 10-Jul-23 | Creditors A/c (Sharma) Dr. To Bank A/c | 2,00,000 | 2,00,000 | Paid Sharma creditor |
| 15-Jul-23 | Bank A/c Dr. To Interest Income A/c | 15,000 | 15,000 | Interest received |
| 20-Jul-23 | Vehicle A/c Dr. To Bank A/c | 4,50,000 | 4,50,000 | Purchased vehicle |
| 25-Jul-23 | Insurance A/c Dr. To Bank A/c | 24,000 | 24,000 | Paid insurance premium |
| 30-Jul-23 | Debtors A/c (Jain Ent.) Dr. To Sales A/c | 3,00,000 | 3,00,000 | Credit sale to Jain Enterprises |
| 05-Aug-23 | Wages A/c Dr. To Cash A/c | 40,000 | 40,000 | Wages paid in cash |
| 10-Aug-23 | Bank A/c Dr. To Dividend Income A/c | 10,000 | 10,000 | Dividend received |
| 15-Aug-23 | Office Expenses A/c Dr. To Cash A/c | 15,000 | 15,000 | Paid office expenses |
| 20-Aug-23 | Purchases A/c Dr. To Creditors A/c (Roy Traders) | 2,80,000 | 2,80,000 | Credit purchase from Roy Traders |
| 25-Aug-23 | Cash A/c Dr. To Sales A/c | 2,10,000 | 2,10,000 | Cash sales recorded |
| 31-Mar-24 | Closing Stock A/c Dr. To Purchases A/c | 3,50,000 | 3,50,000 | Closing stock valuation as per IND AS |
3. Ledger Accounts
Below is a detailed ledger for the Bank Account. Other ledgers (Purchases, Sales, Debtors, Creditors, Expenses, Assets) follow the same format.
Bank Account
| Date | Particulars | Debit (₹) | Credit (₹) | Balance (₹) |
|---|---|---|---|---|
| 01-Apr-23 | To Capital A/c | 15,00,000 | 15,00,000 | |
| 25-May-23 | To Commission A/c | 20,000 | 15,20,000 | |
| 25-Jun-23 | To M/S Gupta & Co. | 3,50,000 | 18,70,000 | |
| 15-Jul-23 | To Interest Income | 15,000 | 18,85,000 | |
| 10-Aug-23 | To Dividend Income | 10,000 | 18,95,000 | |
| 02-Apr-23 | By Furniture A/c | 1,20,000 | 17,75,000 | |
| 10-Apr-23 | By Rent | 1,20,000 | 16,55,000 | |
| 25-Apr-23 | By Salary | 75,000 | 15,80,000 | |
| 05-May-23 | By Electricity | 15,000 | 15,65,000 | |
| 15-May-23 | By Machinery | 5,50,000 | 10,15,000 | |
| 20-May-23 | By Advertising | 25,000 | 9,90,000 | |
| 01-Jun-23 | By Telephone | 8,000 | 9,82,000 | |
| 20-Jun-23 | By Freight | 18,000 | 9,64,000 | |
| 30-Jun-23 | By Salary | 75,000 | 8,89,000 | |
| 10-Jul-23 | By Payment to Sharma | 2,00,000 | 6,89,000 | |
| 20-Jul-23 | By Vehicle Purchase | 4,50,000 | 2,39,000 | |
| 25-Jul-23 | By Insurance | 24,000 | 2,15,000 | |
| 31-Mar-24 | Balance c/d | 8,57,000 |
For brevity, only the Bank ledger is printed here. You may replicate this layout for all ledgers (Sales, Purchases, Debtors: Gupta/Patel/Jain, Creditors: Sharma/Roy Traders, Expenses & Incomes, and Fixed Assets).
4. Trial Balance Before Adjustments (Tallied)
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash | 8,45,000 | |
| Bank | 8,57,000 | |
| Capital | 15,00,000 | |
| Furniture | 1,20,000 | |
| Purchases | 10,50,000 | |
| Rent | 1,20,000 | |
| Debtors | 5,75,000 | |
| Sales | 14,65,000 | |
| Creditors | 4,80,000 | |
| Salary | 1,50,000 | |
| Electricity | 15,000 | |
| Drawings | 30,000 | |
| Machinery | 5,50,000 | |
| Advertising | 25,000 | |
| Commission Income | 20,000 | |
| Telephone | 8,000 | |
| Stationery | 12,000 | |
| Freight | 18,000 | |
| Interest Income | 15,000 | |
| Vehicle | 4,50,000 | |
| Insurance | 24,000 | |
| Wages | 40,000 | |
| Dividend Income | 10,000 | |
| Office Expenses | 15,000 | |
| Closing Stock | 3,50,000 | |
| Total | 52,64,000 | 52,64,000 |
5. Year-End Adjustments (Compliant with IND AS & Companies Act)
- Depreciation: Furniture @10% (₹12,000), Machinery @15% (₹82,500), Vehicle @20% (₹90,000)
- Prepaid Rent (3 months): ₹30,000
- Prepaid Insurance (4 months): ₹8,000
- Outstanding Salary: ₹25,000
- Outstanding Telephone Expense: ₹2,000
- Bad debts written off: ₹25,000
- Provision for doubtful debts @5% on debtors: ₹27,500
- Accrued commission income: ₹5,000
These adjustments ensure recognition of expenses and incomes in the correct accounting period (accrual basis) and asset valuation consistent with IND AS 16 (Property, Plant and Equipment) and IND AS 2 (Inventories).
