FINANCIAL STATEMENT WITH ADJUSTMENT INTRODUCTION Those transaction which

INTRODUCTION Those transaction which are passed at end of accounting period to make a

OBJECTIVES OF ADJUSTMENTS 1. To give effect to non cash or national incomes and

ACCOUNTING TREATMENT Outstanding expenses It refers to expenses which have been incurred but not

Prepaid expenses it refers to those expenses which have been paid but benefit have

Closing stock It refers to unsold stock at end of current accounting period which

Accrued income It refers to that income which has been earned but not yet

Unaccured income It refers to income which have been received but not yet earned

Depreciation It represent the portion of cost of fixed asset which has been used

Depreciation Equipment 1/1 62, 000 Depreciation Expense 12/31 12, 000 Accumulated Depreciation 12/31 12,

Interest on capital It means the cost of using the capital in an enterprise

Interest on drawings It means cost of using the sum of money or asset

Abormal loss of stock It is avoidable loss usually caused due to fire, theft,

Bad debts It represent the amount due from customers, which could not be recovered

Provision for bad debts It refers to provision created to cover the loss of

Commission of manager on profit It is remunaration on basis of certain percentage of

Provision for discount on debtors It refers to discount created to provide for discount

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FINANCIAL STATEMENT WITH ADJUSTMENT

INTRODUCTION Those transaction which are passed at end of accounting period to make a record of transaction omitted to be entered in the books or to set right the transaction which have been wrongly entered in the books are called adjusting entries. Hence before preparing final accounts adjusting entries should be made to ensure that final accounts exhibit a true and fair view. While preparing final accounts expeses and incomes should be taken in consideration for full trading year.

OBJECTIVES OF ADJUSTMENTS 1. To give effect to non cash or national incomes and expenses 2. Bringing into accounts expenses of current year not yet entered in the books of accounts 3. Bringing into accounts incomes of current year not yet recorded in the books of accounts

ACCOUNTING TREATMENT Outstanding expenses It refers to expenses which have been incurred but not paid during accounting period Accounting treatment Adjusting entries Concerned expenses a/c…. dr To outstanding exp a/c Treatment in trading a/c (if it is direct exp) Added to concerned exp (eg wages ) on debit side Treatment in P&L a/c (if it is indirect exp) Added to concerned exp (eg salaries) on debit side Treatment in balance sheet Shown on liability side of balance sheet Note : - if outstanding exp already appear in trail balance then no adjusting entries is required. It will be shown only in liability side of balance sheet

Prepaid expenses it refers to those expenses which have been paid but benefit have been not incur yet Accounting treatment Adjusting entries to be passed Prepaid expenses a/c. . Dr To respective expenses a/c Treatment in trading a/c (if it is direct exp) Deducted from respective expenses(eg wages) on debit Treatment in P&L a/c (if it is indirect exp) Deducted from respective expenses (insurance ) on debit Treatment in balance sheet Shown on asset side of balance sheet Note : - If prepaid exp already appear in trail balance then no adjusting entries is required. It will be shown in asset side of balance sheet

Closing stock It refers to unsold stock at end of current accounting period which is carried forward to next accounting period Accounting treatment Adjusting entries to be passed Closing a/c dr To trading a/c Treatment in trading a/c Shown on credit side Treatment in balance sheet Shown on asset side as current asset

Accrued income It refers to that income which has been earned but not yet received during accounting period Accounting treatment Adjusting entries to be passed Accured income a/c dr To respective income a/c Treatment in P&L a/c Added to respective income on credit side Treatment in balance sheet Shown on asset side of balance sheet Note: - If accured income already appear in trail balance then no adjusting entries is required. It will be shown in balance sheet

Unaccured income It refers to income which have been received but not yet earned during the accounting period Accounting treatment Note: - If unaccured income already appear in trail balance then no adjusting entries is required it will shown only in balance sheet Adjusting entries to be passed Concerened income a/c dr To unaccured income a/c Treatment in P&L a/c Deducted from concerned income on credit side Treatment in balance sheet Shown on liability side of balance sheet

Depreciation It represent the portion of cost of fixed asset which has been used by business for the purpose of earning profits. Accounting treatment Note: - If depreciation appear in trail balance then no adjusting entries is required it will not shown in balance sheet too. Adjusting entries to be passed Depreciation a/c dr To respective asset a/c Treatment in P&L a/c Shown on debit side as separate item Treatment in balance sheet Shown on asset side by way of deduction from respective asset

Depreciation Equipment 1/1 62, 000 Depreciation Expense 12/31 12, 000 Accumulated Depreciation 12/31 12, 000

Interest on capital It means the cost of using the capital in an enterprise by the proprietor. Accounting treatment Adjusting entries to be passed Interest on capital a/c To capital a/c Treatment in P&L a/c Shown on debit side as a separate item Treatment in balance sheet Shown on liabil; ity side in balance sheet dr

Interest on drawings It means cost of using the sum of money or asset by the proprietor for personal use Accounting treatment Adjusting entries to be passed Interest on capital a/c dr To capital a/c Treatment in P&L a/c Shown on credit side as a separate item Treatment in balance sheet Shown on liability side by way of deduction from capital

Abormal loss of stock It is avoidable loss usually caused due to fire, theft, abnormal leakage/breakage/spoilage etc. Accounting treatment Adjusting entries to be passed Loss of stock a/c dr To trading a/c Treatment in trading a/c Total value of abnormal loss is shown on credit side Treatment in P&L a/c Total value of loss is shown on debit side Treatment in balance sheet The amount If any , due is shown on asset side

Bad debts It represent the amount due from customers, which could not be recovered Accounting treatment Adjusted entries to be passed Bad debts a/c dr To debtors a/c Treatment in P&L a/c Shown on debit side as separate item Treatment in balance sheet Shown on liability side in balance sheet by way of deduction from capital

Provision for bad debts It refers to provision created to cover the loss of possible by mean of predetermined precentage of debtors Accounting treatment adjusted entries to be passed Profit & loss a/c dr To provision of doubtful debt a/c Treatment in P&L a/c Shown on debit side as separate item Treatment in balance sheet Shown on asset side by way of deduction from debtors

Commission of manager on profit It is remunaration on basis of certain percentage of profit. Such commission may be before or after charging commission. Accounting treatment Adjusting entries to be passed Manager commission a/c dr To outstanding commission a/c Treatment in P&L a/c Shown in debit side Treatment in balance sheet Shown in liability side of balance sheet

Provision for discount on debtors It refers to discount created to provide for discount likely to good debtors Accounting treatment Adjusting entries to be passed Profit and loss a/c dr To provision to discount debtor a/c Treatment in P&L a/c Shown on debit side as separate item Treatment in balance sheet Shown on asset side by way of deduction from sundary debtors