Final Accounts

FINAL ACCOUNTS
ADJUSTMENT ENTRIES
The adjustments relates to the following:

Closing stock Outstanding expenses Prepaid expenses Outstanding or accrued income Income received in advance or unearned income Depreciation Bad debts Provision for bad debts Provision for discount on debtors Reserve for discount on creditors Interest on capital Interest on drawings
Rule: Any item given outside the Trial Balance will be recorded at two places on account of Dual Aspect concept.
Closing stock
The journal entry would be: Closing stock A/c To Trading A/c
Dr.
Ex:
Particulars Opening stock Purchases Sales
Trial Balance
Dr. Amt. 10000 30000 40000 Cr. Amt.
Stock at the end of the period is Rs 15000
Dr.
Particulars To, Opening Stock To, Purchase To, Gross Profit
Trading Account
Amount (Rs) 10000 30000 15000 55000 Particulars By, Sales By Closing Stock 40000 15000
Cr.
Amount (Rs)
55000
Balance Sheet
Liabilities Amount Assets Closing Stock Amount 15000
Outstanding Expenses: Expenses which have become due

during the a/cing period but not paid till the end of the year. In order to ascertain true profit and loss made during the year, it is necessary that such outstanding expenses are taken into account. Trial Balance
Particulars Salaries A/c Office Rent A/c Dr. Amount 10000 5000 Cr. Amount
Additional Information:
Salary for the month of December Rs 2000 has yet not been paid Rent amounting to Rs 1000 is still outstanding.
Journal Proper
Date Particulars Salaries A/c To Outstanding Salaries A/c (Being Salary due but not paid) Office Rent A/c To Outstanding Rent A/c (Being Rent due but not paid) Dr Dr. Amount 2000 2000 Dr 1000 1000 Cr. Amount
Prepaid Expenses:
Ex:
Particulars Insurance Store Rent
Expenses of next accounting period paid in advance in the current accounting period.
Trial Balance
Dr. Amount 8000 4000 Cr. Amount
Additional Information: Insurance Premium has been paid in advance amounting to Rs.1000 for the next year Rent Rs 500 has been paid for the next year
Journal Proper
Date Particulars Prepaid Insurance A/c To, Insurance A/c (being Insurance Premium paid in advance) Prepaid Rent A/c To, Store Rent A/c (Being Rent paid in advance) Dr. Dr. Amount 1000 1000 Dr. 500 500 Cr. Amount
Profit and Loss Account

Particulars
To, Salaries Add: Outstanding Salaries 10000 2000
Amount
12000
Particulars
Amount
To, Office Rent Add: Outstanding Rent

To, Insurance Less: Prepaid To, Store Rent Less Prepaid
5000 1000
8000 1000 4000 500
6000
7000
3500
Balance Sheet
Liabilities Outstanding Expenses: Outstanding Salaries Outstanding O. Rent 2000 1000 Amount Assets Prepaid Insurance Prepaid S. Rent 3000 Amount 1000 500
Outstanding Income: Income which has become due but not
received yet. (Asset) Treatment: Added to the income received in the credit side of the Profit and Loss account and then shown as an asset in the Balance sheet.
Accrued Income: Income which has been earned by the
business but has not become due and therefore not received yet. (Asset) Treatment: Similar to Outstanding Income
Income Received in advance: income which has been received
by the business before being earned by it. (liability) Treatment: Subtracted from the Income received in the Credit side of the Profit and Loss account and then shown as a liability in the Balance sheet.
Ex:
Particulars
Trial Balance (as on 31st December,1998)

Dr. Amount 20000 30000 1000 900 1200 2000 Cr. Amount
6% L.T. Loan Investment in 6% Debentures in B Ltd. (Interest payable on 31/3 & 30/9) Interest on L.T. Loan received up to 31st October, 1998 Interest on Investment Rent received for 12 months ending 31st March, 1999 Interest on M.T. Loan
Additional Information: Interest on M.T. Loan has been received in advance to the . extent of Rs 500
Journal Entries:
Outstanding Interest A/c To, Interest on L.T. Loan account Accrued Interest A/c To, Interest on investment A/c Rent A/c To, Rent received in advance A/c Interest on M.T. Loan A/c To, Interest received in advance A/c Dr. Dr. Dr. Dr. 200 200 450 450 300 300 500 500
Profit and Loss A/c

