accounting for management

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accounting for management

  1. 1. ADJUSTMENTS
  2. 2. <ul><li>The Trial Balance is a statement of ledger account balances as on a particular date (instance). </li></ul><ul><li>Final Accounting is done towards the end of the accounting period. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>The transactions which have not yet been journalized, appended to the trial balance are what we call adjustments. </li></ul>WHAT IS AN ADJUSTMENT ??
  3. 3. <ul><li>Thus we can say that Adjustments are transactions relating to the business which have not been journalized by the end of the accounting period. </li></ul><ul><li>Examples for such adjustments are </li></ul><ul><li>closing stock </li></ul><ul><li>outstanding expenses </li></ul><ul><li>depreciation of assets </li></ul><ul><li>goods send on sale or return basis </li></ul><ul><li>etc… </li></ul>
  4. 4. <ul><li>CLOSING STOCK….. </li></ul><ul><li>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. </li></ul><ul><li>Adjustment for closing stock </li></ul><ul><li>It credited to the trading a/c. </li></ul><ul><li>It is shown in the asset side of balance sheet. </li></ul><ul><li>If the closing stock is given in the trial balance, then it should be shown in the asset side of balance sheet alone. </li></ul>
  5. 5. OUSTANDING EXPENSES <ul><li>Expenses due but not have been paid. </li></ul><ul><li>Adjustment </li></ul><ul><li>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. </li></ul><ul><li>If it is given in the trial balance then it will be show as an assets in the balance sheet. </li></ul><ul><li>Entry will be </li></ul><ul><li>expenses a/c Dr </li></ul><ul><li>to outstanding expenses </li></ul>
  6. 6. PREPAID EXPENSES OR UNEXPIRED EXPENSES <ul><li>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. </li></ul><ul><li>Adjustment for prepaid expense </li></ul><ul><li>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. </li></ul><ul><li>2. If it is given in trial balance, then show in assets side of balance sheet. </li></ul><ul><li>Entry will be </li></ul><ul><li>prepaid expense a/c Dr </li></ul><ul><li>to expenses </li></ul>
  7. 7. OUTSTANDING INCOME/ACCURED INCOME <ul><li>Income due but not received </li></ul><ul><li>Adjustment </li></ul><ul><li>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. </li></ul><ul><li>2. IF it is in the trial balance then it will be show in the assets side of the balance sheet. </li></ul><ul><li>Entry will be </li></ul><ul><li>accrued income a/c Dr </li></ul><ul><li>to income </li></ul>
  8. 8. INCOME RECEIVED IN ADVANCE/UNEPIRED INCOME <ul><li>Adjustment </li></ul><ul><li>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. </li></ul><ul><li>2. If it is in the trial balance then it will be shows in the liability side of the balance sheet. </li></ul><ul><li>Entry will be </li></ul><ul><li>Income a/c Dr </li></ul><ul><li>To income receive in advance </li></ul>
  9. 9. DEPRECIATION <ul><li>Depreciation is the decrease in the value of an assets due to wear and tear, passage of time, obsolescence etc. </li></ul><ul><li>Adjustment </li></ul><ul><li>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. </li></ul><ul><li>Entry will be </li></ul><ul><li>depreciation Dr </li></ul><ul><li>to concerned assets </li></ul>
  10. 10. 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
  11. 11. <ul><li>Provision for doubtful debts </li></ul><ul><li>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. </li></ul><ul><li>It is shown in the debit side of Profit & Loss a/c. </li></ul><ul><li>It is deducted from debtors in the Balance Sheet. </li></ul><ul><li>Adjusting entry: </li></ul><ul><li>Profit & Loss a/c Dr. </li></ul><ul><li>To provision for Doubtful debts a/c </li></ul>
  12. 12. <ul><li>When the bad debts given in the trial balance and further bad debt and provision is given in the adjustment </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  13. 13. 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 credited in the P/L.
