w Adjustments: Transactions occurring after preparing Trial Balance, that must be considered while preparing Final Accounts. GOLDEN RULE: All the items appearing in the Trial Balance are to be entered at one place out of these three, ITEMS IN ADJUSTMENT are to be treated at two places.CLOSING STOCK v The unsold goods lying in store at the end of accounting year. Treatment: Stock a/c Dr. To Trading a/c Two fold effect Show on Credit side of the Trading account On asset side of Balance Sheet comm: ae.comOUTSTANDING EXPENSES Q| Those expenses which have become due but not yet paid. Treatment: Expenses a/c Dr. To outstanding expenses Two fold effect: 1.Will be shown on debit side of trading & profit & loss a/c by way of addition to particular expense. 2. Will be shown on liabilities side of Balance Sheet. www.commerceatease.comPREPAIDEXPENSES Those expenses which have been paid in advance . Treatment: Prepaid Expenses a/c Dr. To Expenses a/c Two fold effect: 1. in profit & loss a/c by way of deduction from particular expense. 2. Will be shown on asset side of Balance Sheet. www.commer ase.ACCRUED INCOME ( That income which has been earned but not received during the accounting year. Treatment: Accrued Income a/c Dr. To Income a/c Two fold effect: 1.Will be shown on credit side of P & La/c 2. Will be shown on asset side of Balance Sheet www.commerceatease.comINCOME RECEIVED IN ADVANCE( Income received but not earned during accounting year. Treatment: Income a/c Dr. To Income Received in advance Two fold effect: 1.Will be shown on credit side of P & L a/c by the way of deduction from particular income. 2. Will be shown on liabilities side of Balance Sheet. www.commerceatease.comDEPRECIATION ( It is the reduction in the value of fixed asset due to its use, wear & tear. Treatment: Depreciation a/c Dr. To Asset a/c Two fold effect: 1.ls shown on debit side of P & L a/c. 2.Is shown on the Asset side of the Balance Sheet by way of deduction from value of concerned asset. www.commerceatease.comBAD DEBTS ( Debts which are definitely irrecoverable. Treatment: Bad Debts A/c Dr. To Sundry Debtors a/c Two fold effect: 1. Is shown on debit side of P & L a/c. 2. Is shown on assets side of Balance Sheet by way of deduction from Sundry Debtors. Comme ease.comThough, a notional item, interest on capital at a certain rate is provided. Treatment : Interest on capital A/c Dr. To capital A/c Two fold effect: 1.[t will be shown on debit side of Profit and Loss A/c. 2.Shown on liabilities side of Balance Sheet by way of addition to the capital. www.commerceatease.comInterest on drawings is charged from proprietor. Treatment: Drawings A/c DR. To Interest on Drawings A/c Two fold effect : 1.On credit side of Profit and Loss Account. 2.On liabilities side of Balance Sheet by way of addition to the drawings which are ultimately deducted from the capital. www.commer comPROVISION FOR DOUBTFUL DEBTS C It is a provision created to cover any possible loss on account of bad-debts likely to occur in future. Treatment: Profit and Loss A/c Dr. To Provision for Doubtful Debts A/c Two fold effect: 1.On debit side of Profit and Loss A/c or by way of addition to Bad Debts. (Old provision for doubtful debts at the beginning of the year will be deducted). 2Shown on assets side of Balance Sheet by way of deduction from Sundry Debtors (deducting further bad debts if any). www.commerceatease.comPROVISION FOR DISC.ON DEBTORS Sometimes, sales are made by the merchant on condition that if the amount of sales is paid within a certain period , he will allow a certain percentage of discount . Treatment : Profit and Loss A/c Dr. To Provision for Discount on Debtors A/c Two-fold effect : 1.Shown on debit side of Profit and Loss A/c. 2.Shown by way of deduction from Sundry Debtors (after deduction of further bad debts and provision for doubtful debtSj eit ReRe ae Bf Balance Sheet.ww RESERVE FOR DISCOUNT ON CREDITORS Firm may have chance to receive discount on last date of accounting year, if the payment is made within the scheduled period .These are anticipated profit and therefore this account is made. Sa Reserve for Discount on Creditors A/c To Profit & Loss A/c Two fold effect : 1.It is shown on the credit side of Profit &Loss A/c. 2.Shown on liabilities side of Balance Sheet by way of deduction from sundry creditors.The expenditure done in initial stage but the benefit of which will also be available in subsequent years. Treatment: Profit &loss A/c DR. To advertisement A/c The two fold effect : 1.It is show on the debit side of Profit &loss A/c. 2.Shown on assets side by way of deduction from that expenditure.Loss of stock may occur due to fire/accident. There are three different cases: All the stock is fully insured. The stock is partly insured. The stock is not insured at all.The whole loss will be claimed from the insurance company. Treatment: Insurance Co. A/c Dr. To Trading A/c Two fold effect: 1.It will be shown on credit side of Trading A/c. 2.It is shown on Assets Side of Balance Sheet.The loss of stock covered by insurance policy will be claimed from the insurance company and the rest of amount will be loss for the business. Treatment: Insurance Claim. A/c Dr. Profit & Loss A/c Dr To Trading A/c Two fold effect: 1.Credit side of Trading A/c with the total value of such stock and debit side of P& L A/c for part of the stock which is not insured. 