FINAL ACCOUNTS OF PARTNERSHIP FIRMS Meaning:-

According to Indian partnership act of 1932 the partnership is the relation between two or more persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Features: - The following are the features of a partnership 1. There must be a two or more persons to form a partnership. (Maximum ten for financial twenty for non financial activity) 2. There must be an agreement entered in to by all the partners. 3. There must be a business or profession. 4. The firm must be carried by all or any of them acting for all. 5. There must be an agreement for sharing profits or losses of a business. 6. The liability of the partners is unlimited. 7. For the purpose of law, partners and the firm are not separate entities. 8. The partnership firms are governed by the Indian partnership act of 1932.
Partnership deed

Partnership deed is an agreement of all the partners which contains the terms of partnership. The partnership act does not make it mandatory for a firm to have a partnership deed in writing; it is always advisable to have in writing for avoiding the future confusion. A partnership deed generally includes the following: (a) The name of the firm (b) The names and address of the partners (c) The nature of business or profession (d) The place in which the business is operated (e) The date of commencement of partnership (f) Amount of capital to be contributed by each partner (g) The conduct and powers of the partners (h) Restrictions on working of each partner (i) Ratio in which profits and losses are to be shared (j) Interest on partners capital and drawings (k) Interest on loans given or taken by partners from the firm (l) Remuneration to partners (m) Methods of valuation of goodwill and their treatment (n) Mode of settlement of accounts in case of retirement/death of a partner or dissolution of a firm (o) Procedures to be followed in the event of disputes
Provisions applicable in the absence of partnership agreement

When a partnership firm does not have a partnership deed, the following provisions will be applicable (as per sec.13 of the I P A, 1932) (a) No remuneration must be paid to any partner for taking an active part. (b) The profit and losses must be shared by the partners equally (c) No interest must be charged on the drawings made by the partners (d) No interest must be allowed on capital contributed by the partners (e) 6% p.a. interest must be paid to partners loan/advances by partners to the firm (f) No person can be admitted into partner ship without consent of all existing partners. (g) The books of the firm must be kept in the place of business and every partner has a right to inspect of them.

Accounting procedure in a partnership firm Accounting procedure in the partnership firm is very similar to the proprietary concern however in the partnership there are two or more owners, accounting for the capital accounts of partners and for appropriation of profit/loss, the partners capital accounts and P/L appropriation a/c is prepared additionally.
Methods of maintaining partners capital a/c

There are two methods for maintaining the capital accounts in the partnership firm they are: 1. Fluctuating capital system 2.fixed capital system. 1. Fluctuating capital system: - under this system all the transaction between partner and the firm will be recorded in capital account of partners. The capital accounts are maintained under this system, the balance in the capital account of the partner keeps fluctuating. Hence the system is called fluctuating capital system. The transaction between partners and the firm may includes (a) introduction of capital (b) introduction of additional capital (c) drawings by partners (d) interest on capital (e) interest on drawings (f) interest on loan (g) remuneration to partners (h) share of profit or losses
To Bank a/c(drawings) To Interest on drawings a/c To P/L appropriation a/c To Balance c/d Partners capital account Amount ***** By Balance b/d ***** By Bank a/c(capital) ***** By Interest on capital By Salary/commission a/c ***** By P/L appropriation a/c Amount ***** ***** ***** ***** *****

*****

*****

Fixed capital system: - under this system two accounts are opened in the name of each partner, they are; (a) capital account (b) current account (a) Capital account: - it is an account of purely partner capital, it consisting capital a/c opening balance and introduction of additional capital. All other transactions relating to partner are entered in partners current a/c. in this system partners capital is fixed (does not varies) hence it is called fixed capital system. Partners capital account Amount Amount By Balance b/d ***** To Balance c/d ***** By Bank a/c(capital) ***** ***** ***** (b) Current account:- it is an account which contains all of the transactions relating to a partner except capital introduced such as interest on capital, drawings and loans, remuneration of partners, share of a profit or loss, etc. Partners current account Amount Amount To Balance b/d ***** By Balance b/d ***** To Bank a/c(drawings) ***** By Interest on capital ***** To Interest on drawings ***** By Salary/commission ***** a/c ***** a/c ***** To P/L appropriation a/c ***** By P/L appropriation a/c ***** To Balance c/d ***** By balance c/d *****

Final account of partnership firm Final account of partnership firm consists of: 1) trading & P/L account 2) P/L appropriation account 3) Balance sheet. 1) Trading & P/L account: - trading account is prepared to ascertain the gross profit or gross loss earned/incurred by the firm. Profit and loss account is prepared to ascertain the net profit or net loss earned/incurred by the firm. 2) P/L appropriation account: - it is an account which is prepared by the firm, addition to P/L account. This account records the transactions between firm and partners, and appropriates profits accordingly. (Interest on capital, int on drawings, interest on partners loan, partners remuneration, appropriation of profit/loss.) 3) Balance sheet: - balance sheet is a statement which is prepared to know the financial position of the business on any particular date.

