class 12 account final account theory & format # adjustment of final account

Class12: Account, Chapter6, FinalAccountof Company, Prepared by PralhadSapkota, PragatiSecondarySchool Hetauda – 9, Makawanpur, Nepal
 Learning Objective:
Upon completion of this chapter, student should be
able to
:understand the meaning of final account.
:know the importance and objectives of Trading a/c, P/L a/c,
P/L appropriation a/c and balance sheet.
:prepare adjustment entry and company’s final account
Chapter 6: Final Account of a Company

6.1: Concept of Final Account (Financial Statement) of a Company
Final account is the last step of accounting cycle. It is prepared to ascertain the operating results and financial
position of a business at the end of accounting year. The final account is also known as financial statements, which
includes of retained earning and balance sheet. Income statement includes trading, profit and loss account. Income
statement provides the information about operating result of the business. Operating results indicate net profit or
net loss of the business. Statement of retained earning is also known s profit and loss appropriation account, which
provides the information about appropriation of profit. Balance sheet is the statement, which provides the
information regarding financial position.
x/]s cfly{s jif{sf] cGtdf sDkgLn] agfpg'kg]{ ljleGg vftfx¿sf] ;+u|xnfO{ clGtd vftf elgG5 . clGtd vftfn] jif{e/L
sDkgLn] u/]sf] sf/f]af/sf] kl/0ffd / sDkgLsf] cfly{s cj:yfnfO{ bzf{pF5 . o;n] Ps cfly{s jif{leq sDkgLn] slt
gfkmf cfh{g uof]{ jf gf]S;fg ;xg uof]{ ;f] bzf{pgsf ;fy} sDkgLsf] cfly{s cj:yfnfO{ klg b]vfpFb5 . clGtd vftf
cGtu{t sDkgLsf] Jofkfl/s vftf -Trading account_, gfkmf gf]S;fg vftf -Profit & loss account_, gfkmf gf]S;fg
afF8kmfF8 vftf -P/L appropriation account_, jf;nft -Balance sheet_ tyf gub k|jfx ljj/0f -Cash flow statement_
;dfj]z x'G5g .

6.2: Parts of Final Account (Financial Statement) of a Company
A. Income Statement: 1. Trading Account 2. Profit and Loss Account
B. Statement of Retained Earning (3. Profit and loss appropriation Account) C. Financial Position (4. Balance Sheet)
1. Trading Account Jofkf/ lx;fj vftf
Trading account is maintained by a trading company to find out the gross profit or gross loss as a result of the business
activities. It shows the result of buying and selling of goods for a particular period. The trading account records the amount
of purchase and also expenses relating to manufacturing of goods or expenses which are incurred in bringing the commodity
to saleable stage. All these expenses are known as direct expenses. When sales exceed the cost of goods sold, it results in
gross profit and gross loss will result in the reverse case.
s'g} lglZrt cjlwsf] dfn ;dfg vl/b ljlqmaf6 l;h{gf x'g] gfkmf gf]S;fg kQf nufpg tof/ kfl/g] vftfnfO{ Trading Account
elgG5 . o; vftfaf6 s"n gfkmf (Gross profit) jf s"n gf]S;fgL (Gross Loss) kQf nufOG5 . o; vftfsf] 8]lj6 kIf (Debit
Side) df z'? df}Hbft (Opening Stock), sRrf kbfy{ vl/b (Purchase of raw material), k|ToIf vr{x? (Direct Expenses) tyf
qm]l86 kIf (Credit Side) df ljqmL (Sales) / clGtd df}Hbft (Closing stock) b]vfOG5 . Jofkfl/s vftfsf] cfDbfgL -qm]l86_ kIfsf]
hDdf /sd vr{ -8]lj6_ kIfsf] hDdf /sdeGbf a9L ePdf 8]lj6 kIfdf gk'u x'g] /sd s'n gfkmf 7xl/G5 . eg] o;sf] ljk/Lt
glhtf cfPdf s'n gf]S;fg 7xl/G5 .