  14. 14. <ul><li>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 balance </li></ul><ul><li>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. </li></ul><ul><li>The new provision is calculated only after deducting the further bad debt from debtors. The new provision is deducted from debtors. </li></ul><ul><li>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. </li></ul>
  15. 15. <ul><li>Provision for discount on Debtors </li></ul><ul><li>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. </li></ul><ul><li>It is shown in the debit side of P/L. </li></ul><ul><li>It is deducted from debtors in the B/S. </li></ul><ul><li>Adjusting Entry: </li></ul><ul><li>Profit and Loss Account Dr. </li></ul><ul><li>To Provision for discount on debtors a/c </li></ul>
  16. 16. <ul><li>Provision for discount on creditors </li></ul><ul><li>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.’ </li></ul><ul><li>It is credited to the P/L. </li></ul><ul><li>It is deducted from creditors in the B/S. </li></ul><ul><li>Adjusting Entry: </li></ul><ul><li>Provision for discount on creditors a/c Dr. </li></ul><ul><li>To Profit & Loss a/c </li></ul>
  17. 17. <ul><li>GOODS DISTRIBUTED AS FREE SAMPLES </li></ul><ul><li>TREATEMENT </li></ul><ul><li>It is deducted from purchases in the debit side of the trading account </li></ul><ul><li>It is added to the advertisement expenses in the debit side on the P&L account </li></ul><ul><li>ENTRY </li></ul><ul><li>Advertisement A/c………dr </li></ul><ul><li>To purchases </li></ul>
  18. 18. 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 claim b) Insured stock loss and the insurance company gave full claim c) 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.
  19. 19. <ul><li>Insured stock loss and the insurance company gave partial claim </li></ul><ul><li>total is credited to the trading account </li></ul><ul><li>actual loss is debited in the P&L </li></ul><ul><li>claim amount is shown in the asset side of the balance sheet </li></ul><ul><li>Insured stock loss and the insurance company gave full claim </li></ul><ul><li>t otal loss is credited in the P&L account </li></ul><ul><li>claim amount is shown in the asset side of the balance sheet </li></ul><ul><li>Uninsured stock loss </li></ul><ul><li>total is credited to the trading account </li></ul><ul><li>actual loss is debited in the P&L </li></ul>
  20. 20. <ul><li>GOODS TAKEN BY THE PROPRIETOR FOR HIS PERSONAL USE </li></ul><ul><li>TREATEMENT </li></ul><ul><li>It should be deducted from purchases in the debit side of the trading account </li></ul><ul><li>It should be deducted from the capital account in the liability side of the balance sheet. </li></ul>
  21. 21. <ul><li>GOODS SEND ON SALE OR RETURN BASIS </li></ul><ul><li>TREATEMENT </li></ul><ul><li>The selling price is to be deducted from sales and debtors. </li></ul><ul><li>The cost price (which ever is smaller ) should be added to the closing stock </li></ul><ul><li>in the credit side of trading account and asset side of balance sheet. </li></ul>
  22. 22. <ul><li>WAGES INCLUDE ERECTION CHARGE OF MACHINERY </li></ul><ul><li>TREATEMENT </li></ul><ul><li>It is deducted from the wages in the debit side of the trading account </li></ul><ul><li>It is added to the machinery account in the asset side of the balance sheet </li></ul><ul><li>Note: if depreciation is also given, then it should be deducted from only the increased value of assets. </li></ul>
  23. 23. <ul><li>GM’S COMMISSION ON NET PROFIT </li></ul><ul><li>First calculate the notional profit which is the difference between the debits and credits in the P&L A/C excluding the commission. </li></ul><ul><li>TWO CASES </li></ul><ul><li>Commission on net profit before charging such commission </li></ul><ul><li>find notional profit * rate </li></ul><ul><li>100 </li></ul><ul><li>b) Commission on net profit after charging such commission </li></ul><ul><li>find notional profit* rate </li></ul><ul><li>100+rate </li></ul><ul><li>TREATEMENT </li></ul><ul><li>the above obtained figure should be debited in the P&L A/C </li></ul><ul><li>it should be shown as an outstanding expense in the liability side of the balance sheet </li></ul>
  24. 24. THANKYOU

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