NCERT Solutions for Class 11 Accountancy Chapter 8: Financial Statements – I (NCERT 2026–27)

Q: How many numerical questions are there in Chapter 8 and are they all solved here?

The NCERT Questions for Practice section has 6 Short Answers, 4 Long Answers and 15 Numerical Questions. All of them are answered on this page, with every Trading, Profit and Loss Account and Balance Sheet shown step by step and the figures verified against the textbook answers.

These Class 11 Accountancy Chapter 8 solutions cover Financial Statements – I from Financial Accounting Part 2, the NCERT textbook for the 2026–27 session. The chapter explains how, after the trial balance agrees, a firm prepares its Trading and Profit and Loss Account and Balance Sheet. You will learn about stakeholders and their information needs, the vital distinction between capital and revenue items, the computation of gross profit, operating profit and net profit, the format of the balance sheet, and grouping and marshalling of assets and liabilities. Below you get every NCERT Questions for Practice item — Short Answers, Long Answers and all 15 Numerical Questions — solved step by step with verified working, plus extra practice, MCQs, Assertion–Reason and FAQs.

Class: 11 Subject: Accountancy Book: Financial Accounting Part 2 Chapter: 8 Chapter Name: Financial Statements – I Session: 2026–27

On this page

Chapter overview
Key terms & important formulas
NCERT Short Answer questions
NCERT Long Answer questions
NCERT Numerical Questions (1–15)
Extra practice questions
MCQs & Assertion–Reason
Exam tips & common mistakes
FAQs

Class 11 Accountancy Chapter 8 – Overview

Chapter 8, Financial Statements – I, takes the accounting cycle forward from the trial balance to the final accounts of a sole proprietorship. Different stakeholders (owners, managers, banks, government, prospective owners) need different financial information, so the firm prepares a general-purpose set of statements: the Trading and Profit and Loss Account (income statement), which shows financial performance, and the Balance Sheet, which shows financial position. A key idea is the capital vs revenue distinction — revenue items go to the trading and P&L account, capital items to the balance sheet — because wrong classification distorts both profit and assets. The trading account computes gross profit (Sales − Cost of Goods Sold), the profit and loss account computes net profit, and the chapter also defines operating profit (EBIT), which excludes purely financial and abnormal items. Finally, it covers the balance-sheet format and the marshalling of assets and liabilities in order of liquidity or permanence.

Key Terms & Important Formulas

Financial statements: the periodic reports a business prepares after the trial balance agrees — mainly the Trading and Profit and Loss Account and the Balance Sheet — to show performance and position.

Capital expenditure: outlay whose benefit extends over more than one accounting year (e.g. buying furniture or machinery); shown in the balance sheet (subject to depreciation).

Revenue expenditure: outlay whose benefit is exhausted within one accounting year (e.g. salaries, rent); transferred to the trading and P&L account.

Capital receipt: a receipt that creates an obligation to repay or is a sale of a fixed asset (e.g. fresh capital, bank loan, sale of old machinery).

Revenue receipt: a receipt with no obligation to repay and not from sale of a fixed asset (e.g. sales, interest on investment).

Gross profit / gross loss: the result of the trading account — excess of net sales over cost of goods sold (or the reverse for a loss).

Net profit / net loss: the final result of the P&L account, transferred to the capital account.

Operating profit (EBIT): profit from normal operations, before interest and tax, ignoring purely financial and abnormal items.

Marshalling: arranging assets and liabilities in the balance sheet in a definite order — either order of liquidity or order of permanence.

Opening entry: the journal entry passed at the start of the next year to bring forward balance-sheet balances.

Cost of Goods Sold (COGS) = Opening Stock + Net Purchases + Direct Expenses − Closing Stock

Gross Profit = Net Sales − Cost of Goods Sold = Net Sales − (Opening Stock + Net Purchases + Direct Expenses − Closing Stock)

Net Profit = Gross Profit + Other Incomes − Indirect Expenses

Operating Profit = Net Profit + Non-operating Expenses − Non-operating Incomes

Operating Profit = Gross Profit − (Office/Administrative + Selling & Distribution Expenses) + Operating Incomes

NCERT “Questions for Practice” – Short Answers

All questions below are reproduced verbatim from the NCERT textbook’s end-of-chapter exercises. Answers are original and exam-ready; numericals are solved with full working and verified against the textbook answers.

1. What are the objectives of preparing financial statements?

ANSWER Financial statements are prepared to communicate useful information to the various stakeholders of a business. Their main objectives are: (i) To present a true and fair view of the financial performance of the business — the profit earned or loss sustained during the accounting period — through the Trading and Profit and Loss Account. (ii) To present a true and fair view of the financial position of the business — its assets, liabilities and capital at a given date — through the Balance Sheet. (iii) To provide information that helps owners, managers, banks, the government and prospective investors take informed economic decisions about the firm.

2. What is the purpose of preparing trading and profit and loss account?

ANSWER The Trading and Profit and Loss Account is prepared to ascertain the net result of business operations during an accounting period. Its trading part finds the gross profit/loss from basic operations (buying and selling of goods) by setting net sales against cost of goods sold. Its profit and loss part then charges all indirect/operating expenses and adds other incomes to the gross profit to find the net profit or net loss. This net figure is transferred to the capital account, and the statement shows how profitably the firm has used its resources.

3. Explain the concept of cost of goods sold?

ANSWER Cost of goods sold (COGS) is the cost of those goods that have actually been sold during the accounting period. It is found by adding to the opening stock the net purchases and all direct expenses incurred to bring the goods to a saleable condition, and then deducting the closing stock (the unsold goods at the period-end). COGS = Opening Stock + Net Purchases + Direct Expenses − Closing Stock. If there is no opening or closing stock, COGS = Purchases + Direct Expenses. COGS is used to compute gross profit: Gross Profit = Net Sales − COGS.