Importances / Objectives of Trading Account Jofkfl/s vftfsf] dxTj, p2]Zo tyf kmfObfx?
• It provides information about gross profit or gross loss made during a certain accounting period. Jofkfl/s
vftfsf] dfWodaf6 sDkgLn] lglZrt cjlwdf sdfPsf] s'n gfkmf jf s'n gf]S;fg lgwf{/0f ug{ ;lsG5 .
• It helps to control direct expenses as it takes into account only those expenses which are directly related to
manufacturing of products. k|ToIf vr{sf] lgoGq0fdf ;xof]u ub{5 .
• It helps to judge the profitability of the company by comparing the gross profit with sales. s'n gfkmfsf]
k|ltztsf] cfwf/df sDkgLsf] nfebfostf gfKg ;lsG5 .
• It helps to establish relationship between cost of goods sold and sales which ultimately helps to fix the selling
price of the product. s'n gfkmfsf] cfwf/df klg sDkgLsf] pTkfbg jf v/Lb tyf laqmL sfo{df /x]sf] sfo{
s'zntf yfxf kfpg ;lsG5 .

2. Profit and Loss Account gfkmf–gf]S;fg vftf
Profit and loss account is the second step in final account as it is prepared after trading account is closed. It
is prepared to ascertain the amount of net profit or net loss as a result of business operation during a
certain accounting period. It is maintained taking into account all the revenue loss, revenue gain and other
operating expenses thus showing the net result from operation during a certain period of time.
Jofkfl/s vftfsf] dfWodaf6 j:t'sf] v/Lb laqmLdf ePsf] gfkmf gf]S;fg dfq yfxf kfpg ;lsG5 . t/ o;n]
sDkgLsf] clGtd gfkmf jf gf]S;fg af/] s]xL eGg ;Sb}g lsgsL Pp6f sDkgLn] j:t' v/Lb tyf pTkfbg
sfo{sfnflu dfq vr{ ub{}g . o;n] k|zf;g, laqmL ljt/0f tyf ljQLo lqmofsnfkx?sf] nflu klg w]/} /sd vr{
u/]sf] x'G5 To;nfO{ 8]la6df To:t} o;n] j:t'sf] laqmLaf6 dfq cfDbfgL u/]sf] x'Fb}g . o;n] Aofh, ef8f, sldzg
h:tf cGo ljleGg ;|f]tx?af6 ;d]t cfDbfgL u/]sf] x'G5 To;nfO{ qm]l86df r9fO{ lglZrt cjwLsf] v'b gfkmf jf
v'b gf]S;fg yfxf kfpg gfkmf gf]S;fg vftf tof/ ul/G5 .

Importance / Objectives and Advantages of Profit and Loss Account gfkmf–gf]S;fg vftfsf] dxTj, p2]Zo tyf kmfObfx¿
 It shows the operating results of a company in terms of net profit and net loss. o;af6 v'b gfkmfsf]
?kdf Joj;fon] sdfPsf] ;kmntfsf] lgwf{/0f ug{ ;lsG5 .
 It facilitates to compare the profit of the current year with that of last year and thus helps to know
whether the company is running effectively or not. o;sf] cfwf/df ;Dk"0f{ Joj:yfkgsf] sfo{s'zntf
gfKg ;lsG5 .
 It helps in controlling indirect expenses and improving profitability. laqmL;+usf] v'b gfkmfsf] ;DaGwsf]
cfwf/df Joj;fosf] ;kmntf jf c;kmntf hfGg ;lsG5 kmn:j?k ck|ToIf vr{sf] lgoGq0f ug{ ;xof]u
ub{5 .

3. Profit and Loss Appropriation Account gfkmf–gf]S;fg afF8kmfF8 vftf
Profit and loss appropriation account is prepared after determining the net profit. It is prepared for the disposal or
distribution of net profit of a company as disclosed by the profit and loss account. It shows distribution of net profit by
way of dividends, transfer of profit to various reserves and surplus which is carried forward to balance sheet. It also
shows the adjustment for the tax and depreciation of previous year. The operating result of the company (net profit or
net loss) is transferred to the profit and loss appropriation account. Profit and loss appropriation account is prepared to
know the distribution of dividend, creation of reserve as well as bonus share. The profit and loss appropriate account is
debited by the appropriations of the company’s profit such as creations of reserves and funds, dividends and taxes paid
and credited by the company’s current year’s profit’s.
sDkgLsf] clGtd vftfsf] Ps dxTjk"0f{ ljj/0fsf] ?kdf gfkmf–gf]S;fg afF8kmfF8 vftfnfO{ lng] ul/G5 . sDkgLn]
gfkmf–gf]S;fg vftfaf6 v'b gfkmf lgwf{/0f u/]kl5 gfkmf–gf]S;fg afF8kmfF8 lx;fa vftf tof/ ub{5 . o; vftfdf
sDkgL ;~rfns ;ldltn] u/]sf lg0f{ox? h:t}M c+lzof/x?nfO{ nfef+z (Dividend) afF8kmfF8 u/]sf] / ljleGg ;l~rlt
jf ;'/lIft sf]ifx? (Reserve Funds) df 5'6ofPsf], af]gz z]o/ hf/L ePsf] cflb s'/fnfO{ ;dfj]z ul/G5 . ;fy} o;
vftfnfO{ cfly{s jif{sf] k|fjwfgx? (Provisions) / vr{x? (Expenses) nfO{ ldnfg ug{sf nflu klg tof/ ul/G5 .

