for CA students

1. ADJUSTMENTSADJUSTMENTS
-RITESH SINGH
riteshsingh197@outlook.com
RITESH SINGH

2. 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

3. 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 assets
goods send on sale or return basis
etc…
RITESH SINGH

4. 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

5. OUSTANDING EXPENSESOUSTANDING EXPENSES
Expenses 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

6. PREPAID EXPENSES OR UNEXPIREDPREPAID 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

7. OUTSTANDING INCOME/ACCUREDOUTSTANDING INCOME/ACCURED
INCOMEINCOME
Income due but not received
Adjustment
1.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

8. INCOME RECEIVED ININCOME RECEIVED IN
ADVANCE/UNEPIRED INCOMEADVANCE/UNEPIRED INCOME
Adjustment
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 be
Income a/c Dr
To income receive in advance
RITESH SINGH

9. 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

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
RITESH SINGH

11. 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

12. 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

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 debited in the P/L.
RITESH SINGH

14. 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
1.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

15. 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

16. 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

17. Dr. Balances Rs. Cr. Balances Rs.
Opening Stock
Purchases
Sales Return
Carriage Inwards
Carriage Outward
Wages
Salaries
Plant & Machinery
Furniture
Sundry Debtors
Bills Receivables
Cash in Hand
Travelling Expenses
Lighting ( Factory)
Rent & Taxes
General Expenses
Insurance
Drawings
20,000
80,000
6,000
3,600
8,00
42,000
27,500
90,000
8,000
52,000
2,500
6,300
3,700
1,400
7,200
10,500
1,500
18,000
Sales
Purchase Return
Discount
Sundry Creditors
Bills Payable
Capital
2,70,000
4,000
5,200
25,000
1,800
75,000
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

18. 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

19. 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
100
b) Commission on net profit after charging such commission
find notional profit*rate
100+rate
TREATEMENT
 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

20. Capital
Building
Furniture
Scooter
Return inward & outward
Stock on Ist Jan 1981
Purchases & Sales
Bad-Debts
Carriage inward
General Expenses
Bad-Debts Provision
Bank Loan
Interest on Bank Loan
Commission
Insurance & Taxes
Scooter Expenses
Salaries
Cash in hand
Debtors & Creditors
30,000
2640
4000
2300
8000
33800
300
700
1200
300
2000
2600
4400
2000
3,000
25,000
1600
56040
700
5000
900
8,000
97240 97240
RITESH SINGH

21. 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

22. 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

23. 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.
RITESH SINGH

24. 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

25. 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

26. 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

27. 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

28. THANKYOUTHANKYOU
RITESH SINGH