Adjustments in to Final accounts

8. Bad Debts: When a firm fails to recover money from its customers, the loss is known as bed debts.

If bad debts appear in the trial balance it shall be considered as an expenditure associated with the
accounting period, and will be given a effect in the ‘Profit and loss Statement’ as ‘Other Expenses’

But if the decision of recording bad debts is taken after completion of a year and is given as additional
information in that case the two effects will be as follows.

1st Effect: Other Expenses – Profit & Loss Statement – Expenses

2nd Effect – Deducted from Trade Receivables (also known as accounts receivables or Sundry debtors)
from Current assets -financial current asset- balance sheet

9. Provision for Bad and Doubtful Debts:

When the organisation anticipates and estimates the loss to be incurred for not recovering the dues
from customers, it creates the provision for the same. A provision is created when loss is not confirmed
and not known in exact.

If Provision for Bad and Doubtful Debts is given is the Trial balance it will have a credit balance- in that
case it shall be recorded in the Other Expenses but with Negative sign

If given as additional information, such provision when created (Normally as a % of Trade receivables
or directly value given) will be given an effect as follows

1st Effect: Regarded as expenditure – other expenses – Profit and Loss Statement

2nd Effect: - – Deducted from Trade Receivables (also known as accounts receivables or Sundry
debtors) from Current assets -financial current asset- balance sheet

10. Provision for Taxation

1st effect: Tax shall be calculated on the Profit Before Tax amount and shall be deducted from the same
as per the format given in Profit and Loss Statement

2nd Effect: It shall be shown as a Short-term provision – Current Liabilities- Balance Sheet.

11. Transfer to General Reserves:

1st Effect: Deducted from the Profit and Loss balance in other Equity.

2nd Effect: Added in to general Reserves balance in Other equity if any or simply added in to other
equity as general reserves.