Importance / objectives/ Advantages of Profit and loss appropriation account
gfkmf gf]S;fg afF8kmfF8 vftfsf dxTj tyf p2]Zox¿
 It helps to find out the total undistributed profit. o;n] Joj;fodf ePsf] cljtl/t gfkmfnfO{ kQf nufpg
d2t ub{5 .
 It provides the information about reserve and fund for future contingencies and developments. o;n] hu]8f
sf]if lgwf{/0f ug{ d2t ub{5 .
 It helps to declare dividend and bonus. o;n] nfef+z / af]g; lgwf{/0f ug{ d2t ub{5 .
 It helps to re-adjust tax and depreciation of the previous year. o;n] ut jif{sf] s/ / xf;s§Lsf] ;dfof]hg
ug{ d2t ub{5 .

4. Balance Sheet jf;nft
A balance sheet is a statement prepared to know the financial position of a company at a given date. It is a mirror
which reflects the true position of the assets and liabilities on a particular date. So balance sheet is also known as
statement of financial position. It is prepared after completing the preparation of trading, profit and loss account and profit
and loss appropriation account at the end of an accounting period. Thus, balance sheet is the statement of assets, liabilities
and equities of a company, disclosed at the end of the year.
s'g} klg sDkgLsf] Pp6f lglZrt ldlt;Dd ePsf] ;DklQ (Assets) / bfloTj (Liabilities) sf] ljj/0fnfO{ jf;nft elgG5 . of]
n]vf cjlw jf cfly{s jif{sf] cGTodf tof/ kfl/G5 . jf;nftn] sDkgLsf] ljQLo l:yltnfO{ ;f/f+zdf k|:t't ub{5 . o;sf] Psflt/
sDkgLsf] xs–clwsf/ /x]sf ;DklQx? tyf csf]{lt/ c+lzof/ tyf afXo kIfnfO{ ltg'{kg]{ bfloTjx? /xg] ePsf]n] jf;nftsf]
dfWodaf6 sDkgLsf] cfly{s l:ylt (Financial Position) af/] yfxf kfpg ;lsG5 . jf;nftnfO{ ;|f]t ;+sng tyf pkof]usf] ljj/0f
kqsf] ?kdf klg JofVof ug{ ;lsG5 . lsgeg] o;sf] bfloTj kIfn] s'g–s'g ;|f]taf6 s]–slt /sd ;+sng eof] / ;DklQ kIfn]
;+slnt /sd sxfF s;/L pkof]u eof] egL hgfPsf] x'G5 .

Importance and objectives of balance sheet jf;nftsf] dxTj tyf p2]Zox¿
 It helps to know the financial position reflecting true and fair view of assets and liabilities. o;af6
Joj;fosf] jf:tljs ;DklQ tyf bfloTjsf] af/]df kQf nufpg ;lsG5 .
 It helps to judge the debt paying capability of the company. Joj;fon] aflx/af6 C0f lng'k/]df o;n]
d2t ub{5 .
 It helps to show the nature and value of all assets. Joj;fo a]Rg'k/]sf] v08df Joj;fosf] laqmL d"No
kQf nufpg ;lsG5 .
 It helps to determine purchase consideration of the company. o;af6 Joj;fosf] cf;fdL tyf ;fx'
kQf nufpg ;lsG5 .
 It helps to know about capital, owner’s equity and borrowed capital in detail, including authorized,
issued, subscribed, called up and paid up capital. o;af6 sDkgL Joj;fosf] k'FhLsf] ;+/rgfaf/] kQf
nufpg ;lsG5 .

Assignment:
1. What do you mean by final Account?
2. What is trading account? Mention the objectives of trading account.
3. What is profit and loss account? Mention the objectives of profit and loss account.
4. What is profit and loss appropriation account? Mention the objectives of
profit and loss appropriation account.
5. What is balance sheet? Mention the objectives of balance sheet.

