14 Adjustments

Chart showing the treatment of adjustments in

the preparation of Final Accounts
How dealt with in €
Sl.
Type of Adjustment Adjustment Entry Trading or Profit and Loss Balance
No.
Account Sheet
1. Closing stock Closing Stock A/c Dr Credit side of the Trading A/c Asset side.
To Trading A/c
2. Outstanding Expenses: Respective Expenses A/c Dr i. If the outstanding is an item Liabilities side.
(Wages, Rent, Salaries To Respective outstanding chargeable to Trading A/c, add
etc.) expenses A/c the outstanding expenses with
Example: relevant expenses in the debit
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Wages A/c side of the Trading A/c.

To Wages outstanding A/c

Salaries A/c Dr ii. If it is an item chargeable to

To Salaries outstanding A/c Profit and Loss A/c, add the
outstanding expenses to the
relevant expenses in the debit
side of the Profit and Loss A/c.

3. Prepaid Expenses: Respective prepaid Debit side of Trading & Profit and Assets side.
(Insurance Premium) Expenses A/c Dr Loss A/c by way of deduction from
To Respective respective expenses A/c.
Expenses A/c

Example:
Prepaid Insurance
Premium A/c Dr
To Insurance
Premium A/c

4. Accrued Income Accrued Income A/c Dr Credit side of Profit and Loss A/c by Assets side.
(Commission) To Respective Income A/c way of addition to respective Income
Example: A/c.
Accrued Commission A/c
To Commission A/c
25

5. Income received in Respective Income A/c Dr Credit side of Profit and Loss A/c Liabilities side.
advance (Rent) To Respective Income by way of deduction from the
received in advance A/c respective income A/c.
Example:
Rent received A/c Dr
To Rent received in
advance A/c

6. Interest on Capital Interest on Capital A/c Dr Debit side of Profit and Loss A/c Liabilities side
To Capital A/c by way of
addition to the
Capital
 14 Adjustments

7. Interest on Drawings Capital A/c Dr Credit side of the Profit and Loss Liabilities side
To Interest on A/c by way of
drawings A/c addition to the
drawings
which are
ultimately
deducted from
the Capital.

8. Interest on Loan Interest A/c Dr Debit side of Profit and Loss A/c Liabilities side
(Interest on Bank To Interest Outstanding A/c by way of addition to the by way of
Loan) Example: appropriate interest A/c addition to the
Interest on Bank Loan A/c particular loan
26

To Interest Outstanding A/c A/c

9. Interest on Investments Accrued Interest Credit side of Profit and Loss A/c Assets side by
on investments A/c Dr by way of addition to the way of addition
To Interest received A/c appropriate interest A/c. to the particular
investment A/c
10. Depreciation on Fixed Depreciation A/c Dr Debit side of Profit and Loss A/c. Assets side by
Asset To Fixed Asset A/c way of deduc-
Example: tion from the
Depreciation A/c Dr concerned as-
To Machinery A/c set account.

11. Bad debts Bad debts A/c Dr Debit side of Profit and Loss A/c Assets side by
To Sundry debtors A/c way of deduc-
tion from
Sundry debtors

12. Provision for Bad and Profit and Loss A/c Dr i. If the provision for bad and Assets side by
doubtful debts. To Provision for Bad doubtful debts is given outside way of deduc-
and doubtful debts A/c the Trial balance, then it is shown ting New Provi-
on the debit side of Profit and sion alone from
Loss account. Sundry debtors
ii. If provision for bad and doubtful
debts is given in the Trial Balance
27

(Old) and also in the adjustment

(New):
Add new provision for bad and
doubtful debts with bad debts
written off.
a) If the old provision for bad and
doubtful debts is less than the
above total, then the difference
will be shown on the debit side of
the Profit and Loss account.
14 Adjustments