2. Insurance Claim A/c is shown on asset side of the Balance sheet which amount is to be realized from the insurance company.Whole loss will be borne by the firm. Treatment: Profit & Loss A/c Dr. To Trading A/c Two fold effect: 1.It is shown on the credit side of Trading A/c. 2.It is shown on the debit side of P&L A/c.Reserve is created out of Profits and thus is an appropriation of net profit for strengthening the financial position of the business. Treatment : Profit & Loss A/c Dr. To Reserve Fund A/c Two fold effect : 1.It is shown on debit side of P&L A/c. 2.It shown on the liabilities side of Balance.To promote the sale of goods, some of the finished goods are distributed as free samples. Treatment: Advertisement A/c Dr. To Purchase A/c Two fold effect: 1.Its is deducted from purchases . 2.It is shown on debit side of P&L A/c.wanacer’s commission GE To increase the profit, manager is given some percentage of commission on profits .[t can be given at a certain percentage on the net profits before charging such commission or after charging such commission. Treatment: Profit & Loss A/c Dr. To Commission Payable This commission in calculated by a formula :- Before charging such commission: Commission Payable = Net profit *(Rate/100) After charging such commission Commission Payable= Net Profit*(Rate/100+Rate). Entered on Dr. side of P/L a/c and Liability side of B/S.Sometimes goods are of to customers on approval basis. If they approve, it will become sale. If such goods are lying with customers on last day of the accounting year and these can be returned , it should be treated as stock lying with customers. Treatment :1. Sales A/c Dr. To debtors A/c (with sales price) 2. Stock A/c Dr. To Trading A/c (at cost Price of goods) Two fold effect: 1.Shown on the credit side of trading account by way of deduction from sales at sales price and added at closing stock at cost price. 2.Shown on assets side as deduction from sundry debtors (sale price) and stock at cost on the assets side of balance sheet. www.commerceatease.com~ Adiuakmuk nba robin Ae | ee We Badanu Shot © Closing Stode| Closing Stode Me si Sas [oa a a See I Dr Aad > & Ab to Grp Liokil Sida. Prefoid eb Prepaid ech exh ada, Bat Debud Bem op | Bude Morn tp | fash sth x) Aceru tome | Accruad Treome Add [to Tncom, Ne] Add Ye treme Me Hak Asch To thom Me 5) Greome Recsived | sree A > rakil s le 4 ul) Yon Deduck Bem Treom| Liakilihes. in Advance Te Troma Reesived in vena i = 8) Bod tbl Bod DoE | PRL AL pr Sida of PRE Ale coe “To Debtor \n Bed bt | es Rrovicien For BD- | PRL LE pe Same i) Hiavielon “To Provision Bay BED. Deb Poe \o ve © Provision Bor pie Ho) Diccowrd “Te Bavision or Distt [ wove ONE | Be Deb caters = “ a phe Ale 4) Depseciakion phat \s deb = peas |e [dat©) Provision fer Disceurh on Celie 1) gest om 19) Uningurad Good Lt 3) Trsund Ged las 4) God gen Sombie » ) Drowsy 4 fat ©) Unvecat dad hots 2) Unvecerded Sale ) Ghitel &b | Prov tor Disc. on red Te PRE ME Less ej Stock Ale Te Troding phe RK Te Lesel, Stock +) some [> tasums Co L Be ves by Ire Aaverdicemant Re Rivdhont Ae Daw, loft! Boker | -w Dmoy, “Fyealed 03 Ravens enditunt Delud Free Rosca Dedud Hem Mindat Rad to fixchart « la Bae ae Sees o @, Or = Goredit cide oly PEL De cede af PRL Ale Dy side ed PL (ask = Chaim) Dy ord of CL Dedud Fam txbers Cer Rabu 4 we) Dedod- new From Creditor om Liobility Side | 4 Aad to Swa/ Loos om faad-ade - Thsutane Clam om Boosh cis Dedud fem Gilad, Add to Creditor. Add to Deblor Add to fissah& @/R Disherour. 1@® GIP Dichenourd. IED) Mabval Trdabled wen B) vdowed exp BY Ghitel Recsipt Treated 02 BR @ Prcfit on Sale of, on eS © (et sah on Appeal Bovis, Sunday Debtor to BIR B/P To Sunday Creduhee credibor To Sy Debte> | sale Ale (iad “To Sony Doky Cleary Sloe 6) “Te Troi Me Aad Gash pris to Chatty Sted Dedud Loy Aoncunk rem bel phe seen V5 poder dedoct Romtisssh Dabo fom Thome cr side of, PRL De Seda eh PRL Add to Debhy pedud Brom 6/8]! le 40 cred ter') o pedelg Balance torsbevud Ho yg lan | |__ %s =m |e tow Add fo Liability Dedud NOV Frm Asset Delud 0 Rom bible Aad CP to Closiy Stock® Adjuak mond Already wade in Trial Ment ea) © Prebad &pes ——— Show on foseb @ ols ea Lich Seb. © Troma Received Liab Sick. fn Advance Gy peerush Tees St G© Bebreciyion — de PRL AK, 6 cs eis wa. @ Provision for Debree _,Delud_ from Asset