ADJUSTMENT

TO
FINAL ACCOUNTS

Accrued Expenses

Expenses that have been incurred but the amounts have

not been paid.
Example
A total rent of RM 4,000 has been paid for the period
from January to October 2010. Assuming the
accounting year ended on 31 December 2010, and the
monthly rent of RM 400 is payable at the end of each
month, show the balance day adjustments for rent.

1 January

31 October
RM4,000 paid

31 December
RM800 accrued

Rent incurred=RM4,800
2

Prepaid Expenses

Prepaid expenses are expenses that have not been incurred but
the amounts have been paid
Total insurance of RM 3000 has been paid for the period 1
January 2010 to 31 March 2011. The financial year ends on 31
December 2010. The monthly insurance is RM 200, show the
balance day adjustment for insurance.

1 Jan 2010

31 December 2010
RM2400 incurred

31 March 2011
RM600 prepaid

Insurance paid RM3000

3

Accrued Revenues

Accrued revenues are revenues earned in the current

accounting period for which the amounts have not been received

A trader sub-let a section of his premises to a food stall for a monthly

rental of RM 100. Up to 31 December 2010, the end of the accounting year,
only a total of RM 900 was received.
With the reference to the example, since rent for three months, i.e. RM
300 has not been received, the rent earned should be equal to rent received
(RM 900) plus accrued rent (RM 300) i.e. RM 900 + RM 300 = RM 1,200
1 January

30 September
RM900 received
Rent Earned RM1,200

31 December
RM300 accrued
4

Revenues Received in Advance

Revenues received in advance are revenues not earned but the
amounts have been received in the current accounting year
Abdullah rented out part of his premises to another businessman as
office space starting from 1 January 2010. The annual rent was agreed
at RM 2,400. Abdullah already received a cheque for RM 2,600. The
financial year ended 31 December 2010.
1 January 2010

31 December 2010

RM2,400 rent earned

31 January 2011
RM200 in advance

Rent received RM2,600

5

Adjustment to final account

Accrued Expenses

Add up expenses ~ in IS
Current Liabilities ~ in BS

Prepaid Expenses

Reduce expenses ~ in IS
Current Assets ~ in BS

Accrued Revenues

Add up revenue ~ in IS
Current Assets ~ in BS

Revenues Received in Advance Reduce revenue ~ in IS

Current Liabilities ~ in BS
6

Bad Debts
Debts that are considered irrecoverable after all efforts have
been made to collect them are called bad debts
Bad Debts are treated as a loss or an expense to a business.

Adjustment to final account

Add up bad debt expenses ~ in IS
Less debtor ~ in BS

Bad Debts Recovered

there is a possibility that the business recovers debts that have been

written off as bad debts.

These previously uncollectable debts that are unexpectedly recovered

are referred to as bad debts recovered.

They are treated as gains of the business.
Adjustment to final account

Bad debts recovered~ revenue side at IS

Add up cash/bank ~ in BS
8

Provision for Bad/Doubtful Debts

An estimate of debts that may become bad

Adjustment to final account

1. First made provision for doubtful debts

Provision for doubtful debts ~ expenses side in IS
Less debtor ~ in BS

2. Increasing the provision

Provision for doubtful debts (with the increase amount) ~
expenses side in IS
Less debtor (with current provision) ~ in BS

3. Reducing the provision

Provision for doubtful debts (with the reduce amount) ~
revenue side in IS
Less debtor (with current provision) ~ in BS
10

Depreciation
Adjustment to final account
First made depreciation
Depreciation ~ expenses side in IS
Less accumulated depreciation (from fixed asset cost)
~ in BS
Depreciation already exist
Depreciation ~ expenses side in IS
Accumulated depreciation (add up from accumulated
for depreciation that already exist) ~ than deduct fixed
asset at cost ~ in BS

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Question 1 :
The following trial balance was extracted from the books of Ahmad Shoes at the year ended
31/12/2010;

Purchases and sales

Debit
(RM)

Credit
(RM)

11,280

19,740

Cash at bank

1,140

Cash in hand

210

Capital as at 1/1/2010

9,900

Drawings

2,850

Office furniture

1,440

Rent

1,020

Wages and salaries

2,580

Discounts

690

360

Account receivables and account payables

4,920

2,490

Inventory as at 1/1/2010

2,970

Provision for doubtful debts as at 1/1/2010

Van

270
2,400

Maintenance expenses

450

Bad debts

810
32,760

32,760
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continue..

Notes:
a.

Inventory as at 31/12/2010 RM3,510

b.

Wages and salaries accrued at 31/12/2010 RM90

c.

Rent prepaid at 31/12/2010 RM140

d.

Maintenance expenses owing at 31/12/2010 RM60

e.

Increase the provision for doubtful debts by RM60

f.

Provide for depreciation as follows: office furniture RM180; van

RM480

Required:
Draw up the Income Statement for the year ended 31/12/2010
together with a Balance Sheet as on 31/12/2010.
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