**Trading and Profit and Loss Account for the year ending 31st March 2018**

Trading Account

Particulars| Amount in Rs.| Particulars| Amount in Rs.
---|---|---|---
Opening Stock| XXXX| Sales| XXXX
Add: Purchases| XXXX| |
| | Gross Profit c/d| XXXX
| | |
| | Total| XXXX| |

Profit and Loss Account

Particulars| Amount in Rs.| Particulars| Amount in Rs.
---|---|---|---
Gross Profit b/d| XXXX| Rent| XXXX
Add: Other Income| XXXX| Salaries| XXXX
| | Depreciation| XXXX
| | Interest| XXXX
| | Net Profit c/d| XXXX
| | |
| | Total| XXXX| |

**Balance Sheet as at 31st March 2018**

Liabilities| Amount in Rs.| Assets| Amount in Rs.
---|---|---|---
Capital| XXXX| Fixed Assets| XXXX
Add: Net Profit| XXXX| Less: Depreciation| XXXX
| | |
| | Current Assets|
| | Stock| XXXX
| | Debtors| XXXX
| | Bank| XXXX
| | |
| | Total| XXXX| Total| XXXX|

**Adjustments:**

1. Closing stock is valued at Rs. 50,000.
2. Outstanding salaries are Rs. 10,000.
3. Depreciation on fixed assets is to be provided at 10% per annum.
4. Interest on drawings is to be charged at 5% per annum.
5. Prepaid rent is Rs. 2,000.

**Explanation:**

- The trading account shows the gross profit earned by the business during the year, which is calculated by subtracting the cost of goods sold (purchases + opening stock - closing stock) from the sales revenue.
- The profit and loss account shows the net profit earned by the business during the year, which is calculated by adding gross profit to other income and subtracting all expenses and losses.
- The balance sheet shows the financial position of the business at the end of the year, with assets on the left-hand side and liabilities and capital on the right-hand side.
- The adjustments are made to reflect any changes in the values of assets or liabilities that have not been recorded in the trial balance. For example, the closing stock is not recorded in the trial balance, but it needs to be included in the trading account to calculate the cost of goods sold. Similarly, outstanding salaries and prepaid rent are recorded as expenses in the profit and loss account, even though they have not been paid or earned during the year. Depreciation on fixed assets and interest on drawings are adjustments made to reflect the decrease in the value of assets and increase in the value of liabilities over time.