MANAGER COMISSION Manager commission is a commission which is payable by the firm to the manager for his service. It is an expense it must be debited to P/L account and shown on the liability side of the balance sheet. Calculation of manager commission: a) When the commission can be calculated on net profit before charging such commission. Commission = (total of credit in P/L a/c) (total of debit in P/L a/c) X rate/100 b) When the commission can be calculated on net profit after charging such commission. Commission = (total of credit in P/L a/c) (total of debit in P/L a/c) X rate/100+rate

SALE OF PARTNERSHIP TO A LIMITED COMPANY

Meaning: - sale of a partnership firm to a company for sum consideration or a partnership firm may convert itself into a joint stock company are the same for accounting purposes. The firm which is being sold to the company is called the vendor firm and the company which is purchasing the firm is called purchasing company. Objectives of conversion of affirm into Joint Stock Company. The main objectives or merits of conversion of a firm into a limited company are: 1. To get the advantage of limited liability 2. To increase the capital and managerial skill 3. To increase the scale of operation. 4. To enjoy the other benefits of limited company. Purchase consideration: - the consideration or price payable by the purchasing company for taking over (business) assets and liabilities of the vendor firm is called purchase consideration. Methods of calculating purchase consideration The purchase consideration may be calculated under any of the following methods 1. Lumsum method. 2. Net asset method. 3. Net payment method. 1. Lumsum method: - under this method a fixed amount is paid by the purchasing company for the assets and liabilities taken over from the vendor firm. 2. Net asset method: - under this method purchase consideration is calculated as follows Total assets taken over at agreed value by the purchasing company XXXX Total liabilities taken over at agreed value by the purchasing company XXXX Purchase consideration XXXX 3. Net payment method: - under this method, actual payment made by the company against each liability would be specified. I.e. net payment of cash, shares, and debentures made by the purchasing company to vendor firm. Form of discharging the purchase consideration: -the purchase consideration may be discharged by the purchasing company in any of the following ways a) Completely in cash b) Completely in shares c) Completely in debentures d) Partly in cash & partly in shares e) partly in cash & partly in debentures f) Partly in shares & partly in debentures g) combination of cash& shares& debentures Realization account: - realization a/c is prepared to realize the assets and liabilities of the firm. The main object of preparation of this account is to find out the profit or loss on realization of assets and liabilities of the firm. This account is debited with all assets at book value and credited with all liabilities at book value (except partners capital and loan). If the purchasing company does not taken over some assets, then they are sold away in the market or it may be taken over by the partners through realization a/c in the same way, if the purchasing company does not taken over some liabilities, they are paid off or taken over by the partners through realization a/c. Final claim ratio: - it is the ratio finally claimed by the partners. The shares and debentures received from purchasing company as purchase consideration are divided amongst the partners according to final claim ratio. (It is used for the purpose of distributing the shares and debenture which is received from the purchasing company as purchase consideration)

Journal entries and ledger account in the books of vendor firm: -

Journal entries: 1. For transfer of assets. ------------------------------Realization a/c Dr To Assets a/c 2. For transfer of liabilities. --------------------------Liabilities a/c Dr To Realization a/c 3. For purchase consideration due. -----------------Purchasing company a/c Dr To Realization a/c 4. For sale of assets. ------------------------------------Cash a/c Dr To Realization a/c 5. For assets taken over by the partner. ------------Partner capital a/c Dr To Realization a/c 6. For payment of liabilities. --------------------------Realization a/c Dr To Cash a/c 7. For liabilities taken over by the partner. -------Realization a/c Dr To Partner capital a/c 8. For realization expenses. --------------------------Realization a/c Dr To Cash a/c 9. For distribution of realization profit. ----------Realization a/c Dr To Partners capital (current) a/c 10. For distribution of realization loss. ------------Partners capital (current) a/c Dr To Realization a/c 11. For receipt of purchase consideration. -------Shares / Debentures / Cash a/c Dr To purchasing company a/c 12. For transfer of undistributed reserve --------Reserve / p/l a/c Dr And P/L a/c. To Partners capital a/c 13. For payment of partners loan account. ------Partners loan a/c Dr To Cash a/c 14. For distribution of shares, ------Partners capital a/c Dr Debentures and cash To shares / debenture in purchasing company To cash a/c Ledger accounts: 1. Realization account 2. Purchasing company a/c 3. Shares in purchasing company a/c 4. Debentures in purchasing company a/c 5. Partners capital a/c 6. Partners loan a/c 7. cash/bank a/c

