Financial statements with

adjustments

Submitted to:-Ms. palak bajaj

Submitted by:- chirag verma
 Capital revenue treated as revenue
expenditure
CAPITAL EXPENDITURE:-any expenditure which is incurred in acquiring
or increasing the value of fixed assets is treated as CAPITAL EXPENDITURE.
Wages paid to the worker for erecting machines, cartage of fixed assets, over hauling
of second hand machine
REVENUE EXPENDITURE:-Any expenditure, the benefit of which
is received during the current year itself is treated as REVENUE
EXPENDITURE.
Expenses incurred for the purpose of day to day running of the business
such as manufacturing expenses, office expenses, repair and maintenance
of the machinery
Payment of goods purchased.
Depreciation of foxed assets.
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
SOME TIME GOODS ARE SOLD TO THE CUSTMER ON
APROVAL(RETURN) BASIS
Eg if goods are likes by him, he may keep them and if they are not liked
by him, he may return them. Such goods cannot be regarded as sale
unless consent is receive during the accounting period

Date Particular l.f. Debit Credit

SALES A/C dr.
TO DEBTOR A/C

ACCOUNTING TREATEMENT:-
1) sales will be reduced on the credit side of TRADING ACCOUNT and
debtors will also be reduced an the asset side of the balance sheet
 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 goods are sold and dispatched well, but omitted
to be recorded in books of accounts. The following entry will
be passed to make a record of such sales:-

Date Particular l.f. Debit Credit

Debtor A/C dr.
TO sales A/c

ACOUNTING TREATMENT:-One the one Hand, it will

ne added to sales on credit side of TREADING ACCOUNT and on the
other hand, it will also be added to the debtors on assets 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
• Sometimes goods are purchased and included in closing
stock well, but omitted to be recorded in 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 purchases o the debit side of TRADING ACCOUNT and
on the other hand, it will be added to the creditors on the liabilities
 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 FIXED
LOSS OF GOODS
ASSESTS

WHEN GOODS ARE NOT WHEN GOODS ARE

INSURURED INSURED

(1) Loss by accident a/c dr.
to purchase a/c
(2)Profit and loss a/c dr.
To loss by accident a/c
(1) Loss by accident a/c dr.
To purchase a/c
(2)Insurance claim a/c dr.
To Profit and loss a/c
To loss by accident a/c
 LOSS OF GOODS
(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
 These are those expenditure which are revenue in nature but the
benefits of which are likely to be derived over a number of years.

Date Particular l.f. Debit Credit

PROFIT AND LOSS A/C dr.
TO ADVERTISEMENT A/c

ACCOUNTING TREATMENT:-amount related to

current year will be debited to profit and loss account and the balance
will e treated as asset in 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
 KYO
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