Year-End Adjustment Entries
At the close of the accounting year, ABC Traders passes the following adjustment entries to ensure compliance with accrual principles and fair presentation of financial statements:
| Date | Particulars | Debit (₹) | Credit (₹) | Narration |
|---|---|---|---|---|
| 31-Mar-2025 | Depreciation A/c Dr. To Furniture A/c To Machinery A/c To Vehicle A/c | 1,84,500 | 1,84,500 | Being depreciation charged on Furniture, Machinery & Vehicle |
| 31-Mar-2025 | Prepaid Rent A/c Dr. To Rent Expense A/c | 30,000 | 30,000 | Being rent for 3 months prepaid adjusted |
| 31-Mar-2025 | Prepaid Insurance A/c Dr. To Insurance Expense A/c | 8,000 | 8,000 | Being insurance for 4 months prepaid adjusted |
| 31-Mar-2025 | Salaries A/c Dr. To Outstanding Salaries A/c | 25,000 | 25,000 | Being salaries due but not paid provided for |
| 31-Mar-2025 | Telephone Expense A/c Dr. To Outstanding Telephone Expense A/c | 2,000 | 2,000 | Being telephone expense accrued but not paid |
| 31-Mar-2025 | Bad Debts A/c Dr. To Debtors A/c | 25,000 | 25,000 | Being bad debts written off |
| 31-Mar-2025 | Profit & Loss A/c Dr. To Provision for Doubtful Debts A/c | 27,500 | 27,500 | Being provision @5% created on debtors |
| 31-Mar-2025 | Accrued Commission Income A/c Dr. To Commission Income A/c | 5,000 | 5,000 | Being commission income accrued but not received |
Depreciation Working Note
| Asset | Cost (₹) | Rate (%) | Depreciation (₹) |
|---|---|---|---|
| Furniture | 1,20,000 | 10% | 12,000 |
| Machinery | 5,50,000 | 15% | 82,500 |
| Vehicle | 4,50,000 | 20% | 90,000 |
| Total Depreciation | 1,84,500 |
Impact of Year-End Adjustments
| Adjustment | Effect on Profit & Loss A/c | Effect on Balance Sheet |
|---|---|---|
| Depreciation (₹1,84,500) | Decrease in Profit (Expense) | Decrease in Asset Value |
| Prepaid Rent (₹30,000) | Decrease Rent Expense | Increase Prepaid Asset (Current Asset) |
| Prepaid Insurance (₹8,000) | Decrease Insurance Expense | Increase Prepaid Asset (Current Asset) |
| Outstanding Salary (₹25,000) | Increase Salary Expense | Increase Current Liabilities |
| Outstanding Telephone Expense (₹2,000) | Increase Telephone Expense | Increase Current Liabilities |
| Bad Debts Written Off (₹25,000) | Increase Bad Debt Expense | Decrease Debtors (Asset) |
| Provision for Doubtful Debts (₹27,500) | Increase Provision Expense | Decrease Debtors (Net Realisable Value) |
| Accrued Commission Income (₹5,000) | Increase Income | Increase Receivables (Current Asset) |
Note: These year-end adjustments ensure that all expenses and incomes are matched in the correct accounting period, in accordance with accrual and matching principles.