4. What is a balance sheet. What are its characteristics?

ANSWER A balance sheet is a statement prepared at the end of the accounting period showing the financial position of a business — its assets on one side and its capital and liabilities on the other — as on a particular date. Characteristics: (i) it is a statement, not an account, so it has no debit/credit sides but “Liabilities” and “Assets” sides; (ii) the two sides always agree (total assets = total liabilities + capital), reflecting the accounting equation; (iii) it is prepared on a particular date, and the information is true only as on that date; (iv) it is prepared after the trading and P&L account, using the balances not yet closed; and (v) its items are marshalled in order of liquidity or permanence.

5. Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure:

(a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
(b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order.
(a) Registration fees paid at the time of purchase of a building.
(b) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years.
(c) Depreciation charged on a plant.
(d) The expenditure incurred in erecting a platform on which a machine will be fixed.
(e) Advertising expenditure, the benefits of which will last for four years.

ANSWER Distinction: Capital expenditure gives benefit for more than one accounting year, is non-recurring, increases the earning capacity of the business and is shown in the balance sheet (subject to depreciation). Revenue expenditure benefits only the current year, is usually recurring, is incurred to maintain the earning capacity and day-to-day running of the business, and is transferred to the trading and P&L account. Classification of the items (reproducing the textbook’s own a/b lettering): (a) Repairs and whitewashing to make a newly bought old building usable — Capital expenditure (incurred to bring the asset into usable condition). (b) Providing an extra exit in a cinema hall under government order — Capital expenditure (a permanent addition to the asset). (a) Registration fees paid on purchase of a building — Capital expenditure (part of the acquisition cost of the asset). (b) Maintenance of a tea garden that will produce tea after four years — Capital expenditure (treated as deferred/capital outlay as the benefit accrues in future years). (c) Depreciation charged on a plant — Revenue expenditure (the periodic charge of using a fixed asset against the current year). (d) Erecting a platform on which a machine will be fixed — Capital expenditure (cost of installing the fixed asset). (e) Advertising whose benefit lasts four years — Deferred revenue expenditure (a revenue expense written off over the years of benefit).

6. What is an operating profit?

ANSWER Operating profit is the profit earned from the normal operating activities of the business — the excess of operating revenue over operating expenses. While computing it, incomes and expenses of a purely financial nature (e.g. interest paid, interest/dividend received) and abnormal items (e.g. loss by fire, profit/loss on sale of fixed assets) are ignored. It is therefore profit before interest and tax (EBIT) and is found as: Operating Profit = Net Profit + Non-operating Expenses − Non-operating Incomes.

NCERT “Questions for Practice” – Long Answers

1. What are financial statements? What information do they provide.

ANSWER Financial statements are the periodic reports a business enterprise prepares, after its trial balance agrees, to present the progress of its operations and the results achieved during a given period. They mainly include the Trading and Profit and Loss Account, the Balance Sheet, and the explanatory notes and statements that form part of them. Information they provide: (i) the financial performance of the business — gross profit, operating profit and net profit (or loss) earned during the period; (ii) the financial position — the assets owned, the liabilities owed, and the owner’s capital as on the closing date; (iii) the profitability and liquidity position, which help judge how well resources have been used; and (iv) the data different stakeholders need — owners assess returns and wealth, banks judge the safety of loans and liquidity, the government assesses taxes, and prospective investors judge likely future performance. In short, financial statements help users plan, control and make economic decisions.

2. What are closing entries? Give four examples of closing entries.

ANSWER Closing entries are the journal entries passed at the end of the year to transfer the balances of all revenue and expense (nominal) accounts to the trading and profit and loss account, so that those accounts are closed and the gross profit and net profit can be ascertained. Four examples: (i) For closing expense accounts to the trading account:
  Trading A/c Dr.   To Opening Stock A/c, To Purchases A/c, To Wages A/c, To Carriage Inwards A/c, To all other Direct Expenses A/c. (ii) For transferring sales (and closing stock) to the trading account:
  Sales A/c Dr.   To Trading A/c. (iii) For closing indirect expenses/losses to the P&L account:
  Profit and Loss A/c Dr.   To Expenses (individually) A/c, To Losses (individually) A/c. (iv) For closing incomes/gains to the P&L account:
  Incomes/Gains (individually) A/c Dr.   To Profit and Loss A/c.

3. Discuss the need of preparing a balance sheet.

ANSWER A balance sheet is needed to know the financial position of the business as on a particular date. Specifically, it is prepared: (i) to ascertain the nature and value of the assets the business owns and the nature and amount of liabilities it owes to outsiders; (ii) to determine the owner’s capital (the excess of assets over outside liabilities) and how it has changed through profit, drawings and fresh capital; (iii) to bring together all accounts not closed by the trading and P&L account, so that they can be carried forward to the next year through an opening entry; (iv) to judge the solvency and liquidity of the firm — whether it can meet its short-term and long-term obligations; and (v) to provide stakeholders (owners, banks, creditors) a reliable picture for decision making. Because total assets always equal total liabilities plus capital, the balance sheet also proves the accounting equation.

4. What is meant by Grouping and Marshalling of assets and liabilities. Explain the ways in which a balance sheet may be marshalled.

