68 Accounting and Financial Management for I.T.

Professionals

Mechanism involved in preparation of final accounts when trial balance with additional
information is given:
Expenses
Goes to
Income Statement
Incomes
Trial Contains Result (Net Profit/Loss):
Balance + Additional information
goes to
Liabilities
Goes to
Balance Sheet
Assets

Some important additional information along with adjustment entries in final accounts are given
below:
Trading A/c (Cr.)
1. Closing Stock
B/S (Current Assets)
P & L A/c (Dr.- Added to concerned expenses)
2. Outstanding Expenses
B/S (Current Liabilities)
P & L A/c (Cr. or Expenses, less prepaid expenses)
3. Prepaid Expenses
B/S (Current Assets)
P & L A/c (Cr.- Added to concerned income)
4. Outstanding or accrued
income (Income due but
not received) B/S (Current Assets)
P & L A/c (Dr. or deducted from concerned income on
credit side)
5. Income received in advance
or unearned income
B/S (Current Liabilities)
P & L A/c (Dr.)
6. Depreciation
B/S (Fixed Assets, Less Depreciation.)
P & L A/c (Dr.)
7. Bad Debts
B/S (Debtors, Less Bad debts)
P & L A/c (Dr.)
8. Provision for bad debts
B/S (Debtors, Less provision for bad debts)

9. Provision for discount on
debtors
10. Provision for discount on
creditors
11. Interest on capital
12. Interest on drawings
13. Interest on loan
(Borrowed)
14. Interest on loan
(Advance)
15. Accidental loss of
Goods
16. Goods distributed
as free sample
17. Goods given/taken as
Charity/Personal use
Final Accounts 69
P & L A/c (Dr.)
B/S (Drs., Less provision for discount on debtors)
P & L A/c (Cr.)
B/S (Crs., Less provision for discount on creditors)
P & L A/c (Dr.)
B/S (Capital, add interest)
P & L A/c (Cr.)
B/S (Capital, less interest on drawings)
P & L A/c (Dr.)
B/S: Liability (Loan, add interest on loan)
P & L A/c (Cr.)
B/S: Asset (Loan, add interest on loan)
Trading A/c (Cr. side or deducted from Purchases A/c on
Dr. side)
P & L A/c (Dr.) as Loss of stock
Trading A/c (deducted from Purchases A/c on Dr. side)
P & L A/c (Dr.) as Advertisement A/c
Trading A/c (deducted from Purchases A/c on Dr. side)
B/S (Capital, less Charity A/c or Drawing A/c)
70 Accounting and Financial Management for I.T. Professionals

Remark
The journal entry for above adjustment are given below:
S.No. Particulars L.F. Debit (Rs.) Credit (Rs.)
1. Closing stock A/c …Dr.
To Trading A/c
2. Expenses A/c ...Dr.
To Outstanding expenses A/c
3. Prepaid expenses A/c ...Dr.
To Expenses A/c
4. Accrued income A/c ...Dr.
To Income A/c
5. Income A/c ...Dr.
To Unearned income A/c
6. Depreciation A/c ...Dr.
To Asset A/c
7. Bad Debts A/c ...Dr.
To Debtors A/c
8. P & L A/c ...Dr.
To Provision for bad debts A/c
9. P & L A/c ...Dr.
To Provision for discount
on debtors A/c
10. Provision for discount on
creditors A/c ...Dr.
To P & L A/c
11. Interest on capital A/c ...Dr.
To Capital A/c
12. Drawing A/c ...Dr.
To Interest on drawing A/c
13. Interest on loans A/c ...Dr.
To Loan A/c
14. Loans A/c ...Dr.
To Interest on loan A/c
15. Loss of Stock A/c ...Dr.
To Trading A/c or To Purchase A/c
16. Advertisement A/c ...Dr.
To Purchase A/c
17. Charity A/c ...Dr.
To Purchase A/c