6.3: Preparation of trading account:
Particulars Rs. Particulars Rs.
To Opening Stock/ Beginning Inventory …………………………………………………
To Purchases …………………………………………………………………………………….. xxx
Less: Purchasereturn/ret. outward/ ret. to suppliers/ret. to creditors xx
To Carriage/carriage inward/carriage on purchase.………………..............................
To Freight/freight inward/ freight on purchase ………………………………………………….
To Wages / wages and salary/ productive wages …………………………. …… xxx
Less: Prepaid wages(given in additional information)…………………….. ……. xx
or Add: Outstanding wages ( given in additional information)………….. ……….. xx
To Store expenses/consumable store / primary packing expenses....................
To Royalties …………………..……………………………………………………………………... ………
To Custom duty /excise duty/ import duty ………………………………………………………….
To Fuel/octroi/coolie & cartage/gas/power/duckcharge/coal & coke…………..
To Clearing charge/municipal charge …………………………………………………………………
To Manufacturing/production/factory expenses………………………………………………..
To lighting & heating ………………………………………………………………………………………………
To other direct expenses ………………………………………………………………………………………..
To Gross profit c/d (If total amount of cr side exceeds than Dr side)
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
By Sales/Service Revenue ………………………….. xxx
Less: Sales return/ret. inward/ret. from
customers/ ret. from debtors ………. …… xx
By Goods lost by fire or accidentor thief (given in
additional information)
By Closing stock/Ending inventory (given in
additional information , If cost price & market
price is given, posting which ever is less)
By To Gross loss c/d (If total amount of Dr side
exceeds than Cr side)
xxx
xxx
xxx
xxx
xxx
a. Trading Account of ……….
For the year ending ……….Dr. Cr.

6.4: Preparation of Profit and loss account: b. Profit and loss Account of ……….

General points of additional information (AI) to be rememberwhile preparingP/L account:
Prepaid Expenses (Example 1: Prepaid or advancesalaries)
To Salaries …………………… xxx
Less: Prepaid salaries (AI) xxC xxx
Outstanding Expenses (Example 2: Outstandingor rent due)
To Rent ………………….. xxx
Less: outstanding rent(AI) xx xxx
Advance income(Example 3: Advance commission incomeor unearned commission)
By Commission income ….. xxx
Less: Advance commission (AI) xx xxx
Accruedincome (Example 4: Accruedinterest on investment or interest earned but not received)
By Interest income ….. ……. xxx
Add: Accrued interest (AI) xx xxx
Example 5: Bad debt and provision for bad debt
To Bad debt (TB)………………….... xxx
Add: Bad debt (AI)…………………… xx
Add: Provision for bad debt (AI) xx xxx

6.5: Preparation of Profit and loss appropriation account:
c. Profit and loss Appropriation Account of ……….
Particulars. Rs. Particulars Rs.
To Balance b/d (Last year’s loss given in Dr side of trial balance)
To Net loss b/d ( From P/L account)
To Transfer to general reserve & fund (given in additional information only)
To Dividend:
Cash dividend
Stock dividend/bonus share
Interim dividend
ProposedDividend {If given in AI in %: (Sharecapital-calls in arears)x%}
To Preference dividend
To Tax paid (Last year’s)
To Balance c/d (Surplus: if total amountof Cr side is excess than Dr side)
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
By Balanceb/d (Last year’s profit given in cr side
of trial balance)
By Net profit b/d (From P/L account)
By Provision for tax (Last year’s)
By Balancec/d (Deficit: if total amountof Dr side is
excess than Cr side)
xxx
xxx
xxx
xxx
xxx

6.6: Preparation of Balance Sheet: Simple format of balance sheet under Marshalling order
d. Balance Sheet of ………. Company ltd.
As on 31st …….……….
Capital & Liabilities Rs. Assets & Properties Rs.
1. Share Capital:-
i. Authorized capital….
ii. Issued Capital …..
iii. Subscribed Capital …..
iv. Called up capital ……
v. Paid up capital ……
2. Reserve and Surplus:
P/L appropriation a/c (Cr: Surplus) …
and other ………………………………….
3. Secured Loan:
4. Unsecured Loan:
5. Current Liabilities and Provision:-
i. Current Liabilities:
ii. Provision:
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxxx
1. Fixed Assets:
2. Investment:
3. Current Assets:
4. Loans and Advances:
5. Miscellaneous Expenses:
6. P/L appropriation a/c ( Dr: Deficit))
xxx
xxx
xxx
xxx
xxx
xxxx