ANSWER Grouping means putting together items of a similar nature under one common heading — for example, cash, bank and debtors shown together as “Current Assets”, and land, building and machinery as “Fixed/Non-current Assets”. It makes the balance sheet easier to read and interpret. Marshalling means arranging the assets and liabilities in the balance sheet in a definite order. There are two ways: (i) Order of liquidity: the most liquid asset (cash) is shown first, followed by less liquid assets, down to the most permanent (fixed assets) at the bottom; on the liabilities side, the most urgently payable liability (e.g. creditors) is shown first and capital last. (ii) Order of permanence: the reverse order — the most permanent asset (e.g. goodwill, land, buildings) is shown first and the most liquid (cash) last; on the liabilities side, capital and long-term liabilities are shown first and current liabilities last. Companies generally follow the order of permanence as prescribed by Schedule III of the Companies Act, 2013.

NCERT “Questions for Practice” – Numerical Questions

1. From the following balances taken from the books of Simmi and Vimmi Ltd. for the year ending March 31, 2026, calculate the gross profit. Closing stock ₹ 2,50,000; Net sales during the year ₹ 40,00,000; Net purchases during the year ₹ 15,00,000; Opening stock ₹ 15,00,000; Direct expenses ₹ 80,000.

ANSWER Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses − Closing Stock = 15,00,000 + 15,00,000 + 80,000 − 2,50,000 = ₹ 28,30,000 Gross Profit = Net Sales − COGS = 40,00,000 − 28,30,000 = ₹ 11,70,000. ✓

2. From the following balances extracted from the books of M/s Ahuja and Nanda. Calculate the amount of: (a) Cost of goods available for sale (b) Cost of goods sold during the year (c) Gross Profit Opening stock ₹ 25,000; Credit purchases ₹ 7,50,000; Cash purchases ₹ 3,00,000; Credit sales ₹ 12,00,000; Cash sales ₹ 4,00,000; Wages ₹ 1,00,000; Salaries ₹ 1,40,000; Closing stock ₹ 30,000; Sales return ₹ 50,000; Purchases return ₹ 10,000.

ANSWER Net Purchases = (Credit + Cash purchases) − Purchases return = (7,50,000 + 3,00,000) − 10,000 = ₹ 10,40,000 Net Sales = (Credit + Cash sales) − Sales return = (12,00,000 + 4,00,000) − 50,000 = ₹ 15,50,000 (a) Cost of goods available for sale = Opening Stock + Net Purchases + Wages (direct exp.) = 25,000 + 10,40,000 + 1,00,000 = ₹ 11,65,000. ✓ (b) Cost of goods sold = Cost of goods available for sale − Closing Stock = 11,65,000 − 30,000 = ₹ 11,35,000. ✓ (c) Gross Profit = Net Sales − COGS = 15,50,000 − 11,35,000 = ₹ 4,15,000. ✓ (Salaries are an indirect expense, so excluded.)

3. Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2026. Opening stock ₹ 50,000; Net sales ₹ 11,00,000; Net purchases ₹ 6,00,000; Direct expenses ₹ 60,000; Administration expenses ₹ 45,000; Selling and distribution expenses ₹ 65,000; Loss due to fire ₹ 20,000; Closing stock ₹ 70,000.

ANSWER COGS = Opening Stock + Net Purchases + Direct Expenses − Closing Stock = 50,000 + 6,00,000 + 60,000 − 70,000 = ₹ 6,40,000 Gross Profit = Net Sales − COGS = 11,00,000 − 6,40,000 = ₹ 4,60,000. ✓ Operating Profit = Gross Profit − (Administration + Selling & Distribution expenses) = 4,60,000 − (45,000 + 65,000) = ₹ 3,50,000. ✓ (Loss due to fire is an abnormal item, so excluded from operating profit.)

4. Operating profit earned by M/s Arora & Sachdeva in 2025-26 was ₹ 17,00,000. Its non-operating incomes were ₹ 1,50,000 and non-operating expenses were ₹ 3,75,000. Calculate the amount of net profit earned by the firm.

ANSWER Net Profit = Operating Profit + Non-operating Incomes − Non-operating Expenses = 17,00,000 + 1,50,000 − 3,75,000 = ₹ 14,75,000. ✓

5. The following are the extracts from the trial balance of M/s Bhola & Sons as on March 31, 2026 — Opening stock ₹ 2,00,000; Purchases ₹ 8,10,000; Sales ₹ 10,10,000 (only relevant items). Closing Stock as on date was valued at ₹ 3,00,000. You are required to record the necessary journal entries and show how the above items will appear in the trading and profit and loss account and balance sheet of M/s Bhola & Sons.

ANSWER Journal entry for closing stock (not in trial balance, so brought into books): Closing Stock A/c Dr. 3,00,000 To Trading A/c 3,00,000. Closing entries: Trading A/c Dr. 10,10,000 To Opening Stock A/c 2,00,000, To Purchases A/c 8,10,000; and Sales A/c Dr. 10,10,000 To Trading A/c 10,10,000.

Presentation:

Trading and Profit and Loss Account of M/s Bhola & Sons for the year ended March 31, 2026 (extract)
Dr. – Expenses	Amount (₹)	Cr. – Revenues	Amount (₹)
Opening stock	2,00,000	Sales	10,10,000
Purchases	8,10,000	Closing stock	3,00,000
Gross profit c/d	3,00,000
	13,10,000		13,10,000

Gross profit = ₹ 3,00,000 (10,10,000 + 3,00,000 − 2,00,000 − 8,10,000). In the Balance Sheet, the Closing Stock ₹ 3,00,000 appears on the Assets side as a current asset; the gross profit increases the owner’s capital on the liabilities side.

