Professional Documents
Culture Documents
ACCOUNTS
Accounting treatment for accrued, prepaid
expenses and other adjustments
Accrued Expenses: This is an amount of expenses that have been incurred but
not yet paid for. It is also called expenses due, outstanding, owings or unpaid.
Expenses due at the end of the period should be added to expenses paid in the
profit and loss account and shown as current liability in the balance sheet.
Prepaid Expenses: This is an amount of expenses paid in excess of what
has been incurred. It can also be referred to as expenses paid in
advance. Expenses prepaid at the end of the period should be less from
the expenses paid in the profit and loss account and shown as current
asset in the balance sheet.
Other adjustments
i. Goods withdrawn for owner(s) private use
Dr. Drawing account
Cr. Purchase account, with the cost of goods withdrawn.
OR less the cost of goods withdrawn from the purchase in the
trading account and add it to the drawings.
ii. The use of the firm’s asset partly for the proprietor’s private use:
Dr. Drawing account Cr. Assets account
iii. The proprietor’s private expenses charged against the firm’s expenses:
Dr. Drawing account Cr. Expenses account
BAD DEBTS TO THE BUSINESS BY DEBTORS
Bad debts are amounts owed but which cannot and would not be
settled.
(i) Where bad debt is incurred/created
Dr. Bad debt a/c
Cr. Debtors a/c
(ii) Where bad debt is written off/transferred:
Dr. Profit and Loss a/c
Cr. Bad debt a/c
EXAMPLE
Write up the profit and loss and provision for bad and doubtful debt
account as well as balance sheet (Extract)
2. Increasing the provision:
Dr. Profit and loss a/c Cr. Provision for bad and doubtful debts,
with the extra amount needed to increase the provision.
Dr. provision for bad and doubtful debt Cr. Profit and loss a/c, with
the extra amount need to decrease the provision.