Financial statements with

adjustments

Submitted to:- Ms Palak bajaj

Submitted to:-Chirag verma
CAPITAL EXPENDITURE TREATED AS
REVENUE EXPENDITURE
• CAPITAL EXPENDITURE:- any
expenditure which is incurred in acquiring or
increasing the value of fixed asset is termed as
capital expenditure.
REVENUE EXPENDITURE:- any
expenditure, the benefit of which is received during
the year itself is termed as revenue expenditure.
 depreciation on fixed asset.
 payment for goods purchased for resale.
CAPITAL EXPENDITURE TREATED AS
REVENUE EXPENDITURE
EXAMPLE: Extract from TRIAL BALANCE
Name of account L.F. DEBIT CREDIT
Wages 22,000
Machinery 16000

Adjustment
Wages include 2,000/- for the erection of machinery
Trading account
Particular Amount Particular Amount
Wages 22,000
-transferred to machinery (2000) 20,000

Balance sheet
Liabilities Amount Assets Amount
Machinery 16,000
+installation expenses
transferred from wages a/c 2,000 18,000
 SALES OF GOODS ON APPROVAL BASIS
sometimes goods are sold to the customer on approval (or
return) basis for example if the goods are liked by him, he
may keep them and if they are not like by him, he may return
them. Such goods cannot be regarded as regarded as sales
and unless consent is received during the accounting period
Date Particular L. F. Debit Credit
Sales a/c.
Dr.
To purchase a/c

ACCOUNTING TREATMENT:-(1)Sale will be

reduced on the credit side of the trading account in debtors
will also be reduced on the Asset side of the balance sheet.
(2)cost price of the goods which are sold on approval basis
are calculated and then added to the closing stock.
 SALES OF GOODS ON APPROVAL BASIS
EXAMPLE: Extract from TRIAL BALANCE
Name of account L.F. DEBIT CREDIT
PURCHASE 76000

Adjustment
 Goods costing 5,000/-were sent to the customer for ‘APPROVAL
BASIS’ for 6,400/- and had been recorded in books as actual sales.
Trading account
Particular Amount Particular Amount
By sales 210000
-goods on approval basis (6400) 2,03,600
By closing stock 20000
+ goods on approval basis 5000 25,000

BALANCE SHEET
Liabilities Amount Assets Amount
Debtor 36400
-goods on approval basis (6400) 30,000
By closing stock 20000
+ goods on approval basis 5000 25,000
 GOODS SOLD AND DISPATCHED
BUT OMITTED TO BE
RECOARDED
sometimes the goods are sold and dispatched as well, but
omitted to be recorded in the books of accounts the
following entry will be passed to make a record of such
sales:-
Date Particular L. F. Debit Credit
Debtors a/c Dr.
To sales a/c

ACCOUNTING TREATMENT:- on the

one hand, It will be added to the sales on the credit side of
the trading account and on the other hand, it will also be
added to debtors on the Asset side
 GOODS SOLD AND DISPATCHED
BUT OMITTED TO BE
Name of account
RECOARDED
EXAMPLE: Extract from TRIAL BALANCE
L.F. DEBIT CREDIT
Sales 1,80,000
Debtor 28,000

Adjustment
Goods worth 5000/- were sold and dispatched but no entry
was passed to this effect
Trading account
Particular Amount Particular Amount
By sales 180000
+debtor 5000 1,85,000

Balance sheet
Liabilities Amount Assets Amount
Debtor 28000
+sales 5000 33,000
 GOODS PURCHASED AND INCLUDED IN
CLOSING STOCK BUT OMMITED TO BE
RECOARDED
sometime the goods are purchased and including in the stock
as well, but these are omitted to be recorded in the books of
accounts. The following entry will be passed to make a
record of such purchase
Date Particular L. F. Debit Credit
Purchase a/c dr.
To creditors a/c

ACCOUNTING TREATMENT:- on the

one hand, It will be added to the purchases on the debit
side of trading account and on the other hand, it will also be
added to the creditors on the liability side
 GOODS PURCHASED AND INCLUDED IN
CLOSING STOCK BUT OMMITED TO BE
RECOARDED
EXAMPLE: Extract from TRIAL BALANCE
Name of account L.F. DEBIT CREDIT
PURCHASE 1,09,000
creditors 13,000

Adjustment
Goods purchased 7,000/-were purchased and included in
stock but no entry was passed to record the effect
Trading account
Particular Amount Particular Amount
To purchase 109000
+creditors 7000 116000

Balance sheet
Liabilities Amount Assets Amount
Creditors 13000
+purchase 7000 20000
 ABNORMAL LOSS
 Sometime losses occur due to some abnormal circumstances such as accident, fire,
flood, earthquakes, etc. Such losses are called ABNORMAL LOSS

Abnormal loss

Loss of goods Loss of assets

When goods are not When goods are

insured insured

(1)Loss by accident a/c. Dr. (1)Loss by accident a/c.

To purchase a/c Dr.
(2) Profit and loss a/c. Dr To purchase a/c
To loss by accident a/c (2)Insurance claim a/c. Dr.
Profit and loss a/c. Dr
 ABNORMAL LOSS
(A) When goods are not insured

EXAMPLE: Extract from TRIAL BALANCE

Name of account L.F. DEBIT CREDIT
PURCHASE 76000

Adjustment
Goods worth 2000 were lost by accident
Trading account
Particular Amount Particular Amount
To purchase 76000
-loss by accident (6000) 70000

Profit and loss account

Particular Amount Particular Amount
To loss by accident 62000
 WHEN GOODS ARE INSURED
EXAMPLE: Extract from TRIAL BALANCE
Name of account L.F. DEBIT CREDIT
PURCHASE 76000

Adjustment
Furniture worth 6000 were lost by accident. It was insured and the
insurance company admitted a claim of 4000/-
Trading account
Particular Amount Particular Amount
To purchase 76000
-loss by accident (6000) 70000

Profit and loss account

Particular Amount Particular Amount
To loss by accident 2000

BALANCE SHEET
LIABILITIES Amount Assets Amount
Insurance company (claim) 4000
 DEFERRED REVENUE EXPENDITURE

There are certain expenditure which are revenue in

nature but the benefit of which is likely to be derived over
a number of years
Date Particular L. F. Debit Credit
Atvertising
expenses. dr
To profit and
loss account

ACCOUNTINg TREATEMENT:- the

amount related to current year is debited to profit and loss
account and the balance will be treated as an asset and
shown on the Asset side of the balance sheet
 DEFERRED REVENUE EXPENDITURE
EXAMPLE:A company invested a huge amount of 2,00,000/- to introduce a
new product in market and it is estimated that the benefit last for 4 years.

EXAMPLE: Extract from TRIAL BALANCE

Name of account L.F. DEBIT CREDIT
Advertising 2,00,000

Adjustment
 ¼ of the advertising expense belong to this year.
Profit and loss account
Particular Amount Particular Amount
TO ADVERTISING EXPENSES(1/4 of 2,00,000) 50,000

Balance sheet
Liabilities Amount Assets Amount
Advertising expenses 1,50,000
 YO U
AN K
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