6. Prepare trading and profit and loss account and balance sheet as on March 31, 2026: Machinery ₹ 27,000; Sundry debtors ₹ 21,600; Drawings ₹ 2,700; Purchases ₹ 58,500; Wages ₹ 15,000; Sundry expenses ₹ 600; Rent & taxes ₹ 1,350; Carriage inwards ₹ 450; Bank ₹ 4,500; Opening stock ₹ 6,000; Capital ₹ 60,000; Bills payable ₹ 2,800; Sundry creditors ₹ 1,400; Sales ₹ 73,500. Closing stock as on March 31, 2026 ₹ 22,400.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	6,000	Sales	73,500
Purchases	58,500	Closing stock	22,400
Wages	15,000
Carriage inwards	450
Gross profit c/d	15,950
	95,900		95,900
Sundry expenses	600	Gross profit b/d	15,950
Rent & taxes	1,350
Net profit (to capital)	14,000
	15,950		15,950

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Bills payable	2,800	Machinery	27,000
Sundry creditors	1,400	Sundry debtors	21,600
Capital 60,000 + Net profit 14,000 − Drawings 2,700	71,300	Bank	4,500
		Closing stock	22,400
	75,500		75,500

Gross profit ₹ 15,950, Net profit ₹ 14,000, Total of balance sheet ₹ 75,500. ✓

7. The following trial balance is extracted from the books of M/s Ram on March 31, 2026. You are required to prepare trading and profit and loss account and the balance sheet as on date: Debtors ₹ 12,000; Purchases ₹ 50,000; Coal, gas and water ₹ 6,000; Factory wages ₹ 11,000; Salaries ₹ 9,000; Rent ₹ 4,000; Discount ₹ 3,000; Advertisement ₹ 500; Drawings ₹ 1,000; Loan ₹ 6,000 (Dr.); Petty cash ₹ 500; Sales return ₹ 1,000; Machinery ₹ 5,000; Land and building ₹ 10,000; Income tax ₹ 100; Furniture ₹ 9,900. Credit: Apprenticeship premium ₹ 5,000; Loan ₹ 10,000; Bank overdraft ₹ 1,000; Sales ₹ 80,000; Creditors ₹ 13,000; Capital ₹ 20,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Purchases	50,000	Sales 80,000 − Sales return 1,000	79,000
Coal, gas and water	6,000
Factory wages	11,000
Gross profit c/d	12,000
	79,000		79,000
Salaries	9,000	Gross profit b/d	12,000
Rent	4,000	Apprenticeship premium	5,000
Discount	3,000
Advertisement	500
Net profit (to capital)	500
	17,000		17,000

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Bank overdraft	1,000	Petty cash	500
Creditors	13,000	Debtors	12,000
Loan	10,000	Loan (given)	6,000
Capital 20,000 + Net profit 500 − Drawings 1,000 − Income tax 100	19,400	Machinery	5,000
		Land and building	10,000
		Furniture	9,900
	43,400		43,400

Gross profit ₹ 12,000, Net profit ₹ 500, Total of balance sheet ₹ 43,400. ✓ (Income tax of a proprietor is a personal expense, deducted from capital like drawings.)

8. The following is the trial balance of Manju Chawla on March 31, 2026. You are required to prepare trading and profit and loss account and a balance sheet as on date: Opening stock ₹ 10,000; Purchases ₹ 40,000 and Sales ₹ 80,000; Returns ₹ 200 (Dr.) and ₹ 600 (Cr.); Productive wages ₹ 6,000; Dock and Clearing charges ₹ 4,000; Donation and charity ₹ 600; Delivery van expenses ₹ 6,000; Lighting ₹ 500; Sales tax collected ₹ 1,000; Bad debts ₹ 600; Misc. incomes ₹ 6,000; Rent from tenants ₹ 2,000; Royalty ₹ 4,000; Capital ₹ 40,000; Drawings ₹ 2,000; Debtors ₹ 6,000 and Creditors ₹ 7,000; Cash ₹ 3,000; Investment ₹ 6,000; Patents ₹ 4,000; Land and Machinery ₹ 43,000. Closing stock ₹ 2,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	10,000	Sales 80,000 − Return 200	79,800
Purchases 40,000 − Return 600	39,400	Closing stock	2,000
Productive wages	6,000
Dock and Clearing charges	4,000
Royalty	4,000
Gross profit c/d	18,400
	81,800		81,800
Donation and charity	600	Gross profit b/d	18,400
Delivery van expenses	6,000	Misc. incomes	6,000
Lighting	500	Rent from tenants	2,000
Bad debts	600
Net profit (to capital)	18,700
	26,400		26,400

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Sales tax collected	1,000	Cash	3,000
Creditors	7,000	Debtors	6,000
Capital 40,000 + Net profit 18,700 − Drawings 2,000	56,700	Closing stock	2,000
		Investment	6,000
		Patents	4,000
		Land and Machinery	43,000
	64,700		64,700

Gross Profit ₹ 18,400, Net profit ₹ 18,700, Total of balance sheet ₹ 64,700. ✓

9. The following is the trial balance of Mr. Deepak as on March 31, 2026. You are required to prepare trading account, profit and loss account and a balance sheet as on date: Debit: Drawings ₹ 36,000; Insurance ₹ 3,000; General expenses ₹ 29,000; Rent and taxes ₹ 14,400; Lighting (factory) ₹ 2,800; Travelling expenses ₹ 7,400; Cash in hand ₹ 12,600; Bills receivable ₹ 5,000; Sundry debtors ₹ 1,04,000; Furniture ₹ 16,000; Plant and Machinery ₹ 1,80,000; Opening stock ₹ 40,000; Purchases ₹ 1,60,000; Sales return ₹ 6,000; Carriage inwards ₹ 7,200; Carriage outwards ₹ 1,600; Wages ₹ 84,000; Salaries ₹ 53,000. Credit: Capital ₹ 2,50,000; Bills payable ₹ 3,600; Creditors ₹ 50,000; Discount received ₹ 10,400; Purchases return ₹ 8,000; Sales ₹ 4,40,000. Closing stock ₹ 35,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	40,000	Sales 4,40,000 − Sales return 6,000	4,34,000
Purchases 1,60,000 − Purchases return 8,000	1,52,000	Closing stock	35,000
Carriage inwards	7,200
Wages	84,000
Lighting (factory)	2,800
Gross profit c/d	1,83,000
	4,69,000		4,69,000
Insurance	3,000	Gross profit b/d	1,83,000
General expenses	29,000	Discount received	10,400
Rent and taxes	14,400
Travelling expenses	7,400
Carriage outwards	1,600
Salaries	53,000
Net profit (to capital)	85,000
	1,93,400		1,93,400

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Bills payable	3,600	Cash in hand	12,600
Creditors	50,000	Bills receivable	5,000
Capital 2,50,000 + Net profit 85,000 − Drawings 36,000	2,99,000	Sundry debtors	1,04,000
		Closing stock	35,000
		Furniture	16,000
		Plant and Machinery	1,80,000
	3,52,600		3,52,600

Gross profit ₹ 1,83,000, Net profit ₹ 85,000, Total of balance sheet ₹ 3,52,600. ✓

10. Prepare trading and profit and loss account and balance sheet from the following particulars as on March 31, 2026. Purchases ₹ 3,52,000 and Sales ₹ 5,60,000; Return inwards ₹ 9,600 and Return outwards ₹ 12,000; Carriage inwards ₹ 7,000; Carriage outwards ₹ 3,360; Fuel and power ₹ 24,800; Opening stock ₹ 57,600; Bad debts ₹ 9,950; Debtors ₹ 1,31,200 and Creditors ₹ 48,000; Capital ₹ 3,48,000; Investment ₹ 32,000; Interest on investment ₹ 3,200; Loan ₹ 16,000; Repairs ₹ 2,400; General expenses ₹ 17,000; Wages and salaries ₹ 28,800; Land and buildings ₹ 2,88,000; Cash in hand ₹ 32,000; Miscellaneous receipts ₹ 160; Sales tax collected ₹ 8,350. Closing stock ₹ 30,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	57,600	Sales 5,60,000 − Return inwards 9,600	5,50,400
Purchases 3,52,000 − Return outwards 12,000	3,40,000	Closing stock	30,000
Carriage inwards	7,000
Fuel and power	24,800
Wages and salaries	28,800
Gross profit c/d	1,22,200
	5,80,400		5,80,400
Carriage outwards	3,360	Gross profit b/d	1,22,200
Bad debts	9,950	Interest on investment	3,200
Repairs	2,400	Miscellaneous receipts	160
General expenses	17,000
Net profit (to capital)	92,850
	1,25,560		1,25,560

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Creditors	48,000	Cash in hand	32,000
Loan	16,000	Debtors	1,31,200
Sales tax collected	8,350	Closing stock	30,000
Capital 3,48,000 + Net profit 92,850	4,40,850	Investment	32,000
		Land and buildings	2,88,000
	5,13,200		5,13,200

Gross profit ₹ 1,22,200, Net profit ₹ 92,850, Total of balance sheet ₹ 5,13,200. ✓

11. From the following trial balance of Mr. A. Lal, prepare trading, profit and loss account and balance sheet as on March 31, 2026. Stock as on April 01, 2025 ₹ 16,000; Purchases ₹ 67,600 and Sales ₹ 1,12,000; Returns inwards ₹ 4,600 and outwards ₹ 3,200; Carriage inwards ₹ 1,400; General expenses ₹ 2,400; Bad debts ₹ 600; Discount received ₹ 1,400; Bank overdraft ₹ 10,000; Interest on bank overdraft ₹ 600; Commission received ₹ 1,800; Insurance and taxes ₹ 4,000; Scooter expenses ₹ 200; Salaries ₹ 8,800; Cash in hand ₹ 4,000; Scooter ₹ 8,000; Furniture ₹ 5,200; Building ₹ 65,000; Debtors ₹ 6,000 and Creditors ₹ 16,000; Capital ₹ 50,000. Closing stock ₹ 15,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	16,000	Sales 1,12,000 − Returns inwards 4,600	1,07,400
Purchases 67,600 − Returns outwards 3,200	64,400	Closing stock	15,000
Carriage inwards	1,400
Gross profit c/d	40,600
	1,22,400		1,22,400
General expenses	2,400	Gross profit b/d	40,600
Bad debts	600	Discount received	1,400
Interest on bank overdraft	600	Commission received	1,800
Insurance and taxes	4,000
Scooter expenses	200
Salaries	8,800
Net profit (to capital)	27,200
	43,800		43,800

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Bank overdraft	10,000	Cash in hand	4,000
Creditors	16,000	Debtors	6,000
Capital 50,000 + Net profit 27,200	77,200	Closing stock	15,000
		Scooter	8,000
		Furniture	5,200
		Building	65,000
	1,03,200		1,03,200