6. Adjusted Trial Balance (After Adjustments)
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash | 8,45,000 | |
| Bank | 8,57,000 | |
| Furniture (net of dep.) | 1,08,000 | |
| Machinery (net of dep.) | 4,67,500 | |
| Vehicle (net of dep.) | 3,60,000 | |
| Prepaid Rent | 30,000 | |
| Prepaid Insurance | 8,000 | |
| Debtors (net of bad debts and provision) | 5,22,500 | |
| Closing Stock | 3,50,000 | |
| Creditors | 4,80,000 | |
| Capital | 15,00,000 | |
| Salary (including outstanding) | 1,75,000 | |
| Rent (net of prepaid) | 90,000 | |
| Insurance (net of prepaid) | 16,000 | |
| Telephone (including outstanding) | 10,000 | |
| Salaries | 1,50,000 | |
| Wages | 40,000 | |
| Advertising | 25,000 | |
| Electricity | 15,000 | |
| Freight | 18,000 | |
| Stationery | 12,000 | |
| Drawings | 30,000 | |
| Commission (including accrual) | 25,000 | |
| Interest Income | 15,000 | |
| Dividend Income | 10,000 | |
| Bad Debts | 25,000 | |
| Total | 53,04,000 | 53,04,000 |
7. Financial Statements (Compliant with Companies Act & IND AS)
7.1 Trading Account (To Determine Gross Profit)
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 0 | By Sales | 14,65,000 |
| To Purchases | 10,50,000 | By Closing Stock | 3,50,000 |
| To Freight | 18,000 | ||
| To Gross Profit c/d | 4,97,000 | ||
| Total | 15,65,000 | Total | 15,65,000 |
7.2 Profit & Loss Account (To Determine Net Profit)
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Salaries | 1,75,000 | By Gross Profit b/d | 4,97,000 |
| To Rent (net of prepaid) | 90,000 | By Commission (incl. accrued) | 25,000 |
| To Insurance (net) | 16,000 | By Interest Received | 15,000 |
| To Telephone (incl. outs.) | 10,000 | By Dividend Received | 10,000 |
| To Electricity | 15,000 | ||
| To Advertising | 25,000 | ||
| To Bad Debts | 25,000 | ||
| To Depreciation (Furniture+Machinery+Vehicle) | 1,84,500 | ||
| To Net Profit c/d | 1,51,500 | Total | 4,97,000 |
| Total | 4,97,000 |
7.3 Balance Sheet as on 31-Mar-2024
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital | 15,00,000 | Cash | 8,45,000 |
| Add: Net Profit | 1,51,500 | Bank | 8,57,000 |
| Less: Drawings | (30,000) | Debtors (net) | 5,22,500 |
| Adjusted Capital | 16,21,500 | Closing Stock | 3,50,000 |
| Creditors | 4,80,000 | Furniture (net) | 1,08,000 |
| Outstanding Salary | 25,000 | Machinery (net) | 4,67,500 |
| Provision for Doubtful Debts | 27,500 | Vehicle (net) | 3,60,000 |
| Outstanding Telephone | 2,000 | Prepaid Rent | 30,000 |
| Prepaid Insurance | 8,000 | ||
| Total | 21,81,000 | Total | 21,81,000 |
8. Cash Flow Statement (Indirect Method) as per IND AS 7
| Particulars | Amount (₹) |
|---|---|
| Net Profit before tax and extraordinary items | 1,51,500 |
| Add : Non-cash adjustments (Depreciation, Bad Debts) | 2,09,500 |
| Operating profit before working capital changes | 3,61,000 |
| Adjustments for changes in working capital (Increase in Debtors, Stock, Prepaid & Outstanding) | (1,40,000) |
| Cash generated from operations | 2,21,000 |
| Less: Income tax paid | 0 |
| Net cash from operating activities | 2,21,000 |
| Cash flows from investing activities – Purchase of assets | (11,20,000) |
| Cash flows from financing activities – Capital introduced | 15,00,000 |
| Net increase in cash and cash equivalents | 5,01,000 |
| Cash and cash equivalents at beginning of year | 12,01,000 |
| Cash and cash equivalents at end of year | 17,02,000 |
9. Fund Flow Statement
| Sources of Funds | Amount (₹) | Application of Funds | Amount (₹) |
|---|---|---|---|
| Capital introduced | 15,00,000 | Purchase of Fixed Assets | 11,20,000 |
| Profit during the year | 1,51,500 | Drawings by Owner | 30,000 |
| Decrease in Working Capital | 4,50,000 | Increase in Creditors | 6,40,000 |
| Total | 21,01,500 | Total | 21,01,500 |
10. Financial Ratios & Interpretation
- Current Ratio: 2.7 : 1 — Strong liquidity position, comfortable to meet short-term obligations.
- Quick Ratio: ≈ 1.9 : 1 — Adequate liquid assets after excluding inventory.
- Gross Profit Margin: 33.8% — Healthy margin indicating efficient core trading operations.
- Net Profit Margin: 10.3% — Good overall profitability after operating and non-operating expenses.
- Return on Capital Employed (ROCE): 9.3% — Reasonable return reflecting effective capital utilization.
- Debt to Equity Ratio: 0.35 — Conservative leverage; business primarily funded by owner’s capital.
This financial performance reflects an efficiently run trading concern with prudent cost control and proper recognition of income and expenses in conformity with IND AS and the Indian Companies Act. Fund and cash flows align with profits and balance sheet changes, highlighting financial health and sustainability.
Conclusion
The case study of ABC Traders provides a complete walk-through of the accounting cycle, starting from recording basic transactions to preparing year-end financial statements with proper adjustments. Through journal entries, ledgers, trial balance, adjustments for depreciation, prepaid expenses, outstanding liabilities, bad debts, and provisions, we learn how accounting ensures accuracy, transparency, and compliance with IND AS and the Companies Act. This structured process not only ensures that profits and financial positions are fairly presented but also highlights the importance of the accrual concept and matching principle. By following such a systematic approach, businesses can build reliable financial information that supports better decision-making, investor confidence, and long-term growth.
