The document discusses various adjustments that need to be made in final accounts, including expenses owing, prepaid expenses, accrued income, income received in advance, depreciation, and bad debts. Expenses owing are expenses incurred during the year but not yet paid, and are shown as a current liability. Prepaid expenses are expenses paid during the year that relate to the next year, and are shown as a current asset. Accrued income is income earned during the year but not yet received, and is added to income as a current asset. Income received in advance is income received for the next year, and is deducted from income as a current liability. Depreciation and bad debts are expenses deducted from assets.

1. ADJUSTMENT IN FINAL ACCOUNTS
Final Accounts: The trading and profit & loss account and balance sheet prepared
at the end of a year is known as Final accounts.
Adjustments: The transactions which have not yet been journalised, appended to
the trial balance are what we call adjustments.
Various Adjustment in Final Accounts:
• Expenses owing
• Prepaid expense
• Accrued income
• Income received in advance
• Depreciation
• Bad debt
• Goods drawings by the owner for his personal use
First task is to find out the two accounts involved.

2. Expenses - Outstanding/Prepaid
•these are the expenses incurred during the year but not paid in cash
•This amount will be paid in the near future (next year).
•It is shown as current liability in balance sheets.
•In two entry system:
•Debit Expenses account
•Credit Expenses owing account
Outstanding
expense:
•This is the expense paid during the year for the benefit of the next year.
•The portion of the expense which is prepaid is to be deducted from the total
expenses already paid during the year
•It is shown as current asset in the balance sheet.
•In two entry system:
•Debit Prepaid expense account and
•Credit Expense account
Prepaid
expense:

3. Incomes - Outstanding/Pre-received
•The income earned during the year but not received in cash is known as accrued income.
•The amount of accrued income is to be considered as current year’s income and added with
the concerned income received during the year
•It is shown as current asset in balance sheet.
•In double entry system:
•Debit Accrued income account and
•Credit Income account
Outstanding
Income:
(Accrued
income)
•This is the income received during the year for the services to be rendered during the next
year.
•Since this income is not related to the current year, it should be deducted from the concerned
income .
•It is shown as current liability in balance sheet.
•In double entry system:
•Debit Income account and
•Credit Income received in advance
Pre-received
Income:

4. Other Adjustments
•The part of the cost of a fixed asset that is consumed by a business during the period
of its use is known as depreciation.
•It is considered as an expense in the business therefore shown as an expense in the
profit & loss account .
•It is deducted from the cost price of the concerned fixed asset in the balance sheet.
•In double entry system:
•Debit Profit & loss account and
•Credit Depreciation account
Depreciation:
•The part of the amount of debtors which cannot be recovered is known as bad debt.
•it is known as bad debt written off and shown in the profit & loss account only.
•In the double entry system:
•Debit Bad debt account and
•Credit Debtors account
Bad debt: