Bad debts
(i) Debts which cannot be recovered or become irrecoverable are called bad debts.
(ii) It is a loss for the business and should be adjusted against profit
Provision for doubtful debts:
In addition to the actual bad debts, a business unit may estimated at the end of the accounting period that certain debts are doubtful, i.e., the amount to be received from debtors mayor may not be received.
Provision for discount on debtors:
(i) Cash discount is allowed by the suppliers to customers for prompt settlement of cash.
(ii) A provision created on sundry debtors for allowing such discount is called provision for discount on debtors.

(i) The unsold goods in stock at the end of the accounting period is termed as closing stock. The stock is valued at cost price or not realisable value whichever is lower.
(ii) The valuation principle is based on the convention of conservatism.

Value of Closing Stock will appear :
(a) On the credit side of trading account and
(b) On the assets side of balance sheet.

The need for preparing final accounts are stated below :
(i) To ascertain the true profit or loss of the business.
(ii) To determine the true financial position of the business.
(iii) To make a record of the transactions earlier omitted in the books.
(iv) To rectify the errors committed in the books.
(v) To complete the incomplete transactions.

Dr. Profit and loss account for the year ended 31^st March, 2016 Cr.