/Fictitious Assets

Assignment:
1. Do the copy of following:
a. Format of Trading Account
b. Format of Profit and Loss Account
b. Format of Profit and Loss Appropriation account
c. Format of Balance sheet in marshalling order
2. Solve the simple problem from illustration 1 to 6
3. Solve the starting problem from 1 to 5
4. Consider the posting method of the additional information

6.7: Adjustment /Additional Information
The transaction that does not appear in a ledger account is to be noted as adjustments. Those
financial transaction not included in the concerned ledger account are mentioned separately as
adjustments after the preparation of trial balance.
Every adjustment has a dual effect. The duel effects are recorded either in:
 Trading account and balance sheet or
 Profit & loss and balance sheet or
 Profit & loss appropriation account and balance sheet or
 Trading account and Profit & loss account or
 Trading, P/L and balance sheet. (one adjustment: Goods lost and partial claim made by
insurance company)

1. Closing stock / Ending Inventory/ Finished or unused goods
The unsold parts of the goods remaining in the store at the end of the accounting year is called closing stock. The closing stock is valued
at cost price or market price whichever is less. The entry of closing stock is closing entry and it should be closed by transferring into
trading account. Adjustment entry in the book of ……
Date Particulars LF Debit Rs. Credit Rs.
Closing Stock a/c .………………………..Dr
To Trading a/c or income statement a/c
(Being closing stock adjusted)
xxx
xxx
Balance Sheet of …… company ltd.
As on 31st ……
Capital & Liabilities Rs. Assets Rs.
3. Current Assets:
Closing stock xxx
If closing stock is
given in trial
balance, it should be
shown in current
assets of balance
sheet only
Trading Account of ………….. Company ltd.
Dr. For the year ended31st …… Cr.
By Closing Stock xxx

2. Outstanding expenses/Expenses due/Expenses payable/Accrued expenses/Unpaid expenses/Exp. to be paid
Expenses incurred but not yet paid are called outstanding expenses. These are the obligations of the company. Therefore, they are
shown on the debit side of trading or profit and loss account and on the liabilities side of the balance sheet by passing the following
adjustment entry: Adjustment entry in the book of ……
Name of related expenses a/c …………… Dr.
To Name of outstandingexpenses a/c
(Being outstandingexpenses adjusted in related exp.)
xxx
xxx
As on 31st ……
5.i. Current Liabilities:
Outstanding expenses xxx
If outstanding expenses
is given in trial
shown in current
liabilities of balance
sheet only
Trading or P/L Account of ………….. Company ltd.
Dr. For the year ended 31st …… Cr.
To Related expenses xxx
Add: Outstanding ……exp. xxx xxx

3. Prepaid expenses/Advance Expenses/Unexpired Expenses/Expenses paid in advance
Prepaid expenses represent the expenses paid in advance for the next accounting period. In other words, it is the unused part of
expenses paid in current year, the remaining of which will be consumed in the next accounting period. It is not actual expenses for
current year. Adjustment entry in the book of ……
Name of prepaid expensesa/c ……….…………… Dr.
To Name of related expensesa/c
(Being prepaid expenses adjustedin related expenses)
xxx
xxx
As on 31st ……
3. Current Assets: ii. Loan & Advance:
Prepaid expenses xxx
If prepaid expenses is
given in trial balance, it
should be shown in
current assets of
balance sheet only
To Related expenses xxx
Less: Prepaid …………exp. xxx xxx

4. Prepaid expenses expired /Advance expenses expired
If prepaid expenses expired, it is actual expenses for current year it must shown in current year’s transaction. If it is given in
adjustment, following entries is made: Adjustment entry in the book of ……
Name of related expenses expired a/c ….…………… Dr.
To Name of related prepaid expenses a/c
(Being prepaid expenses expired adjusted )
xxx
xxx
As on 31st ……
3. Current Assets: ii. Loan & Advance:
Related Prepaid expenses xxx
Less: Expired prepaid…….expenses xxx xxx
If prepaid expenses
expired is given in trial
shown in debit side of
Trading or P/L account
only
To ........expenses (expired) xxx
Unexpired
expenses

