The document discusses various adjustments that may need to be made in the financial statements of a sole trader. It explains adjustments for closing stock, outstanding expenses, prepaid expenses, accrued income, unearned income, depreciation, bad debts, and other provisions. It provides accounting entries and treatment of these adjustments in the final accounts and balance sheet. Specific adjustments covered in detail include provision for discounts on creditors/debtors, interest on capital/drawings/loans, loss of goods, goods used for personal/charity purposes, and loss of fixed assets. Examples are also provided to illustrate some adjustments.
This document provides information on the classification and treatment of different types of accounts in accounting - personal accounts, real accounts, and nominal accounts. It discusses the key characteristics of each type of account and how they are used in journal entries and financial statements. Personal accounts relate to individuals and can be assets like debtors or liabilities like creditors. Real accounts represent tangible and intangible assets. Nominal accounts record expenses, incomes, and other non-asset/liability items and are used in the trading and profit & loss accounts. The document also includes examples of various journal entries.
This document discusses various accounting adjustments that may be needed when preparing final financial statements. It explains that adjustments are required to ensure revenues and expenses are matched and recorded in the correct accounting period. Common adjustments mentioned include closing stock, outstanding expenses, prepaid expenses, accrued income, depreciation, bad debts, and provisions. Formulas and journal entries for recording different types of adjustments are provided.
How To Solve Difficult Adjustments And Journal Entries In Financial AccountsAugustin Bangalore
The document provides explanations and journal entries for various accounting adjustments and concepts:
1. It explains the order of assets and liabilities in the balance sheet as well as the concepts of order of permanence and order of liquidity.
2. It discusses how income tax is treated for sole proprietorships, partnerships, and companies and provides the related journal entries.
3. It explains the treatment of indirect taxes as business expenditures and provides a journal entry example.
Project on Profits and Gaind from Business and Prof. (PGBP)Ojas Narsale
The document is a project report submitted by Mr. Ojas Nitin Narsale, an M.Com student at Parle Tilak Vidylaya Association's M.L. Dahanukar College of Commerce, for the academic year 2016-2017. The report discusses various aspects related to computing profits and gains from business or profession under the Indian Income Tax Act, including chargeability, allowable deductions, provisions for non-residents/foreign companies, accounting and audit rules, and depreciation. The report contains sections on introduction, chargeability, deductions allowed under various sections, ineligible expenses, accounting provisions, and case laws related to income from profits and gains of business or profession.
Lecture 13 profits and gains from business or professionsumit235
This document summarizes provisions related to computing taxable income from business and profession under the Indian Income Tax Act. It covers what types of income fall under this head, the meaning of key terms like business, profession and vocation. It also discusses the basic principles for arriving at business income, allowable deductions for expenses, depreciation, and scientific research expenditure.
The document discusses various types of adjustments in financial accounting including accruals, prepayments, and irrecoverable debts.
It explains that accruals involve increasing both a balance sheet and income statement account to properly record expenses incurred and revenues earned during an accounting period. Prepayments are costs that are recognized over multiple periods, such as prepaid rent. Irrecoverable debts, or bad debts, refer to accounts that are deemed uncollectible and must be written off.
The document provides examples and journal entries for accrued expenses, accrued revenues, prepaid expenses, unearned revenues, direct write-offs of bad debts, and use of an allowance method for bad debts. It concludes with multiple choice questions
This document provides information to prepare final accounts with adjustments for Ravinder, including:
1. The Trial Balance is given for Ravinder with various account balances.
2. Additional adjustments are provided, including manager's commission calculated as 10% of net profits before commission.
3. Interest on a 12% loan taken on July 1, 1987 is to be calculated and any outstanding amount adjusted.
4. Goods worth Rs. 1,500 taken by the proprietor for personal use requires an adjustment.
The student is to prepare the Trading and Profit & Loss Account, Balance Sheet, and make the necessary adjustments based on the Trial Balance and additional information given.
Lecture 12 income from business and professionsumit235
This document provides an overview of income from business and profession under the Income Tax Act. It discusses the various types of income that are taxed under this head, allowable deductions like rent, depreciation, scientific research expenditures, and disallowances. Key points include that income from any business, profession or vocation is taxed, various expenditures are deductible, depreciation is allowed on written down value of blocks of assets, and certain payments must be made by due date to claim deductions.