HIREPURCHASE SYSTEM

Hire purchase is a method of selling goods. In a hire purchase transaction the goods are let out on hire by a creditor to the hire purchase customer (hirer). The buyer is required to pay an agreed amount in periodical installments during a given period. The ownership of the property remains with creditor and passes on to hirer on the payment of last installment. The goods are sold on credit, for which payment is made by the buyer in installments over a period of time; it is called hire purchase system. In other wards in the H P system the seller of goods delivers the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods. Features: the following are the characteristic features of hire purchase system 1. Hire purchase is an agreement between hire vendor and hire purchaser. 2. The buyer takes possession of goods immediately and agrees to pay the total hire purchase price in installments. 3. The agreement provides for parting the passion of goods, with an option to purchase or hire the goods by buyer. 4. if the hire purchaser pays all installments, the ownership of the goods will be transferred on payment of last installment.(purchase) 5. if the hire purchaser stops paying the installments, the hire vendor repossess the goods, each earlier installments paid will be treated as hire charges.(hiring) 6. In case of transaction resulting in purchase, each installment paid will be inclusive of cash price installment and interest of cash price balance. Difference between sale and hire purchase

sale
01 02 03 04 05 06 07 08 It is governed by sale of goods act 01 The ownership of goods is transferred 02 to the buyer immediately. The buyer makes the payment in lumsum. The buyer pays only for the price of goods. On non payment of consideration the seller cannot take back the goods, but can only take legal action on buyer. Once a sale has taken place cannot be terminate the contract. When buyer becomes insolvent the seller has to under take the risk of loss. A sale is subject to levy of sales tax at the time of contract of sale. 03 04 05 06 07 08

Hire purchase
It is governed by the hire purchase act The ownership of goods is transferred to the buyer on payment of all the installments. The payment is made in installments. The hire purchaser pays for the price of goods and also some amount of interest. On non payment of any installment, the seller can re-possess the goods. Can terminate the contract. When hire purchaser becomes insolvent the seller can re-possess the goods. Sales tax will be levied at the time of transfer of ownership.

Important terms and provisions

1. Hire purchaser: A hire purchaser is a person who possesses the goods under hire purchase agreement for use within an option to either purchase it or return after use. 2. Hire vendor: a hire vendor is a person who sells the goods under hire purchase agreement. 3. Cash price: it is the price of goods which is sold under contract of sale 4. Hire purchase price: it is the price at which the goods are sold under hire purchase system it includes cash price of the goods and interest. 5. Installment money: it is the part of the hire purchase price paid by hire purchaser, in periodic intervals. 6. Deposit: it refers any sum payable by the hirer under the hire purchase agreement by way of initial payment or credited or to be credited to him under the agreement on account of any deposit. 7. Net cash price: it refers to the difference between cash price of the goods and deposit (cash price-down payment=net cash price). 8. Net hire purchase price: it is the net amount after deducting the delivery charges, registration charges, insurance charges from hire purchase price. 9. Hire charges: it is an amount refers to the difference between hire purchase price and cash price (H P- C P= H C) it also referred to as interest. 10. Statutory hire charges: it is a hire charges according to the hire purchase act of, 1972. 11. Hire purchase agreement: it is an agreement between hire purchaser and hire vendor according to section 2(c) of the hire purchase act, 1972 for purchasing of goods according to agreement. 12. Rebate: it is an amount which is claimed by the hire purchaser from the hire vendor in case if he decides to remit the balance of the purchase price (future installments) in lumsum without continuing the hire purchasing agreement. The rebate is calculated as follows Rebate = 2/3 X hire charges X (no. of installments due/total no. of installments) Termination of hire purchase agreement The hirer can terminate the agreement at any time by giving the 14 days notice to the owner. However what ever the amount is already paid by the hirer is considered as a hire charges. Difference between agreement to sell and hire purchase agreement The transfer of property is to take place at a feature date subject some condition is called agreement to sell. Howe ever the hire purchase agreement is differ from agreement to sell the following are the differences
Agreement to sell Hire purchase agreement

01 It is regulated by sale of goods act, 1930 02 The possession of goods cannot takes place immediately 03 In this case the buyer can sell or pledge the goods. 04 The buyer can take the advantage of implied conditions and warranties under the act. 05 It is the step to the contract of sale.