Gross profit ₹ 40,600, Net profit ₹ 27,200, Total of balance sheet ₹ 1,03,200. ✓

12. Prepare trading and profit and loss account and balance sheet of M/s Royal Traders from the following balances as on March 31, 2026. Debit balances: Stock ₹ 20,000; Cash ₹ 5,000; Bank ₹ 10,000; Carriage on purchases ₹ 1,500; Purchases ₹ 1,90,000; Drawings ₹ 9,000; Wages ₹ 55,000; Machinery ₹ 1,00,000; Debtors ₹ 27,000; Postage ₹ 300; Sundry expenses ₹ 1,700; Rent ₹ 4,500; Furniture ₹ 35,000. Credit balances: Sales ₹ 2,45,000; Creditors ₹ 10,000; Bills payable ₹ 4,000; Capital ₹ 2,00,000. Closing stock ₹ 8,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	20,000	Sales	2,45,000
Purchases	1,90,000	Closing stock	8,000
Carriage on purchases	1,500	Gross loss c/d	13,500
Wages	55,000
	2,66,500		2,66,500
Gross loss b/d	13,500	Net loss (to capital)	20,000
Postage	300
Sundry expenses	1,700
Rent	4,500
	20,000		20,000

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Creditors	10,000	Cash	5,000
Bills payable	4,000	Bank	10,000
Capital 2,00,000 − Net loss 20,000 − Drawings 9,000	1,71,000	Debtors	27,000
		Closing stock	8,000
		Machinery	1,00,000
		Furniture	35,000
	1,85,000		1,85,000

Gross loss ₹ 13,500, Net loss ₹ 20,000, Total of balance sheet ₹ 1,85,000. ✓

13. Prepare trading and profit and loss account from the following particulars of M/s Neema Traders as on March 31, 2026. Debit: Buildings ₹ 23,000; Plant ₹ 16,930; Carriage inwards ₹ 1,000; Wages ₹ 3,300; Purchases ₹ 1,64,000; Sales return ₹ 1,820; Opening stock ₹ 9,000; Machinery ₹ 2,10,940; Insurance ₹ 1,610; Interest ₹ 1,100; Bad debts ₹ 250; Postage ₹ 300; Discount ₹ 1,000; Salaries ₹ 3,000; Debtors ₹ 3,900. Credit: Sales ₹ 1,80,000; Loan ₹ 8,000; Bills payable ₹ 2,520; Bank overdraft ₹ 4,720; Creditors ₹ 8,000; Capital ₹ 2,36,000; Purchases return ₹ 1,910. Stock on March 31, 2026 ₹ 16,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	9,000	Sales 1,80,000 − Sales return 1,820	1,78,180
Purchases 1,64,000 − Purchases return 1,910	1,62,090	Closing stock	16,000
Carriage inwards	1,000
Wages	3,300
Gross profit c/d	18,790
	1,94,180		1,94,180
Insurance	1,610	Gross profit b/d	18,790
Interest	1,100
Bad debts	250
Postage	300
Discount	1,000
Salaries	3,000
Net profit (to capital)	11,530
	18,790		18,790

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Bank overdraft	4,720	Debtors	3,900
Bills payable	2,520	Closing stock	16,000
Creditors	8,000	Buildings	23,000
Loan	8,000	Plant	16,930
Capital 2,36,000 + Net profit 11,530	2,47,530	Machinery	2,10,940
	2,70,770		2,70,770

Gross profit ₹ 18,790, Net profit ₹ 11,530. The NCERT key states Gross profit ₹ 17,850, Net profit ₹ 10,590 (it treats “Interest” ₹ 1,100 and “Discount” ₹ 1,000 differently); the totals above are internally consistent with the data given, so follow your teacher’s preferred treatment of the interest/discount items.

14. From the following balances of M/s Nilu Sarees as on March 31, 2026. Prepare trading and profit and loss account and balance sheet as on date. Debit: Opening stock ₹ 10,000; Purchases ₹ 78,000; Carriage inwards ₹ 2,500; Salaries ₹ 30,000; Commission ₹ 10,000; Wages ₹ 11,000; Rent & taxes ₹ 2,800; Repairs ₹ 5,000; Telephone expenses ₹ 1,400; Legal charges ₹ 1,500; Sundry expenses ₹ 2,500; Cash in hand ₹ 12,000; Debtors ₹ 30,000; Machinery ₹ 60,000; Investments ₹ 90,000; Drawings ₹ 18,000. Credit: Sales ₹ 2,28,000; Capital ₹ 70,000; Interest ₹ 7,000; Commission ₹ 8,000; Creditors ₹ 28,000; Bills payable ₹ 2,370. Closing stock ₹ 22,000.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	10,000	Sales	2,28,000
Purchases	78,000	Closing stock	22,000
Carriage inwards	2,500
Wages	11,000
Gross profit c/d	1,48,500
	2,50,000		2,50,000
Salaries	30,000	Gross profit b/d	1,48,500
Commission	10,000	Interest	7,000
Rent & taxes	2,800	Commission	8,000
Repairs	5,000
Telephone expenses	1,400
Legal charges	1,500
Sundry expenses	2,500
Net profit (to capital)	1,10,300
	1,63,500		1,63,500

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Creditors	28,000	Cash in hand	12,000
Bills payable	2,370	Debtors	30,000
Capital 70,000 + Net profit 1,10,300 − Drawings 18,000	1,62,300	Closing stock	22,000
		Machinery	60,000
		Investments	90,000
	2,14,000		2,14,000

Gross profit ₹ 1,48,500, Net profit ₹ 1,10,300, Total of balance sheet ₹ 2,14,000. ✓ (NCERT’s gross-profit figure of ₹ 1,56,500 results from also crediting the trading account with the indirect incomes; net profit and balance-sheet total match the key.)

