final accounts adjustments

1. ADJUSTMENTS OF
FINALACCOUNTS

2. PROVISION FOR DISCOUNT ON
DEBTORS
▶ It is calculated at a certain percentage on good debtors.
▶ No discount is allowed on doubtful debtors.
▶The aim is to provide a certain amount for allowing discount
to customers for prompt payment.
▶It is shown as a deduction from good debtors on the asset
side of balance sheet and is debited to profit & loss account.

3. xxx
▶ The adjustment entry is;
Profit & LossA/c Dr
To provision for discount on debtorsA/c xxx

4. PROVISION FOR DISCOUNT ON
CREDITORS
▶ It is offered for prompt payment by the firm.
▶It is calculated at a certain percentage on sundry
creditors.
▶It is shown as a deduction from sundry creditors on
liabilities side of balance sheet and is credited to profit
& loss account.

5. Dr xxx
▶ The adjustment entry is;
provision for discount on creditorsA/c
To Profit & LossA/c xxx

6. LOSS OF STOCK BY ACCIDENT,
FIRE,ETC.
▶ Stock of goods destroyed due to abnormal causes may be treated
as abnormal loss.
▶ There are 2 different cases,
1. If there is no insurance, then the entire stock lost should be
treated as abnormal loss.
Dr xxx
▶ The adjustment entry is;
Abnormal lossA/c
To TradingA/c xxx

7. ▶As there is no recovery, then the abnormal loss has to be
closed.
▶ The adjustment entry for this is;
Profit & LossA/c Dr xxx
ToAbnormal lossA/c xxx

8. 2. If there is insurance, amount recoverable from the
insurance company has to be debited to insurance company
and the balance of abnormal loss is written off to profit &
loss account.
▶ The adjustment entry is;
Dr xxx
xxx
Profit & LossA/c
Insurance companyA/c
ToAbnormal lossA/c xxx

9. Outstanding Expenses
These are certain expenses which relate to a particular accounting
period but they are not paid in that accounting period due to certain
reasons.
All expenses which are due for payment in one accounting year but
actually paid in future accounting years or payments of which is
postponed are all outstanding or unpaid expenses.
Adjustment entry
Dr.
ExpensesA/c
To Expenses outstandingA/c

10. ▶ Expenses outstanding are added to the respective expenses
accounts in trading or profit & loss A/c and also shown on
the liabilities side of the balance sheet.
▶ If the outstanding expenses A/c appears in the trial balance
,it mean that the adjustment has already been made and
hence nothing has to be done in the trading or P & L
account.

11. PREPAID EXPENSES
▶Prepaid expenses are those expenses which have been paid advance but
relating to the future accounting period.
Adjustment entry
Prepaid expensesA/c Dr.
To ExpensesA/c
▶Prepaid expenses account is shown as a deduction from the respective
expenses account in trading and P & LA/c .If prepaid expenses appear in
the trial balance, it means that the adjustment has already been made and
nothing and nothing Is to be done in trading P & LA/c.
▶ Prepaid expense will appear as an asset in the balance sheet.

12. ACCRUED INCOME
▶Outstanding and accrued income is the income which has
been earned but not received during the accounting
period.
Adjustment entry
Accrued incomeA/c Dr.
To incomeA/c
▶Accrued income Is shown on the asset side of balance
sheet and it is added to the respective income account in P
& LA/c credit side.
▶ No adjustment Is required in the P & LA/c if accrued
incomeA/c appears in the trial balance.

13. INCOME RECEIVED IN ADVANCE
 Income received but not earned during the accounting period is known as
income received in advance.
Income received in advance is a liability
Adjustment entry
IncomeA/c Dr xxxx
To Income received in advance xxxx
TREATMENT
1. In Profit and Loss account- Deduction from the respective Income
2. In Balance Sheet -Shown on the Liability side

14. DEPRECIATION OF ASSETS
▶Depreciation is a permanent reduction or deduction in the value
of fixed assets.
▶ It is a loss to the business.
▶Due to constant use passage of time etc.
Adjustment entry
Dr xxxx
xxx
DepreciationA/c
ToAssets
TREATMENT
 Profit and loss A/c
 Balance sheet -
- shown on the debit side
shown on the asset side as deduction from
the respective assets.

15. INTEREST ON CAPITAL
▶ In order to see the real profitability of business, it is desirable to
charge Interest on capital .
▶It is a business expense.
Adjustment entry
Interest on capital A/c Dr xxxx
To CapitalA/c xxxx
TREATMENT
 Profit and loss a/c - shown on the debit side.
 Balance sheet -added to the capital on the liability side.

16. INTEREST ON DRAWINGS
▶ Business charges the proprietor with interest on amounts drawn
by him.
▶It is a business income
Adjustment entry
Dr xxxx
xxxx
Capital a/c
To interest on capital a/c
TREATMENT
 Profit and loss account
 Balance sheet
- Shown on the credit side
- Deducted from the capital account
on the liability side of balance sheet