It is regulated by hire purchase act,1972 The possession of goods is transferred immediately. 03 The hire purchaser cannot sell or pledge the goods. 04 The hirer cannot so claim the benefit of implied and warranties un less it become a sale. 05 It becomes a sale only after the payment is made in full. Accounting treatment in the books of hire purchaser There are three methods to maintain the accounts in the books of hire purchaser they are.

01 02

A. Outright property method: under this method the asset is recorded at full cash price. B. Asset accrual method: under this method the asset is recorded at the cash price actually paid (asset accrued is recorded) C. Interest suspense method: under this method the total interest is first debited to interest suspense account at the beginning subsequently the interest due at the end of the period is credited to interest suspense account.
Sl. No.
01 02

JOURNAL ENTRIES IN THE BOOKS OF HIRE-PURCHASER Circumstances Outright property Asset accrual Interest suspense At the time of asset purchased.
When the asset is purchased When the down payment is made Asset a/c Dr To hire vendor a/c Hire vendor a/c Dr To bank a/c Interest a/c Dr To hire vendor a/c Hire vendor a/c Dr To bank a/c Depreciation a/c Dr To asset a/c Profit / loss a/c Dr To interest a/c To depreciation a/c No entry Asset a/c Dr To bank a/c Asset a/c Dr Interest a/c Dr To hire vendor a/c Hire vendor a/c Dr To bank a/c Depreciation a/c Dr To asset a/c Profit / loss a/c Dr To interest a/c To depreciation a/c Asset a/c Dr Interest suspense a/c Dr To vendor a/c Vendors a/c Dr To bank a/c Interest a/c Dr To interest suspense a/c Vendors a/c Dr To bank a/c Depreciation a/c Dr To asset a/c Profit / loss a/c Dr To interest a/c To depreciation a/c

At the end of every year.

03 04 05 06 When the installment interest becomes due When the installment is paid When the depreciation is charged When the depreciation and interest is transferred to p/l a/c

Sl. No.
01 02

JOURNAL ENTRIES IN THE BOOKS OF HIRE-VENDOR Circumstances Outright property Asset accrual Interest suspense At the time of asset purchased.
When the asset is sold When the down payment is received When the installment interest becomes due When the installment is received When the interest is transferred to p/l a/c Hire-purchaser a/c Dr To sales a/c Bank a/c Dr To hire-purchaser a/c Hire-purchaser a/c Dr To Interest a/c Bank a/c Dr To hire-purchaser a/c Interest a/c Dr To Profit / loss a/c No entry Asset a/c Dr To bank a/c Asset a/c Dr Interest a/c Dr To hire vendor a/c Hire vendor a/c Dr To bank a/c Profit / loss a/c Dr To interest a/c To depreciation a/c Purchaser a/c Dr To sales a/c To interest suspense a/c Bank a/c Dr To purchaser a/c interest suspense a/c Dr To Interest a/c Bank a/c Dr To purchaser a/c Interest a/c Dr To Profit / loss a/c

At the end of every year.

03 04 05

Ascertainment of interest: -

1. When rate of interest is given: Cash price less down payment add interest less installment 2. When rate of interest is not given: -

Ascertain total amount of interest (total amount- cash price) and then ascertain the interest installment with the help of ratio of amount due at the beginning of each year. Amount due at the beginning of 1st year = total amount- down payment Amount due at the beginning of 2nd year = first year due 1st installment Amount due at the beginning of 3rd year = second year due 2nd installment 1. Without the help of annuity table 2. with the help of annuity table 1. without the help of annuity table: - Total cash price = cash price installment + down payment Cash price installment is calculated by deducting the interest installment from the installment amount starting with last installment. The interest installment is calculated with the help of following formula: Interest= total amount due at the time of installment X rate of interest 100+rate of interest
Ascertainment of total cash price: -

2. with the help of annuity table: - under this method the cash price is ascertained with the help of annuity value. Cash price installment = installment X annuity value Total cash price = cash price installment + down payment
Preparation of ledger accounts: -

In the books of hire-purchaser: 1. Asset a/c 2. Hire-vendor a/c 3. Bank a/c 4. Interest a/c 5. Depreciation a/c 6. Profit and loss a/c In the books of hire-vendor: 1. hire-purchaser 2. Bank a/c 3. Interest a/c 4. Profit and loss a/c

