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2. Accrual Basis Cash Basis
Revenues are
recognised when
earned and
expenses are
recognised when
incurred
Revenues are
recognised when
cash is received
and expenses
recorded when
cash is paid
Not GAAP

3.  Insurance Premium of Rs. 12000 paid to
Oriental Insurance company covering risk due
to fire on 30.06.13 for the whole year.

4.  The Matching Principle
The Matching Principle states that
we should attempt to match the
expenses to the same periods in
which they helped to create
revenue.

5.  An Adjusting Entry is a type of Journal Entry.
 IT is recorded to
a) Bring an asset or liability account balance to its
proper amount AND
b) To recognise a revenue or expense.

6.  AJE’s are made on the last
day of accounting period
 The cash account is never a
part of the AJEs.

7. 

8.  In order that the Profit and loss
Account may show the true
profit or loss made in the
business and the Balance Sheet
may give a true and fair view of
the state of affairs of the
business, AJEs are made.

9. Sr.no Type of AJEs Journal Entry
1. Expenses incurred but not paid-
Expenses outstanding
Expenses A/c dr. xx
To Expenses
0utstanding/unpaid/payables
A/c xx
2. Expenses paid in advance-
Prepaid expenses
Prepaid expenseA/c dr. xx
To Expense A/c xx
3. Incomes due but not received-
Income outstanding
Income Outstanding A/c dr. xx
To Income A/c xx
4. Income received in advance-
Pre-received income
Income A/c dr.xx
To Income received in adv a/c xx
5. Closing Stock Closing Stock A/c dr.xx
To Trading A/c xx
6. Depreciation Depreciation A/c dr.xx
To Asset A/c xx
7. Bad debts Bad debts A/c dr. xx
To Debtors A/c xx
8. Provision for Bad debts on debtors

10.  Rent for the month of March 2013 of Scott
Company Rs. 10000 paid in April 2013
 On 31.03.2013
Rent A/c dr. 10000
To Rent Payable A/c 10000

11.  On 01.12.2012, Scott Company paid insurance
premium of Rs. 12,000 for next 6 months. What
are the journal entries passed on 01.12.2012 and
31.03.2013.
 On 01.12.2012 –
Insurance Premium A/c dr.12000
To Cash/Bank A/c 12000
 On 30.03.2013
Prepaid Insurance Premium A/c dr. 4000
To Insurance Premium A/c 4000

12.  On 31.03.2013, Commission of Rs. 25000 yet to
be received.
 On 31.03.2013
Commission Receivable A/c dr. 25000
To Commission A/c 25000

13.  On 1.01.2013, Interest received Rs. 60000 for six
months ending on 30.06.2013
 On 31.03.2013
Interest A/c dr. 30000
To Interest received in advance A/c 30000

14.  During 2012, Scott Company purchased goods
worth Rs. 50,000. The company recorded this as
expenditure for the year. On 31.03.2013 the
company’s account shows a balance of
Rs.10,000 goods on hand.
What adjustment is required ?
Closing Stock A/c dr. 10000
To Trading A/c 10000

15.  Depreciation is spreading the value of asset
over its useful life / according to its usage.
 Exception Land
 Purchased a machinery for Rs.50000 on
01.04.2012, estimated life 10 years
 On 01.04.2012
Machinery A/c dr.50000
To Cash/Bank A/c 50000
 On 31.03.2013
Depreciation A/c dr. 5000
To Machine A/c 5000