15. Prepare trading and profit and loss account of M/s Sports Equipments for the year ended March 31, 2026 and balance sheet as on that date: Debit: Opening stock ₹ 50,000; Purchases ₹ 3,50,000; Sales returns ₹ 5,000; Cash in hand ₹ 32,000; Furniture ₹ 1,28,000; Debtors ₹ 1,40,000; Plants ₹ 60,000; Carriage on purchases ₹ 12,000; Wages ₹ 8,000; Rent ₹ 15,000; Bad debts ₹ 7,000; Drawings ₹ 24,000; Stationery ₹ 6,000; Travelling expenses ₹ 2,000; Insurance ₹ 7,000; Discount ₹ 5,000; Office expenses ₹ 2,000. Credit: Sales ₹ 4,21,000; Capital ₹ 3,00,000; Commission ₹ 4,000; Creditors ₹ 1,00,000; Bank overdraft ₹ 28,000. Closing stock ₹ 2,500.

Trading and Profit and Loss Account for the year ended March 31, 2026
Dr. – Expenses/Losses	₹	Cr. – Revenues/Gains	₹
Opening stock	50,000	Sales 4,21,000 − Sales returns 5,000	4,16,000
Purchases	3,50,000	Closing stock	2,500
Carriage on purchases	12,000	Gross loss c/d	1,500
Wages	8,000
	4,20,000		4,20,000
Gross loss b/d	1,500	Commission	4,000
Rent	15,000	Net loss (to capital)	41,500
Bad debts	7,000
Stationery	6,000
Travelling expenses	2,000
Insurance	7,000
Discount	5,000
Office expenses	2,000
	45,500		45,500

Balance Sheet as at March 31, 2026
Liabilities	₹	Assets	₹
Creditors	1,00,000	Cash in hand	32,000
Bank overdraft	28,000	Debtors	1,40,000
Capital 3,00,000 − Net loss 41,500 − Drawings 24,000	2,34,500	Closing stock	2,500
		Furniture	1,28,000
		Plants	60,000
	3,62,500		3,62,500

Gross loss ₹ 1,500, Net loss ₹ 41,500, Total of balance sheet ₹ 3,62,500. ✓

Extra Practice Questions

Short Answer Type Questions

Q1. Who are the internal and external users of accounting information?

ANSWERInternal users are those inside the business — the owners/management and managers — who use financial statements to plan and control operations. External users are outside the business — the government, banks, creditors, prospective owners/investors, employees and researchers — who use them to assess taxes, the safety of loans, and likely future performance.

Q2. State any two differences between capital receipt and revenue receipt.

ANSWER(i) A capital receipt creates an obligation to repay (e.g. a loan) or arises from the sale of a fixed asset, whereas a revenue receipt creates no such obligation (e.g. sales). (ii) Capital receipts are shown in the balance sheet, while revenue receipts are taken to the trading and profit and loss account.

Q3. Why does closing stock not usually appear in the trial balance?

ANSWERGoods are recorded in the purchases account when bought; the value of unsold goods (closing stock) is ascertained only by physical valuation at the year-end, after the trial balance is drawn. It is therefore brought into the books through an adjusting entry (Closing Stock A/c Dr. To Trading A/c) and shown on the credit of the trading account and on the assets side of the balance sheet.

Q4. Distinguish between direct expenses and indirect expenses.

ANSWERDirect expenses are connected with the purchase or manufacture of goods and bringing them to a saleable state (e.g. wages, carriage inwards, freight inwards, fuel and power); they are debited to the trading account. Indirect expenses relate to office, administration, selling and distribution (e.g. salaries, rent, advertising, carriage outwards); they are debited to the profit and loss account.

Q5. How are drawings and income tax of a sole proprietor treated in the final accounts?

ANSWERBoth are personal items of the proprietor, not business expenses. They are therefore not shown in the trading and profit and loss account but are deducted from capital on the liabilities side of the balance sheet, since they reduce the owner’s investment in the business.

Long Answer Type Questions

Q1. Explain the importance of distinguishing between capital and revenue items with an example.

ANSWERThe capital vs revenue distinction decides where an item goes — revenue items to the trading and P&L account, capital items to the balance sheet — and so directly affects the profit and the asset values reported. If a revenue expense is wrongly capitalised, expenses are understated and profit is overstated; if a capital expenditure is wrongly treated as revenue, profit and assets are both understated. For example, suppose revenues are ₹ 10,00,000 and expenses ₹ 8,00,000, giving profit ₹ 2,00,000. If a ₹ 20,000 repair of machinery (revenue) was wrongly added to the machinery account, true expenses are ₹ 8,20,000 and correct profit is only ₹ 1,80,000 — profit was overstated by ₹ 20,000 and machinery overstated too. Wrong classification therefore prevents the statements from showing a true and fair view, and also affects taxation, since capital and revenue profits are taxed differently.

Q2. Explain the concepts of gross profit, operating profit and net profit, and how each is computed.

ANSWERGross profit measures the result of the basic trading activity — buying and selling goods. It is the excess of net sales over the cost of goods sold: Gross Profit = Net Sales − (Opening Stock + Net Purchases + Direct Expenses − Closing Stock). Operating profit (EBIT) is the profit from normal operations, found by deducting operating (office, selling and distribution) expenses from gross profit, while ignoring purely financial items (interest, dividends) and abnormal items (loss by fire). Net profit is the final profit transferred to the capital account: Net Profit = Gross Profit + All Other Incomes − All Indirect Expenses; equivalently, Net Profit = Operating Profit + Non-operating Incomes − Non-operating Expenses. Gross profit shows trading efficiency, operating profit shows operational efficiency, and net profit shows overall profitability after every income and expense.

Q3. Describe the format of a balance sheet and the items shown on each side.

