This document outlines various accounting adjustments that may be needed when preparing final accounts, including the first and second effects of each adjustment. Some key adjustments include closing stock, which credits trading and assets the balance sheet; outstanding expenses, which debits trading/profit & loss and liabilities the balance sheet; and depreciation, which debits profit & loss and assets the balance sheet by deducting from the asset value.

1. Final Accounts - Adjustments

2. Adjustment
item
1st Effect
2nd Effect
Closing Stock
Credit side of Trading Assets side of
a/c
Balance Sheet
Outstanding
Expenses
Debit side of Trading
and Profit & Loss a/c Liabilities side of
by way of addition to Balance Sheet
expenses
Prepaid
Expenses
Debit side of Trading
and Profit & Loss a/c Assets side of
by way of deduction Balance Sheet
from Expenses
Contd…

3. Adjustment item
Accrued Income
(income earned but
not received)
1st Effect
2nd Effect
Credit side of profit & loss
a/c by way of addition to Assets side of Balance Sheet
income
Income Received in
Advance (income
Credit side of Profit & loss
Liabilities side of the
received but not
a/c by way of deduction
Balance Sheet
earned in the
from the income
financial year)
Depreciation
Assets side of Balance Sheet
Debit side of Profit & Loss
by way of deduction from
a/c
the value of concerned asset.
Bad Debts
Assets of Balance Sheet by
Debit side of Profit & Loss
way of deduction from
a/c
sundry debtors.
Contd…

4. Adjustment item
1st Effect
2nd Effect
Interest on Capital
Liabilities side of the
Debit side of Profit &
Balance Sheet by way of
Loss a/c
addition to the capital.
Interest on Drawings
Liabilities side of Balance
Credit side of Profit & Sheet by way of addition
Loss a/c
to the drawings which are
deducted from the capital.
Debit side of Profit &
Loss a/c or by way of
addition to Bad Debts.
Provision for Doubtful
(Old
provision
for
Debts
doubtful debts at the
beginning of the year
will be deducted)
Assets side of Balance
Sheet
by
way
of
deduction from sundry
Debtors (After deduction
of further bad debts, if
any).
Contd…

5. Adjustment item
Provision for
Discount on
Debtors
Reserve for
Discount on
Creditors
1st Effect
Debit side of Profit &
Loss a/c
Credit side of Profit &
Loss a/c
Deferred Revenue Debit side of Profit &
Expenditure
Loss a/c
2nd Effect
Deduction from Debtors
(after deduction of further
bad debts and provision
for doubtful debts) on the
assets side of the Balance
Sheet.
Liabilities side of the
Balance Sheet by way of
deduction from creditors.
Assets side of Balance
Sheet by way of deduction
from capitalized
expenditure.
Contd…

6. Adjustment item
1st Effect
2nd Effect
Loss of Stock by Fire
If the stock is fully Credit side
insured
Account
of
Trading Assets side of Balance
Sheet
It will be shown on the credit
side of Trading Account with
If the stock is partly the value of stock and shown
insured
on the debit side of Profit &
Loss a/c for the part of the
stock which is not insured
Loss of stock by fire is
shown on assets side of
Balance Sheet with the
amount which is to be
realized
from
the
insurance co. i.e., that part
of the loss which is
insured.
If the stock is not
Credit side of Trading a/c
insured
Debit side of Profit & Loss
a/c
Contd…

7. 1st Effect
2nd Effect
Reserve Fund
Debit side of Profit & loss
a/c along with net profit in
the inner column
Liabilities side of the
Balance Sheet. If
reserve fund is already
there, it will be shown
by addition to the
existing reserve fund on
the liabilities side of the
Balance Sheet.
Goods distributed as
Free Samples
Debit side of Trading a/c
by way of deducted from
the purchases
Debit side of Profit and
Loss a/c as
Advertisement expenses.
Adjustment item
Contd…

8. Adjustment item
1st Effect
2nd Effect
Managers
Commission
Debit side of Profit & Loss
a/c
Liabilities side of Balance
Sheet
Goods on sale or
Approval Basis
Credit side of Trading a/c by
way of deduction from the
sales at sale price and added
to the closing stock at cost
price
Assets side as a deduction
from sundry debtors sale
price) and stock at cost on
the Assets side of the
Balance Sheet.