Particulars Amount Rs. Particulars
By, Interest on L.T. Loan Add: O/s Interest By, Interest on Investment Add: Accrued Interest By, Rent received Less, Rent rec. in adv. By, Interest on M.T. Loan Less: Interest rec. in adv. 1000 200 900 450 1200 300 2000 500
Amount Rs.
1200 1350 900 1500
Balance Sheet
Liability Rent received in advance Interest on M.T. Loan received in advance Amount 300 500 Asset Outstanding Interest on L.T. Loan Accrued Interest on investment Amount 200 450
Depreciation:
Depreciation A/c Dr. To, Fixed Asset A/c Treatment: Calculate depreciation on the basis of the rate given. Charge this amount to the debit side of the Profit and Loss account. In the Balance Sheet, reduce the value of that asset by this amount.
Bad debts and Provision for Bad debts

Bad debts A/c Dr. Profit & Loss Dr. To, Debtors personal A/c To, Provision for Bad debts Treatment: Charge this amount (additional bad debts) to the Debit side of the P&L A/c. If the Trial balance already has an entry of Bad debts, additional bad debts should be added to this amount . In the Balance Sheet, reduce the value of the Debtors by this additional Bad debts. Add this amount (new provision for bad debts) to the Bad debts in the Debit side of the P&L A/c. If the Trial balance already has an entry of Provision for Bad debts, this old provision should be subtracted from the total. In the Balance sheet, reduce the value of Debtors by this new provision for bad debts. Discount to Debtors: Similar treatment like Bad debts Provision for Discount on Debtors: Similar treatment like Provision for Bad debts
Trial Balance
Particulars Sundry Debtors Provision for Bad debts Provision for Discount Bad debts Discount Dr. Amount 50000 5000 2000 3000 1000 Cr. Amount
Additional Bad debts = 1000, Additional Discount = 500 Create Provisions: Bad debts @10% & Discount @5% on Debtors
Journal Entries:
Date Particulars Bad debts A/c Discount A/c To, Sundry Debtors Provision for Bad debts A/c To, Bad debts A/c Provision for Discount on debtors A/c To, Discount A/c Profit and Loss A/c To, Provision for Bad Debts To, Provision for Discount A/c Dr. Dr. Dr. Dr. Dr. Amount (Dr.) 1000 500 1500 4000 4000 1500 1500 5532.50 3850 1682.50 Amount (Cr.)
Dr.
Particulars
To, Bad debts Add: Additional Bad debts Add: New Prov. For Bad debts Less: Old Prov. For Bad debts To, Discount Add: Additional Discount Add: New Prov. For Discount Less: Old Prov. For Discount
Profit and Loss account

Amount
3000 1000 4850
Cr.
Amount
Particulars
8850 5000
3850
1000 500 2182.5
3682.5 2000
1682.5
Balance Sheet
Liabilities Amount Assets Sundry Debtors 50000 Less: Additional Bad debts 1000 Less: Additional Discount 500 Less: New Prov. for Bad debts . Less: New Prov. For Discount 49000 48500 4850 43650 2182.5 Amount
41467.50

Final Accounts - Adjustments

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Final Accounts - Adjustments

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The adjustments relates to the following:

Stock at the end of the period is Rs 15000

Outstanding Expenses: Expenses which have become due

Profit and Loss Account

To, Office Rent Add: Outstanding Rent

Outstanding Income: Income which has become due but not

Trial Balance (as on 31st December,1998)

Profit and Loss A/c

Bad debts and Provision for Bad debts

Profit and Loss account

1000 500 2182.5

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