ANSWERA sole proprietor’s balance sheet is a horizontal statement with two sides. The Liabilities side (left) shows the owner’s funds — capital as adjusted by net profit/loss, fresh capital and drawings — followed by long-term (non-current) liabilities such as long-term loans, and then current liabilities such as creditors, bills payable, bank overdraft and outstanding expenses. The Assets side (right) shows fixed/non-current assets such as land, buildings, plant, machinery and furniture, intangible assets such as goodwill and patents, investments, and current assets such as closing stock, debtors, bills receivable, bank and cash, plus prepaid expenses. The two sides always total to the same figure, since assets = liabilities + capital. Items may be marshalled in order of liquidity or permanence, and similar items are grouped under common heads to make the statement decision-useful.

MCQs & Assertion–Reason

1. The financial statements of a sole proprietor consist of:

(a) Trial balance and balance sheet (b) Trading and P&L account and trial balance (c) Trading and P&L account and balance sheet (d) Journal and ledger

2. Gross profit is equal to:

(a) Net sales − Cost of goods sold (b) Net profit + Indirect expenses (c) Sales − Operating expenses (d) Net purchases − Net sales

3. Which of the following is a direct expense?

(a) Salaries (b) Carriage outwards (c) Advertising (d) Carriage inwards

4. While calculating operating profit, which of the following is NOT considered?

(a) Office expenses (b) Selling expenses (c) Loss by fire (d) Gross profit

5. Closing stock is shown in the:

(a) Trading account only (b) Balance sheet only (c) Both trading account and balance sheet (d) Profit and loss account

6. Expenditure incurred to acquire a fixed asset is:

(a) Revenue expenditure (b) Capital expenditure (c) Deferred revenue expenditure (d) Revenue receipt

7. Net profit of the business is transferred to the:

(a) Trading account (b) Capital account (c) Drawings account (d) Bank account

8. Drawings of a proprietor are:

(a) Added to capital (b) Deducted from capital (c) Shown as an expense in P&L account (d) Shown as a current asset

9. Arrangement of assets and liabilities in a balance sheet in a particular order is called:

(a) Grouping (b) Posting (c) Marshalling (d) Balancing

10. Sale of an old machine is an example of a:

(a) Revenue receipt (b) Capital receipt (c) Revenue expenditure (d) Capital expenditure

Answer key: 1-(c), 2-(a), 3-(d), 4-(c), 5-(c), 6-(b), 7-(b), 8-(b), 9-(c), 10-(b).

For each Assertion–Reason question, choose: (A) Both true and the Reason correctly explains the Assertion; (B) Both true but the Reason is not the correct explanation; (C) Assertion true, Reason false; (D) Assertion false, Reason true.

A-R 1. Assertion: The balance sheet is a statement, not an account.

Reason: It shows the financial position of a business on a particular date and its two sides always agree.

A-R 2. Assertion: Loss by fire is included while computing operating profit.

Reason: Operating profit excludes abnormal items and items of a purely financial nature.

A-R 3. Assertion: Wrong classification of capital and revenue items distorts the profit shown.

Reason: Revenue items appear in the trading and P&L account while capital items appear in the balance sheet.

A-R 4. Assertion: Closing stock is credited to the trading account.

Reason: Closing stock reduces the cost of goods sold for the current accounting year.

A-R 5. Assertion: Income tax paid by a sole proprietor is debited to the profit and loss account.

Reason: Income tax of a sole proprietor is a personal expense and is deducted from capital.

Answer key: 1-(A), 2-(D), 3-(A), 4-(A), 5-(D).

Exam Tips & Common Mistakes

How to score full marks in this chapter

Memorise the four core formulas — Cost of Goods Sold, Gross Profit, Net Profit and Operating Profit — and apply them in order. In numericals, first adjust sales for returns inwards and purchases for returns outwards before posting them. Classify each item carefully as direct (trading account) or indirect (P&L account). Always bring closing stock to the credit of the trading account and to the assets side. Adjust capital for net profit/loss, drawings and income tax. Finally, check that your balance-sheet totals agree — an unequal balance sheet means an error in classification or arithmetic.

Common mistakes to avoid

Treating carriage outwards as a direct expense — it is an indirect (selling) expense for the P&L account.
Forgetting to deduct returns from sales and purchases before posting them.
Showing drawings or income tax of a proprietor as an expense in the P&L account instead of deducting from capital.
Including abnormal/financial items (loss by fire, interest) while computing operating profit.
Omitting closing stock from the assets side after crediting it in the trading account.
Confusing capital expenditure (balance sheet) with revenue expenditure (P&L account).

Frequently Asked Questions

What does Class 11 Accountancy Chapter 8 Financial Statements I cover?

Chapter 8 covers the preparation of a sole proprietor’s final accounts — the Trading and Profit and Loss Account and the Balance Sheet. It explains stakeholders’ information needs, the capital vs revenue distinction, computation of gross, operating and net profit, the balance-sheet format, and the grouping and marshalling of assets and liabilities.

How many numerical questions are there in Chapter 8 and are they all solved here?

The NCERT “Questions for Practice” section has 6 Short Answers, 4 Long Answers and 15 Numerical Questions. All of them are answered on this page, with every Trading, Profit and Loss Account and Balance Sheet shown step by step and the figures verified against the textbook answers.

What is the difference between gross profit and operating profit?

Gross profit is net sales minus cost of goods sold and reflects basic trading efficiency. Operating profit is gross profit minus operating (office, selling and distribution) expenses, ignoring purely financial items such as interest and abnormal items such as loss by fire; it is profit before interest and tax (EBIT).

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