This document provides information on the classification and treatment of different types of accounts in accounting - personal accounts, real accounts, and nominal accounts. It discusses the key characteristics of each type of account and how they are used in journal entries and financial statements. Personal accounts relate to individuals and can be assets like debtors or liabilities like creditors. Real accounts represent tangible and intangible assets. Nominal accounts record expenses, incomes, and other non-asset/liability items and are used in the trading and profit & loss accounts. The document also includes examples of various journal entries.
This document discusses various accounting adjustments that may be needed when preparing final financial statements. It explains that adjustments are required to ensure revenues and expenses are matched and recorded in the correct accounting period. Common adjustments mentioned include closing stock, outstanding expenses, prepaid expenses, accrued income, depreciation, bad debts, and provisions. Formulas and journal entries for recording different types of adjustments are provided.
How To Solve Difficult Adjustments And Journal Entries In Financial AccountsAugustin Bangalore
The document provides explanations and journal entries for various accounting adjustments and concepts:
1. It explains the order of assets and liabilities in the balance sheet as well as the concepts of order of permanence and order of liquidity.
2. It discusses how income tax is treated for sole proprietorships, partnerships, and companies and provides the related journal entries.
3. It explains the treatment of indirect taxes as business expenditures and provides a journal entry example.
Project on Profits and Gaind from Business and Prof. (PGBP)Ojas Narsale
The document is a project report submitted by Mr. Ojas Nitin Narsale, an M.Com student at Parle Tilak Vidylaya Association's M.L. Dahanukar College of Commerce, for the academic year 2016-2017. The report discusses various aspects related to computing profits and gains from business or profession under the Indian Income Tax Act, including chargeability, allowable deductions, provisions for non-residents/foreign companies, accounting and audit rules, and depreciation. The report contains sections on introduction, chargeability, deductions allowed under various sections, ineligible expenses, accounting provisions, and case laws related to income from profits and gains of business or profession.
Lecture 13 profits and gains from business or professionsumit235
This document summarizes provisions related to computing taxable income from business and profession under the Indian Income Tax Act. It covers what types of income fall under this head, the meaning of key terms like business, profession and vocation. It also discusses the basic principles for arriving at business income, allowable deductions for expenses, depreciation, and scientific research expenditure.
The document discusses various types of adjustments in financial accounting including accruals, prepayments, and irrecoverable debts.
It explains that accruals involve increasing both a balance sheet and income statement account to properly record expenses incurred and revenues earned during an accounting period. Prepayments are costs that are recognized over multiple periods, such as prepaid rent. Irrecoverable debts, or bad debts, refer to accounts that are deemed uncollectible and must be written off.
The document provides examples and journal entries for accrued expenses, accrued revenues, prepaid expenses, unearned revenues, direct write-offs of bad debts, and use of an allowance method for bad debts. It concludes with multiple choice questions
This document provides information to prepare final accounts with adjustments for Ravinder, including:
1. The Trial Balance is given for Ravinder with various account balances.
2. Additional adjustments are provided, including manager's commission calculated as 10% of net profits before commission.
3. Interest on a 12% loan taken on July 1, 1987 is to be calculated and any outstanding amount adjusted.
4. Goods worth Rs. 1,500 taken by the proprietor for personal use requires an adjustment.
The student is to prepare the Trading and Profit & Loss Account, Balance Sheet, and make the necessary adjustments based on the Trial Balance and additional information given.
Lecture 12 income from business and professionsumit235
This document provides an overview of income from business and profession under the Income Tax Act. It discusses the various types of income that are taxed under this head, allowable deductions like rent, depreciation, scientific research expenditures, and disallowances. Key points include that income from any business, profession or vocation is taxed, various expenditures are deductible, depreciation is allowed on written down value of blocks of assets, and certain payments must be made by due date to claim deductions.
This document discusses the preparation of final accounts, which involves the trading account, profit and loss account, and balance sheet. The trading account is used to calculate gross profit and loss. The profit and loss account calculates net profit or loss. The balance sheet shows sources of funds and their utilization. The document also discusses the treatment of various adjustments like outstanding expenses, prepaid expenses, depreciation, and their impact on the final accounts. Preparing final accounts is essential for organizations to understand their actual performance.
How to-solve-difficult-adjustments-and-journal-entries-in-financial-accounts-...Kunal Singh
This document provides explanations and examples of accounting journal entries for various financial transactions including adjustments. It discusses entries for bad debts, provision for doubtful debts, rent and rent outstanding, income tax payments, indirect taxes, cash withdrawals, asset purchases and sales, expenses, revenues, and other common accounting topics. The document emphasizes applying the rules of double-entry accounting and selecting the appropriate debit and credit accounts based on whether an item is related to a personal, real, or nominal account.