INSTALLMENT PURCHASE SYSTEM Meaning: installment payment system is a system where the buyer is given the ownership as well as the possession of the goods at the time of signing the contract. The buyer has the facility to pay the price in installments. Features: 1. Under this system, there will be an outright sale of goods. 2. The possession as well as ownership is transferred to the buyer at the time of signing the contract agreement. 3. The buyer can make the payment in installments. 4. In case of default in payment the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid amount. 5. The buyer cannot option of returning the goods and terminate the contract. Difference between hire purchase system and installment purchase system Hire-purchase system Installment purchase system 0 It is a hiring contract 01 It is a contract of sale 1 0 The ownership is transferred only 02 The ownership is transferred by seller to 2 after payment of all installments. buyer, immediately on signing the contract. 0 The position of buyer is like bailee 03 The position of buyer is not a bailee. 3 0 The risk of loss or damaged goods 04 The risk of loss or damaged goods must bear 4 must bear by the seller. by the buyer. 0 The default of payment of any 05 The default of payment of any installment by 5 installment by the buyer, the seller the buyer, the seller cannot re-possess the can re-possess the goods. goods. 0 The buyer can exercise the option 06 The buyer cannot exercise the option of 6 of return the goods. return the goods. 0 The buyer cannot dispose the 07 The buyer has the right to dispose the goods, 7 goods until the payment of all if all installments are not yet paid. installments. Preparation of ledger accounts: In the books of purchaser: 1. Asset a/c 2. Vendor a/c 3. Interest suspense a/c 4. Interest a/c 5. Depreciation a/c In the books of vendor: 1. Purchaser 2. Bank a/c 3. Interest a/c 4. Profit and loss a/c

ROYALTY ACCOUNTS Royalty is an amount payable for utilizing the benefit of certain rights vested with some other person. For example a landlord possesses right over the mine in his land, the author of book possesses right over his book. When the rights are leased the owner receives a consideration for the same which is called royalty. Royalty: royalty is a periodical sum based on the out put payable by the lessee to the lessor for having utilized the rights of the lessor. The person who makes the payment to the owner of asset is known as lessee and the owner of the asset is known as lessor. Minimum rent or dead rent: minimum rent or dead rent is a minimum amount payable by the lessee to the lessor according to agreement irrespective of the volume of output. It is payable only when the royalty is less then minimum rent. Short workings: the excess of minimum rent over actual royalty is called short working. This excess is called short working for lessee and it is called short working suspense for the lessor. Recoupment or recovery of short workings: Recoupment of short working refers to recovering the short working of any year, from surplus royalty of the succeeding years. the Recoupment may be permitted over a stipulated period of time (fixed Recoupment) or over a specified period following the year of short working (floating Recoupment) or within the life time of the lease(Recoupment within life time of the lease). Accounting entries in the books of lessee Without minimum rent account
Sl. No. Circumstances Royalties are less then the Royalties are more then the minimum rent minimum rent

01

Royalties a/c Dr Royalties a/c Dr Short working a/c Dr To Short working a/c To Land lord a/c To Land lord a/c 02 For payment of Land lord a/c Dr royalty To Bank a/c 03 For transfer of royalty Profit and loss a/c Dr To Royalty a/c In case short working is not completely recovered (non-recovery of short working) 04 For transfer of short- Profit and loss a/c Dr working To Short working a/c With minimum rent account
Sl. No. Circumstances Royalties are less then the Royalties are more then the minimum rent minimum rent

For Royalty payable

01 02 03 04

For minimum rent Minimum rent a/c Dr No entry payable To land lord a/c For Royalty payable Royalties a/c Dr Short working a/c Dr To minimum rent a/c For payment of Land lord a/c Dr royalty To Bank a/c For transfer of royalty Profit and loss a/c Dr To Royalty a/c

In case short working is not completely recovered (non-recovery of short working) 05 For transfer of short- Profit and loss a/c Dr working To Short working a/c
Accounting entries in the books of lessor Sl. No. Circumstances Royalties are minimum rent less then the Royalties are more then the minimum rent

