Final Accounts

Adjustments

Adjustments
Items (Additional information) which is yet
to be recorded in the books of accounts.
Arises because of:
To do alteration in the existing items which
appears in Trial Balance.
To add as a new item in the Financial
Statement.

 Determining the amount of revenues and

expenses to be reported in a given
accounting period.
For this Matching concepts and Revenue
recognition principles is adopted.
Revenues are recognized in the
accounting period in which it is earned.
Expenses recognized when it is incurred.

 Items appeared in Trial Balance are transferred

from Ledger Accounts. (Already recorded in Two
Accounts)
Additional information are to be directly entered
in the Financial Statement, so each entry should
have two effects or two entry or in two places.
Some of the Additional information's are:

Closing stock
It represents the unsold stock at the end
of the year.
Two effects:
Recorded in Trading Account Credit Side.
An Assets for the company so show it in
Assets side.

Outstanding expenses or Expenses

due but not paid
Expenses relating to a particular period
may not have been paid in that accounting
period.
Due for payment in one accounting year
but actually paid in future accounting
years.

Two Effects
Outstanding expenses will be Added with
concern expenses .
Direct Expenses: Trading accounts debit
side
Indirect nature Profit and Loss Account
Debit side.
It will be the current liability so it will go to
the liability side of balance sheet.

Advance expenses or Prepaid

Benefit of some of the expenses spent will
be available in the next accounting year
also.
Such a portion of the expense is called
pre-paid expense.
Related to future periods

Two Effects
It will deduct from respective expenses
paid .
It will be the current asset so it will go to
assets side of balance sheet

Income receivable or Outstanding

There may be certain incomes which have
been earned during the year but not yet
received till the end of the year.
It will be added with the income - credit side
of Profit and loss account.
Shown as asset in the assets side of
Balance sheet

Income Received In Advance

Received certain amounts during a particular
trading period which are to be earned by
them in future periods.
Such incomes though actually received and
therefore, recorded.

Two Effects
It will deduct from the Income received
item.
Shown as liability in the liabilities side of
balance sheet

Goods use for personal use

It will deduct from purchase in the debit
side of trading account = purchase
drawing in goods.
It will deduct from capital in the liabilities
side of balance sheet=capital- drawing in
goods

Depreciation
The value of fixed assets diminishes gradually
with their use for business purposes.
Indirect Expenses - Debit side of Profit and loss
account.
Decrease the value of asset - deduct from fixed
asset .
Fixed asset depreciation amount.

Interest on Capital
Interest paid by company to the owners for
investment.
Expense for the business on one hand
and income to the proprietor on the other
hand.
Interest on capital - An expense which is
debited to Profit and loss account.
Same amount of interest on capital is
added to capital (Liabilities).

Interest on Drawings
Business charges interest from owners on
drawings made by them.
Interest charged is an Income for the
business Profit and Loss account Credit
side.
Deducted from the capital as it reduces.

Bad Debts
Debts which cannot be recovered from our
Debtors.
Expenses- shown in the Profit and Loss
account debit side.
Deduct for Sundry Debtors Asset side.

Provision for Doubtful Debts

Provision is created for the doubtful amount
which liable to receive from Debtors.
Two Effects
Deduct from Sundry Debtors amount after
deducting Bad debts
Show Under Profit and Loss account debit
side

Provision for Discount on Debtors

Credit sales amount may realized in next
accounting year.
For prompt payment discount is allowed,
so provision is created.
Amount derived after deducting Bad
Debts.

Two Effects
Deduct from the good debtors balance
shown on Balance sheet Assets side.
That is (Sundry Debtors Bad DebtsProvision for doubtful debts)
Indirect expenses- Profit and Loss account
Debit side.

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