You are on page 1of 15

Balance Day adjustments

and entries

By R.A.R.G. Ranaweera
BSc (Industrial Management)

P & L of a Company /
Partnership

A companys P&L appropriation account


(Page 159 of the Text)
Net Profit before Taxation

XXXXX

Taxation (Rate %)

(XX)

Net Profit after Tax

XXX

Dividends
Retained Profit for the year

(XXX)
XXX

Cash Vs. Accrual Accounting


Receive the job

Finish the job


(Earned the
revenue)

Receive payments

Do the payments
Incur the cost

Balance day adjustments

Prepaid expenses
Reduce the amount from the relevant
item in the P&L
Add the prepaid value as a Current asset
in the Balance sheet

Accrued expenses
Add the amount from the relevant item
in the P&L
Add the accrued value as a Current
liability in the Balance sheet

Prepaid revenue
Reduce the amount from the relevant
item in the P&L
Add the prepaid value as a Current
liability in the Balance sheet

Accrued expenses
Add the amount from the relevant item
in the P&L
Add the accrued value as a Current
asset in the Balance sheet

Activity 3.19 to 3.24 (Page 146)


Activity 3.25 to 3.30 (Page 147)

Balance day entries

Depreciation

Doubtful debts

Bad debts

Closing stock

Depreciation

A concept associated with the fixed


(non current) assets
Unfair to deduct a huge amount of
cost incur by a non current asset
from a single period while the asset
is been planned to use for several
accounting periods.
So the cost incur will brought down in
installments.

depreciation methods

Straight Line (Calculation)


Uses when the usage of the non
current asset will be fairly equal through
out the period it will be using.

Reducing Balance (Calculation)


Uses when the usage getting reduced
over time

Factors to consider

Depreciation rate (can be used to


manipulate stake holders)
Usage period (useful life of an asset)

Accounting terms involved in

Book value = writing down value


The current value the asset associated
after deducting the accumulated and
current year depreciation

Residual value = scrap value


The value of the asset (market price) at
the end of its useful life time

Depreciation
Value which will bought in to compensate
the usage of the non current asset within
a year

Original cost of the asset


The original purchased value and some
additional costs as installation costs, etc.

Accumulated depreciation
Amount of depreciated value accumulated
up to date

Entries related to
Depreciation

Depreciation (current year) goes to the


balance sheet as depreciation expenses

Residual value will be entered to the


fixed assets of the balance sheet

Activity 3.34 to 3.38 if can activity 3.39


(Page 151)

Doubtful debts

Allowance (provision) for doubtful


debts

Bad debts

Stock

Accounting Rules

Boundary rules

Entity
Periodicity
Going concern
Quantitative

Measurement rules

Money measurement
Historic cost
Realization

Matching (accruals and pre payments)


Dual aspect
Materiality (consider an accounting entry if
it is considerably significant. Ex / Rs. 100
worth of closing stock can be ignored if the
Purchases are amounted to Rs. 100,000)

Ethical riles

Relevance
Reliability
Comparability
Understandability