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The Trial Balance is a statement of ledger account balances as on a particular
date (instance). Final Accounting is done towards the end of the accounting period. The trial balance that we consider in the preparation of final accounts is the one
that is prepared towards the end of the accounting period i.e. on the last day of the
accounting period. There might be a number of accounting transactions which might not have been
taken into consideration by the time the Trial Balance has been prepared. The transactions which have not yet been journalized, appended to the trial
balance are what we call adjustments.
WHAT IS AN ADJUSTMENT ??
RITESH SINGH
Thus we can say that Adjustments are transactions relating to the business
which have not been journalized by the end of the accounting period. Examples for such adjustments are closing stock outstanding expenses depreciation of assetsgoods send on sale or return basis
etc…
RITESH SINGH
CLOSING STOCK…..
a business's remaining stock at the end of an accounting period. It
includes finished products, raw materials, or work in progress and is deducted
from the period's costs in the balance sheets.
Adjustment for closing stock
a) It credited to the trading a/c.
b) It is shown in the asset side of balance sheet.
If the closing stock is given in the trial balance, then it should be shown in
the asset side of balance sheet alone.
RITESH SINGH
OUSTANDING EXPENSESOUSTANDING EXPENSESExpenses due but not have been paid. Adjustment 1. If it is given as an adjustment ,then it must be
added with corresponding expenses , and debited in P/L. and it should be show in the liability side of balance sheet.
2. If it is given in the trial balance then it will be show as an assets in the balance sheet.
Entry will be expenses a/c Dr to outstanding expenses
RITESH SINGH
PREPAID EXPENSES OR UNEXPIRED PREPAID EXPENSES OR UNEXPIRED EXPENSESEXPENSES Prepaid expenses are the expense the benefit of
which have not be fully enjoyed at the end of the accounting year. They are the expenses paid in advance or unexpired.
Adjustment for prepaid expense 1. if it is given as an adjustment then it must
be deducted from the concerned expense in the debit side. And also shows in assets side of balance sheet.
2. If it is given in trial balance, then show in assets side of balance sheet.
Entry will be prepaid expense a/c Dr to expenses
RITESH SINGH
OUTSTANDING INCOME/ACCURED OUTSTANDING INCOME/ACCURED INCOMEINCOMEIncome due but not received Adjustment1. If it is show as an adjustment then, Accrued
income is credited in P/L and also show in the assets side of the balance sheet.
2. IF it is in the trial balance then it will be show in the assets side of the balance sheet.
Entry will be accrued income a/c Dr to income
RITESH SINGH
INCOME RECEIVED IN INCOME RECEIVED IN ADVANCE/UNEPIRED INCOMEADVANCE/UNEPIRED INCOMEAdjustment 1. if unexpired income is shows as an adjustment
then it should be deducted from the corresponding income in P/L and show in the liability side of the balance sheet.
2. If it is in the trial balance then it will be shows in the liability side of the balance sheet.
Entry will beIncome a/c Dr To income receive in advance
RITESH SINGH
DEPRECIATIONDEPRECIATION Depreciation is the decrease in the value of an
assets due to wear and tear, passage of time, obsolescence etc.
Adjustment 1. since it is an expenses it should be debited in
P/L and the amount is deducted from the relevant assets in the balance sheet.
Entry will be depreciation Dr to concerned assets
RITESH SINGH
Bad Debts
Any irrecoverable portion of sundry debtors is termed as bad debts. Bad debt is a loss to the business. If it is given in the Trial balance, it should be shown on the debit side of Profit & Loss Account. Bad debts given in the adjustment is to be deducted from sundry debtors in the Balance Sheet and the same is debited to the Profit & Loss Account.
Adjusting Entry:
Bad debts Account a/c Dr To Sundry debtors a/c
RITESH SINGH
Provision for doubtful debts
It is a provision created to meet any loss, if the debtors fail to pay the whole or part of the debt is kept by them.
1.It is shown in the debit side of Profit & Loss a/c.2.It is deducted from debtors in the Balance Sheet.
Adjusting entry:
Profit & Loss a/c Dr. To provision for Doubtful debts a/c
RITESH SINGH
When the bad debts given in the trial balance and further bad debt and provision is given in the adjustment
1.The bad debts given in the trial balance is debited in the P/L and further bad debt is added with it and the same is deducted from the debtors in the B/S.
2. Provision is calculated only after deducting the further bad debt from debtors. The provision is debited in the P/L and the same amount is deducted from debtors in the B/S.
RITESH SINGH
When bad debts and provision is given in the trial balance and new provision is given in the adjustment
1. The bad debts given in the trial balance is debited in the P/L and new provision is added with it. Then the new provision is deducted from the debtors in the B/S.
2. The provision given in the trial balance is either deducted from debtors or it is debited in the P/L.
RITESH SINGH
When the bad debt and provision is given in the TB and further bad debts, new provision &provision for discount on debtors is given in the trial balance1.The bad debt is debited in the P/L and further bad debt and new provision is added with it. The further bad debt should also be deducted from debtors.
2.The new provision is calculated only after deducting the further bad debt from debtors. The new provision is deducted from debtors.
3. The provision for discount on debtors is calculated after deducting the further bad debts and new provision from debtors. It should also be deducted from debtors. RITESH SINGH
Provision for discount on Debtors
Provision for discount is a provision created to meet any loss due to allowing of discount in the next year, when the debtors of current year make prompt payment.