This document discusses the accounting treatment for non-trading concerns. It notes that non-trading concerns include organizations like hospitals, schools, clubs, charities which exist to serve members rather than generate profit. Their final accounts typically include a receipts and payments account, income and expenditure account, and balance sheet. The receipts and payments account summarizes all cash transactions, while the income and expenditure account excludes capital items and adjustments outstanding income/expenses. The balance sheet presents assets and liabilities of a capital nature.
The document discusses the preparation of final accounts, which provide key financial information about a business. It describes the objectives and components of final accounts, including the trading account, profit and loss account, balance sheet, and manufacturing account. It outlines the items and format of each account, and explains the importance and purpose of preparing a worksheet to help prevent errors in compiling the final accounts from the trial balance.
The document discusses various aspects related to the chargeability and computation of profits and gains from business or profession under Section 28 of the Income Tax Act.
It provides details on the types of incomes that are included in business profits and gains such as profits from current and discontinued businesses, compensation received on termination of agency, etc. It also discusses deductions that are expressly allowed like rent, repairs, depreciation, amortization of certain expenditures. Special provisions for calculation of capital gains on sale of depreciable assets are covered. The rates of depreciation for different block of assets are mentioned.
The document discusses final accounts and their importance in accounting. It explains that final accounts like trading account, profit and loss account, and balance sheet are prepared from the trial balance and provide key financial information. The trading account shows gross profit or loss, while the profit and loss account provides net profit or loss. The balance sheet presents the assets and liabilities of the business at a point in time. Adjustment entries and the worksheet help ensure accurate preparation of final accounts.
Taxation of income from Business and Profession in Indiaminiverma1
This document discusses key aspects of business and professional income under India's Income Tax Act, including what constitutes a business or profession, allowable deductions like repairs, depreciation, interest paid, and bad debts, as well as accounting methods and standards. Businesses can use either a cash-based or mercantile accounting system to report profits but must do so consistently. The Income Tax Authority can intervene if the taxpayer's accounts do not accurately reflect income or comply with accounting standards and practices.
The document provides information about preparing a cash flow statement, including:
1) It defines key terms like cash, cash equivalents, and explains the objectives and uses of a cash flow statement such as for short-term financial planning and dividend decisions.
2) It outlines the three categories of cash flows - operating, investing, and financing activities - and provides examples of cash inflows and outflows for each.
3) It presents the standard format for a cash flow statement with sections for the three categories of cash flows.
The document summarizes various provisions related to the computation of income from business or profession under the Indian Income Tax Act. It discusses the meaning of business income and what types of incomes are chargeable under this head. It also outlines specific deductions allowed like rent, repairs, depreciation, scientific research, preliminary expenses, and more. It provides details on the calculation of profits, losses, treatment of unabsorbed depreciation and the methods of claiming depreciation.
It defines key terms like business, profession, and vocations. It outlines the general principles for assessing profits from business/profession including deductions allowed, expenses disallowed, and depreciation rates. It describes two methods for computing taxable profits- adjusting the assessee's profit and loss account or preparing a fresh income and expenditure account. It also provides details on specific deductions allowed for expenses related to business premises, machinery/equipment, and scientific research.
The document provides information about the final steps in the accounting process which include preparing final accounts such as trading account, profit and loss account, and balance sheet. It explains that these final accounts are needed to determine the profit or loss for the year and the year-end financial position of the business. The document then goes into detail about how to prepare each of these final accounts, the key components that make up each account, and various adjustments and accounting entries needed to accurately capture the financial activities and position of the business.
This document summarizes key provisions around deductions allowed under business and professional income in the Income Tax Act. It discusses sections related to deductible expenses like depreciation, preliminary expenses, scientific research, etc. It also covers inadmissible expenses and special provisions for certain industries. Specific deductions are outlined for tea/coffee development funds, site restoration funds, voluntary retirement schemes, and insurance premiums. The document categorizes the various deduction sections and provides explanations of select concepts like block of assets and mandatory claiming of depreciation.
The document discusses key aspects of income from business and profession under the Income Tax Act in India. It defines business, profession, and vocation. It outlines essential features of a business like regular transactions, profit motive, use of labor and skill. It also discusses what constitutes a business under section 2(13) and explains concepts like trade, commerce, and manufacture. The document then covers important points about income from business like the business must be carried out by the assessee during the previous year, and income includes losses. It also discusses the cash and mercantile systems of accounting and conditions for claiming depreciation.