5. Accrued/Outstanding income/income due/income receivable/Income earned but not yet received
Income earned but not yet received is called accrued income such as commission earned but not received. It is deducted from the head
of income account on the credit side of profit and loss account and shown on the asset side of the balance sheet by passing the following
adjustment entry is: Adjustment entry in the book of ……
Name of accrued income a/c …… ….…………… Dr.
To Name of related incomea/c
(Being accruedincome adjusted in related income)
xxx
xxx
As on 31st ……
3. Current Assets:
Accrued income xxx
If accrued income is
should be shown in
current assets of
balance sheet only.
P/L Account of ………….. Company ltd.
By Related …………..Income xxx
Add: Accrued income xxx xxx

6. Advance income/Unearned income/Income received in advance: The income, which is not yet earned but received in
advance, is called unearned income or income received-in-advance. Such an income received in advance is deducted from the
concerned income account on the credit side of profit and loss account and shown as liability on the liability side of the balance
sheet by passing the following adjustment entry: Adjustment entry in the book of ……
Name of related income a/c …… ….…………… Dr.
To Name of advance incomea/c
(Being advance incomeadjustedin related income)
xxx
xxx
As on 31st ……
5.i. Current liabilities:
Advance income xxx
If advance income is
should be shown in
current liabilities of
balance sheet only.
By Related …………..Income xxx
Less: Accruedincome xxx xxx

7. Advance income earned/Earned income earned:
Advance income during the accounting period may be given in T/B and form advance some amount is earned during the period that
amount is actual income for current year. Adjustment entry in the book of ……
Name of related advance income a/c ….…………… Dr.
To Name of related advance income earned a/c
(Being advance incomeearned adjusted)
xxx
xxx
As on 31st ……
5.i. Current liabilities:
Advance income xxx
Less: Earned Income xxx xxx
If Earned advance
income is given in trial
shown in credit side of
P/L account only.
By Earned Income xxx
Unearned
income

8. Depreciation:
Depreciation is the decline in the value of fixed assets particularly due to their wear and tear. In case a fixed asset is to be depreciated based
on additional information given outside the trial balance, the amount of depreciation of the concerned fixed asset should be shown separately
on the debit side of the company’s profit and loss after deducting from the concerned fixed asset on the asset side of the balance sheet by
passing the following adjustment entry: Adjustment entry in the book of ……
Depreciation a/c ….…………… Dr.
To Name of related fixed asset a/c
(Being depreciation amount adjusted to related asset)
xxx
xxx
As on 31st ……
1. Fixed Assets:
Related fixed assets xxx
Less: Depreciation on ……… asset xxx xxx
If depreciation is given
in trial balance, it
should be shown in
debit side of P/L
account only.
To Depreciation on ……asset xxx

9. Appreciation:
Appreciation is the increase in the value of fixed assets due to increasing in market value. In case of fixed asset is to be appreciated based on
additional information given outside the trial balance, the amount of appreciation of the concerned fixed asset should be shown separately in
the credit side of the company’s profit and loss account after adding from the concerned fixed asset on the asset side of the balance sheet by
passing the following adjustment entry: Adjustment entry in the book of ……
Name of related fixed asset a/c ….…………… Dr.
To Appreciation
(Being appriciation amount adjusted in related asset)
xxx
xxx
As on 31st ……
1. Fixed Assets:
Related assets xxx
Add: Appreciation on ……… asset xxx xxx
If appreciation is given
in trial balance, it
should be shown in
credit side of P/L
account only.
By appreciation on …….. asset xxx

10. Provision for dividend/proposed dividend:
The amount of profits that is distributed to shareholders as return in their investment is called dividend. Dividend is an appropriation of profits
earned by a joint stock company. The dividend is to be paid out of the company’s profit for the year. Therefore, the BOD of the company may
provide or propose for some dividends and which will be paid out of the shareholders after some time.:
Adjustment entry in the book of ……
P/L appropriation or statement of retained a/c. ….… Dr.
To proposed dividend/provision for dividend a/c
(Being proposed dividend adjusted)
xxx
xxx
As on 31st ……
5.ii.Provision:
Proposed dividend xxx
If proposed
dividend
is given in trial
balance, it should
be shown in
provision as
current liabilities
& provision of
balance sheet
only.
P/L appropriation Account of ………….. Company ltd.
To Proposed dividend xxx
*If provision for
dividend is given in
percentage:
*Proposed dividend=(Called up share capital- calls in arrears)x%

Assignment:

11. Amortization/ Intangible assets written off:
Amortization is reducing the value of some intangible and fictitious assets such as goodwill, patents, trade mark, preliminary expenses,
underwriting commission, discount on issue of shares and premium on the redemption of debentures. These assets are reduced every
year by some amount till they are fully written-off or amortization. Adjustment entry in the book of ……
………….written off a/c ….…………… Dr.
To Name of related …………asset a/c
(Being fictitious/intangible assets written off adjusted)
xxx
xxx
As on 31st ……
1. Fixed Assets:
Related ……… assets xxx
Less: …….assets written off xxx
4. Misc. exp.: ……..assets xxx
Less : ………written off xxx
Xxx
xxx
If amortization or
intangible/fictitious
assets written off is
should be shown in
debit side of P/L
account only.
To …….assets written off xxx

12. Reserve/ fund & surplus/ Transfer to general reserve/ Transfer to capital reserve:
Reserve and surplus are also the appropriate of profits of a join stock company. They are created out of the company’s profits for the meeting if future
contingencies and development needs. In case of creating reserve and surplus, the amount of such reserve and surplus are shown on the debit side of
the company’s profit and loss appropriation account and on the liabilities side of the balance sheet by passing the followingadjustment entry:
P/L appropriation a/c ………….….…………… Dr.
To …………………. reserve or fund a/c
(Being provision transfer to …………..reserve adjusted)
xxx
xxx
As on 31st ……
2. Reserve & Surplus:
Related reserve or fund xxx
Add: Transfer to …reserve
or fund xxx xxx
If reserve and fund is
should be shown in
liabilities side of
balance sheet under
the head of reserve
and surplus only.
P/L appropriation account of ………….. Company ltd.
To ………….reserve or fund xxx

13. Bad debt to be written off and provision or reserve for bad & doubtful debt (New): Bad debts are default of the amount
receivable on account of credit sales. A debtor who has become insolvent will find nothing to pay an amount of credit sale to him from
his estate. The amount receivable from such debtor is treated as bad debt and is, therefore, deducted from sundry debtors and shown
on the debit side of the company’s profit and loss account as a bad debt.
In some instance, a further bad debt may occur and further provision for bad debt and doubtful debts may be set aside out of sundry
debtors considering the additional information given outside the trial balance. Adjustment entry in the book of ……
1. Bad debt written off a/c ….…………… Dr.
To Sundry Debtor or book debts or customers a/c
(Being bad debt written off adjusted)
xxx
xxx
2. Provision for doubtful debt a/c ….…………… Dr.
To Sundry Debtor or book debts or customers a/c
xxx
xxx
Or for
both
Profit and loss a/c ….…………… Dr.
To bad debt a/c
To provision for bad debt a/c
xxx
xxx
xxx

As on 31st ……
3.i. Current Assets:
Debtors/receivable/book debts xxx
Less: New bad debts (AI) xxx
xxx
Less: New provision for bad debt(AI)xxx
Xxx
xxx
To Bad debt (TB) xxx
Add: New bad debt (AI) xxx
Add: New provision for
bad debt xxx xxx
If bad debt written off is
should be shown in debit
side of P/L account only.
It is say as old bad dabt.
New Provision = (Debtors - new bad debt) x %
If provision or reserve of
bad and doubtful debt is
should be shown in credit
side of P/L account only.
It is say as old bad
provision .

14. Provision for tax: For every amount of income earned by a joint stock company, it has to pay tax to government. Therefore,
tax is charged against the company’s profits of the current year. For the payment of tax, the company should create a provision, which
is called provision for tax. Date Particulars LF Debit Rs. Credit Rs.
Profit and Loss a/c ………….….…………… Dr.
To Provision for tax a/c
(Being provision for tax for the current year adjusted)
xxx
xxx
As on 31st ……
5.ii. Provision:
Provision for taxation xxx
If Provision for tax is given
in Cr side of trial balance
but but tax paid is not given
in Dr side of trial balance , it
should be shown in liabilities
side of balance sheet under
the head of provision.
P/L account of ………….. Company ltd.
To Provision for tax xxx
Total creditedamount of P/L a/c xxx
Less: Total debited amount before provision for tax xxx
Profit before tax ………………………………………… xxx
Provision for tax = profit before tax x given tax rate %
If provision for
tax is in
percentage
(Tax rate)

