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FINAL ACCOUNTS

ADJUSTMENTS

Purchases / Sales returns are deducted From purchases / sales figures in the trading a/c. . and shown as an asset in the balance sheet. Closing Stock (generally given as additional information) is credited to the trading a/c.A. The basics: Opening Stock in the trial balance is debited to the trading account.

Expenses to bring purchased goods to the factory or shop are debited to the trading a/c. (e. fuel and power. carriage inward / freight). e. etc. wages (of workmen). rates and taxes.g. . lighting. of factory or shop.All expenses incurred for the manufacturing / trading activity are debited to the manufacturing / trading a/c.g. rent.

12. and show as an asset in the balance sheet.000 .000 debited to Insurance account P & L A/c. Illustration: Prepaid Insurance: Insurance premium paid for the year July to June-Rs.000 Less: Prepaid 3.The adjustments: (Assumed accounting year: April to March) Prepaid expenses: Deduct from the respective expense in the P & L A/c.000 9000 Income Liabilities Assets Prepaid Insurance 3. Balance Sheet Expenses To Insurance 12.

000 Add: Outstanding 50. Illustration: Outstanding salary: Salary as per trial balance Rs.000 6. Balance Sheet Expenses To Salary 5.000.50. March salary payable in April.00.50. 50.000 Assets .000. yet to be accounted for Rs.000 Income Liabilities Outstanding Salary 50. and show as a liability in the balance sheet .5. P & L A/c.The adjustments: (Assumed accounting year: April to March) Outstanding expenses: Add to the respective expense in the P & L A/c.

00.000 Liabilities Advance From Customers 1. including Rs. Trading A/c.00. 51.00. 1.000 50. Balance Sheet Expenses Income Sales 51.000 Assets .000.000 Advance received from customers accounted for as revenue.The adjustments: (Assumed accounting year: April to March) Pre-received income (Unearned Revenue): (If accounted for as revenue): Deduct from the revenue in the P & L A/c.00. and show as liability in the balance sheet Illustration: Advance from customers: Annual revenue Rs.00. From Customers 1.00.000 Less: Adv.

@ 12% p. Illustration: Deposit of Rs. for 5 years.The adjustments: (Assumed accounting year: April to March) Accrued Income: Credit the P & L A/c. a. and show income accrued (but not received) as an asset in the balance sheet. with appropriate income a/c. Balance Sheet Expenses Income By Interest Accrued 900 Liabilities Assets Interest Accrued On Bank Deposit 900 . P & L A/c. 10.000 kept with bank on July 1.

P & L A/c.000 . with the provision and show the provision as a deduction from Sundry Debtors in the balance Sheet.000 Less: Provision For Doubtful Debts 25. Illustration: Sundry Debtors as per the trial balance Rs.000 4.00. 5.75.The adjustments: (Assumed accounting year: April to March) Provision for Doubtful Debts: Debit the P & L A/c. Create a provision of 5 % for doubtful debts.00.000. Balance Sheet Expenses To Provision for Doubtful Debts 25000 Income Liabilities Assets Sundry Debtors 5.

Debit the P & L A/c. . after the deduction of the provision for doubtful debts. This is because doubtful debtors cannot be expected to become entitled to any cash discount for prompt payment. with the provision and show the provision as a deduction from Sundry Debtors in the balance Sheet .The adjustments: (Assumed accounting year: April to March) Provision for Discount on Debtors : This provision is to be made with reference to the debtors after deducting the provision for doubtful debts.

) Illustration: Sundry Debtors as per the trial balance Rs.00.75. P & L A/c.00.250 . Balance Sheet Expenses To Provision for Doubtful Debts 25000 To Provision for Discount On Debtors 4. 5.000 Less: Provision For Discount On Debtors 4750 4.Provision for Discount on Debtors (Contd.750 Income Liabilities Assets Sundry Debtors 5.000.70. Provide 5% for doubtful debts and 1 % for discount on debtors.000 Less: Provision For Doubtful Debts 25.000 4.

but not received till the date of the balance sheet. .The adjustments: (Assumed accounting year: April to March) Loss by Fire::Loss of stock by fire is credited to the trading account. In case claim is for a part of the value of the stock destroyed. in addition to the above disclosures. the irrecoverable portion is written off as “loss by fire” by debiting the profit and loss account. it is shown as an asset in the balance sheet. If the stock is fully insured and the full claim is admitted by insurance co.

50. 10.50. Balance Sheet Expenses To Depreciation 1.000 Less: Depreciation 1.000 Income Liabilities Assets Plant & Machinery 10.00.00.50. P & L A/c.000. Illustration: Provide depreciation @ 15% on Plant and machinery of Rs.000 8.000 .The adjustments: (Assumed accounting year: April to March) Depreciation: It means diminution in the utility value of assets due to wear and tear or passage of time.

The amount of such goods will also have to be deducted from “Purchases” to complete the double entry in the trading account. . This will have to be accounted for in two places. 1. the amount of such goods will be debited to the P & L A/c.The adjustments: (Assumed accounting year: April to March) Goods Distributed as free samples: Sometimes goods are distributed as free samples.Since the goods are generally distributed as free samples for sales promotion. as “Advertisement Expenses A/c.” 2.

Trading & P & L A/c. Expenses To Purchases Less: Goods distributed as free samples To Advertisement Exps. (Goods distributed as free samples) Income .The adjustments: (Assumed accounting year: April to March) Goods Distributed as free samples: Contd.