1.It is shown in the debit side of P/L. 2.It is deducted from debtors in the B/S.
Adjusting Entry:
Profit and Loss Account Dr. To Provision for discount on debtors a/c RITESH SINGH
Provision for discount on creditors
The provision made for discounts expected to be received in the next year from the creditors of the current year is known as ‘provision for discount on creditors.’
1.It is credited to the P/L.2.It is deducted from creditors in the B/S.
Adjusting Entry:
Provision for discount on creditors a/c Dr. To Profit & Loss a/cRITESH SINGH
Dr. Balances Rs. Cr. Balances Rs.Opening StockPurchasesSales ReturnCarriage InwardsCarriage OutwardWagesSalariesPlant & MachineryFurnitureSundry DebtorsBills ReceivablesCash in HandTravelling ExpensesLighting ( Factory)Rent & TaxesGeneral ExpensesInsuranceDrawings
20,00080,0006,0003,6008,0042,00027,50090,0008,00052,0002,5006,3003,7001,4007,20010,5001,50018,000
SalesPurchase ReturnDiscountSundry CreditorsBills PayableCapital
2,70,0004,0005,20025,0001,80075,000
3,81,000 3,81,000
From the following Trial balance of Sh. Rama Nand Sagar, prepare Trading and Profit & Loss Account for the year ended 31st December, 1993 and a balance sheet as on that date.
RITESH SINGH
Adjustment:
•Stock on 31st Dec was valued at 24,000. (Market Value is Rs.
30,000)
•Wages Outstanding for December 1993 amounted to Rs. 3,000.
•Salaries outstanding for December 1993 amounted to Rs. 2,500.
•Prepaid insurance amounted to Rs. 300.
•Provide depreciation on Plant & Machinery at 5% and on Furniture
at 20%.
RITESH SINGH
GM’S COMMISSION ON NET PROFIT
First calculate the notional profit which is the difference between the debits and credits in the P&L A/C excluding the commission.
TWO CASES
a) Commission on net profit before charging such commission find notional profit *rate 100b) Commission on net profit after charging such commission find notional profit*rate 100+rateTREATEMENT
the above obtained figure should be debited in the P&L A/C it should be shown as an outstanding expense in the liability side of the
balance sheet
RITESH SINGH
CapitalBuildingFurnitureScooterReturn inward & outwardStock on Ist Jan 1981Purchases & SalesBad-DebtsCarriage inwardGeneral ExpensesBad-Debts ProvisionBank LoanInterest on Bank LoanCommissionInsurance & TaxesScooter ExpensesSalariesCash in handDebtors & Creditors
30,0002640400023008000338003007001200
300
20002600440020003,000
25,000
1600
56040
7005000
900
8,000
97240 97240RITESH SINGH
You are required to prepare the final accounts for the year ending 31st Dec. 1981 taking into the account the following adjustments:-
•Closing stock on 31-12-1981 was valued at 4340.
•Commission includes Rs. 300 being commission received in advance.
•Salaries have been paid for 11 months.
• Bank loan has been taken at 10% p.a. interest.
•Depreciate building by 5% and Scooter by 15%.
•Write off Rs. 200 as further bad debts and maintain bad debts
provision at 5% on debtors.
RITESH SINGH
GOODS DISTRIBUTED AS FREE SAMPLES
TREATEMENT
It is deducted from purchases in the debit side of the trading account
It is added to the advertisement expenses in the debit side on the P&L account
ENTRY
Advertisement A/c………dr
To purchases
RITESH SINGH
LOSS OF STOCK
Stock loss due to any accident is termed as loss of stock. It can be divided under three heads, they are
a) Insured stock loss and the insurance company gave partial claimb) Insured stock loss and the insurance company gave full claimc) Uninsured stock loss
in any of these cases, the total loss is credited in the trading account, the actual loss is debited in the P&L account and the claimed amount is shown in the asset side of the balance sheet.
RITESH SINGH
Insured stock loss and the insurance company gave partial claim total is credited to the trading account
actual loss is debited in the P&L
claim amount is shown in the asset side of the balance sheet
Insured stock loss and the insurance company gave full claim total loss is credited in the P&L account
claim amount is shown in the asset side of the balance sheet
Uninsured stock loss
total is credited to the trading account
actual loss is debited in the P&L
RITESH SINGH
GOODS TAKEN BY THE PROPRIETOR FOR HIS PERSONAL USE
TREATEMENT
It should be deducted from purchases in the debit side of the trading account
It should be deducted from the capital account in the liability side of the balance sheet.
RITESH SINGH
GOODS SEND ON SALE OR RETURN BASIS
TREATEMENT
The selling price is to be deducted from sales and debtors.
The cost price (which ever is smaller ) should be added to the closing stock
in the credit side of trading account and asset side of balance sheet.
RITESH SINGH
WAGES INCLUDE ERECTION CHARGE OF MACHINERY
TREATEMENT
It is deducted from the wages in the debit side of the trading account
It is added to the machinery account in the asset side of the balance sheet
Note: if depreciation is also given, then it should be deducted from only the increased value of assets.
RITESH SINGH
THANKYOUTHANKYOU
RITESH SINGH