01

Lessees a/c Dr Lessees a/c Dr To Short working suspense a/c Short working suspense a/c Dr To Royalties receivable a/c To Royalties receivable a/c 02 For receipt of Bank a/c Dr royalty To Lessees a/c 03 For transfer of Royalty receivable a/c Dr royalty To Profit and loss a/c In case short working is not completely recovered (non-recovery of short working) 04 For transfer of shortShort working suspense a/c Dr working To Profit and loss a/c
Table analysis Output rentMinimum Royalty Year Short working Short working recovered Short working not-recovered Amount paid to landlord

For Royalty receivable

01

02

03

04

05 (3-4=5)

06 (4-3=6)

07 (5-6=7)

08 (4+5=8) or (4-6=8)

FIRE INSURANCE CLAIMS

Ascertainment of actual amount of loss: - the actual amount of loss can be ascertained by using the following format; Stock on the date of fire Less: goods saved or salvaged or scrap xxxx xxxx xxxx Add: expenses incurred for extinguishing fire, if any xxxx Actual amount of loss xxxx Ascertainment of claim amount: The claim amount is calculated only on the basis of actual amount of loss and extent of insurance on the value of goods. a) When the stock is properly insured or over insured: The amount of claim will be the same as amount of loss. b) When the stock is underinsured: i) If the entire stock is destroyed: the policy amount would be the amount of claim ii) If only a portion of goods are destroyed: the claim amount can be calculated by using the following formula of average clause. Claim amount= stock on the date of fire X actual loss of stock Stock on the date of fire Average clause: it is the clause in the insurance agreement for the purpose of ascertaining the actual claim amount when the stock is not properly insured.
Sl. no. 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 TREATMENT OF TRIAL BALANCE ITEMS Trial balance Status Treatment / effect (account) Item Appears Account/statement Side Opening stock Dr. Real Trading a/c Dr. Purchases Dr. Real Trading a/c Dr. Purchase returns Cr. Real To be deducted from purchases Direct expenses Dr. Nominal Trading a/c Dr. Sales Cr. Real Trading a/c Cr. Sales returns Dr. Real To be deducted from sales Other expenses Dr. Nominal Profit / loss a/c Dr. Incomes Cr. Nominal Profit / loss a/c Cr. Salary and any other Dr. Nominal Profit / loss appro a/c Dr. remuneration to partners Interest on capital Dr. Nominal Profit / loss appro a/c Dr. Interest on drawings Cr. Nominal Profit / loss appro a/c Cr. Capital Cr. Personal Balance sheet Liabilities Liabilities Cr. Personal Balance sheet Liabilities O/S expenses Cr. Personal Balance sheet Liabilities Incomes received Cr. Personal Balance sheet Liabilities in advance Assets Dr. Real Balance sheet Assets Drawings Dr. Personal Balance sheet Assets O/S incomes Dr. Personal Balance sheet Assets Prepaid expenses Dr. Personal Balance sheet Assets

Sl. No. 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

TREATMENT OF ADJUSTMENT ITEMS Adjustment item Treatment Closing stock Depreciation Out standing expenses Prepaid expenses Out standing incomes Incomes received in advance Bad debts Provision for doubt full debts Provision for discount on debtors Provision for discount on creditors Interest on capital Interest on drawings Salary, commission, etc. to partners Goods withdrawn by partners Goods damaged Writing off of preliminary expenses 1. credited to trading a/c 2. shown on assets side of the balance sheet 1. deducted from the respective asset under asset side of the B/S 2. debited to profit and loss a/c 1. added to the respective item on the debit side of the trading a/c or profit and loss a/c 2. shown on the liability side of the balance sheet 1. deducted from the respective item on the debit side of the either trading a/c or profit and loss a/c 2. shown on the assets side of the balance sheet 1. added to the respective item on the credit side of the profit and loss a/c 2. shown on the assets side of the balance sheet 1. deducted from the respective item on the credit side of the profit and loss a/c 2. shown on the liability side of the balance sheet 1. deducted from the sundry debtors on the assets side of the balance sheet 2. debited to the profit and loss a/c 1. debited to the profit and loss a/c 2. deducted from the sundry debtors on the assets side of the balance sheet 1. credited to the profit and loss a/c 2. deducted from the sundry creditors on the liabilities side of the balance sheet 1. debited to the profit / loss appropriation a/c 2. credited to partner capital a/c or current a/c 1. credited to the profit / loss appropriation a/c 2. debited to partner capital a/c or current a/c 1. debited to the profit / loss appropriation a/c 2. credited to partner capital a/c or current a/c 1. deducted from purchases on the debit side of the trading a/c 2. debited to partners capital a/c or current a/c 1. deducted from the preliminary expenses on the assets side of the balance sheet 2. debited to profit and loss a/c