15. Goods lost and insurance claim thereof:
A joint stock company insures its stock of goods from some insurance company to get it protected from unforeseen future loss such as
goods damaged by fire, accident or loss by theft.
a. Full acceptance of claim:
In casethe loss of goods occurs and insurance company fully accepts the claim, the amount of loss should be deducted from purchaseson the debit
side of the company’s trading account and the amount of claim fully accepted by insurance company.
Date Particulars LF Dr. Rs.Cr. Rs.
Insurance company a/c ………….….…… Dr.
To Purchasea/c
(Being full acceptanceof claim adjusted by insurance company)
xxx
xxx
If goods lost by……………is given in trial balance, it
should be shown in dr side of side of trading account
as deducting from purchase or cr side of trading
account only.
Trading account of ………….. Company ltd.
To Purchase xxx
Less: goods lost xxx xxx
Or
By goods lost by…….. xxx
Balance Sheetof …… company ltd.
As on 31st ……
Capital& Liabilities Rs. Assets Rs.
Insurance company xxx

b. No acceptance of claim
In casethe loss of goods occurs but insurancecompanydoes not accept the claim at all, the amount of loss should be deducted from purchaseson
the debit side of the company’s trading profit. Adjustment entry in the book of ……
Goods lost by……… a/c ………….….…… Dr.
To Purchase a/c
(Being goods lost by …………adjusted)
xxx
xxx
To Purchase xxx
Profit and Loss account of ………….. Company ltd.
To goods lost by ………………… xxx

c. Partial acceptance of claim:
In case of loss of goods occurs but insurance company partially accepts the claim, whole amount of loss should be deducted from purchases on
the debit side of the company’s trading account, and the partial amount of claim accepted by insurance company should be shown separately in
the name of the insurance company on the assets side of the balance sheet and the amount of claim not accepted by the insurance company.
Date Particulars LF Dr. Rs.Cr. Rs.
Insurance company a/c …… Dr. (claim admitted amt.)
Goods lost by……. a/c ……… Dr. (claim not admitted amt.)
To Purchasea/c ( full lost/destroyed amount)
(Being partial acceptanceof claim adjustedby insurance
company)
xxx
xxx
xxx
To Purchase xxx
Or
By goods lost by…….. xxx
Balance Sheetof …… company ltd.
As on 31st ……
Capital& Liabilities Rs. Assets Rs.
Insurance company
( claim admitted amoint)
xxx
P/L account of ………….. Company ltd.
To goods lost by….
( not claimed amount)
xxx

16. Hidden adjustment
Hidden adjustment are those adjustments, which are not clearly given , in additional information. It should be find out inside the trial
balance sheet. It is called hidden because it can not be seen at once.
Example: Some information of trial balance: Particulars LF Dr. Rs. Cr. Rs.
1. 10 % debenture 100,000
2. 12%loan 200,000
3. 5% bond 150,000
4. 15% investment 300,000
5. 20%investment 400,000
6. 7% Investment 500,000
7. Interest on debenture 11,000
8. Interest on loan 20,000
9. Interest on bond 7,500
10. Interest on 15% investment 45,000
11. Interest on 20% investment 85,000
12 Interest on 7% investment 30,000

Profit and Loss account of ………….. Companyltd.
To interest on debenture 11,000
Less: Prepaid interest 1,000 10,000
As on 31st ……
3. Secured Loans:
10% debenture 100,000
3. ii. Loan and advances:
Prepaid interest 1000
Particulars LF Dr. Rs. Cr. Rs.
10 % debenture 100,000
Interest on debenture 11,000
Example: 1 :Trial balance
Solution

To interest on loan 20,000
Add: Outstanding interest 4,000 24,000
As on 31st ……
3. Secured Loans:
12% Loan
Outstanding interest
200,000
4,000
12 % Loan 200,000
Interest on loan 20,000
Solution

To interest on bond 7,500
As on 31st ……
3. Secured Loans:
5% bond 150,000
5% bond 150,000
Interest on bond 7,500
Solution

By interest on 15% investment 45,000
As on 31st ……
2. Investment:
15% Investment 300,000
15% investment 300,000
Interest on 15% investment 45,000
Solution

Less: Advance interest income 5,000 80,000
As on 31st ……
Advance interest income 5000
2. Investment:
20% investment 400,000
Interest on 20%investment 85,000
Solution

Add: Accrued interest income 5,000 35,000
Balance Sheet of …… Company ltd.
As on 31st ……
2. Investment:
20% Investment
3. i. Current Assets:
Accrued interest on investment
500,000
5,000
Interest on 7% investment 30,000
Example: 6 :Trial Balance
Solution

Thank you

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