- The document discusses key steps in the accounting process including preparing trial balance, final accounts (trading account, profit & loss account, balance sheet), and various adjustments needed for the financial statements.
- It provides examples and explanations of key final account components like trading account, profit & loss account, balance sheet, and adjustments for closing stock, outstanding expenses, prepaid expenses, accrued income, and more.
- The purpose is to explain how to close accounts and prepare final financial statements that show the profit/loss for the period and current financial position.
This document provides an overview of financial accounting and financial statements. It discusses the objectives, components, and characteristics of financial statements, including the balance sheet, income statement, and statement of cash flows. The key components covered are the trading account, profit and loss account, manufacturing account, and appropriation account. Examples are provided of how to prepare trading and profit and loss accounts from given financial information. The document also discusses the treatment of adjustments in financial statements such as closing stock, outstanding expenses, prepaid expenses, and depreciation.
Adjustments to the final accounts of business organisations 12arn1356
This document discusses adjustments made to business accounts, including capital vs revenue expenditures and incomes, accruals and prepayments, bad debts, depreciation, and provisions for doubtful debts. Capital expenditures are expenses related to long-term assets that are capitalized on the balance sheet rather than expensed immediately. Revenue expenditures are day-to-day operating costs that are expensed in the period incurred. Accruals and prepayments ensure expenses and revenues are recorded in the appropriate period based on when they are incurred rather than when payment is made. Bad debts are customer balances written off as uncollectible, while provisions for doubtful debts account for expected future bad debts.
The document provides an overview of key financial statements including the balance sheet and profit and loss account. The balance sheet shows a company's financial position on a particular date by outlining assets, liabilities, and equity. The profit and loss account shows operating results for a period by outlining revenues, expenses, and net profit. It summarizes the financial performance of a business over a specific period of time.
Final account trading account pl acc balance sheetVJTI Production
The document provides details about the final accounts process in accounting. It explains that final accounts include the preparation of trading, profit & loss, and balance sheet statements. These statements are prepared from the trial balance to determine the profit/loss for the year and the year-end financial position. The document outlines the key components of the trading account, profit & loss account, and balance sheet, and provides examples of their format and various adjustments made in their preparation.
The document provides information on preparing final accounts, including a profit and loss account and balance sheet. It explains that the profit and loss account is used to determine the net profit or loss for the period by adjusting the gross profit for indirect expenses and other incomes. The balance sheet shows the assets, liabilities, and capital as of a certain date. It discusses various adjustments that need to be made like closing stock, outstanding expenses, prepaid expenses, and depreciation, and how they impact both accounts.
This document provides an introduction to financial accounting concepts. It defines accounting and bookkeeping, and outlines the accounting process and key financial statements. It describes the generally accepted accounting principles of materiality, money measurement, time period matching, and conservatism. It also explains the objectives of accounting and who the main users of financial statements are.
This document provides information about accounting adjustments for sole proprietors. It discusses various types of adjustments that may need to be made, including closing stock, outstanding expenses, prepaid expenses, depreciation, and others. The document explains the accounting entries and treatment in the final accounts for each adjustment. Examples are provided to illustrate how to calculate and record various common adjustments like provision for discount on creditors/debtors, interest on capital/drawings/loans, loss of goods or fixed assets, and errors and omissions. The overall purpose is to explain the accounting process and treatment of different adjustments in the financial statements of a sole proprietor.
The document provides information about preparing a cash flow statement according to Accounting Standard 3 (Revised). It defines key terms like cash flows, cash and cash equivalents. It explains the direct and indirect methods for calculating cash flows from operating activities and discusses treatment of non-cash items. It also covers calculating cash flows from investing and financing activities and treatment of special items like taxes, interest and dividends. The document outlines the four steps for preparing a cash flow statement as calculating cash flows from operating, investing and financing activities and the net change in cash.
This document discusses the preparation of final accounts, which involves the trading account, profit and loss account, and balance sheet. The trading account is used to calculate gross profit and loss. The profit and loss account calculates net profit or loss. The balance sheet shows sources of funds and their utilization. The document also discusses the treatment of various adjustments like outstanding expenses, prepaid expenses, depreciation, and their impact on the final accounts. Preparing final accounts is essential for organizations to understand their actual performance.
How to-solve-difficult-adjustments-and-journal-entries-in-financial-accounts-...Kunal Singh
This document provides explanations and examples of accounting journal entries for various financial transactions including adjustments. It discusses entries for bad debts, provision for doubtful debts, rent and rent outstanding, income tax payments, indirect taxes, cash withdrawals, asset purchases and sales, expenses, revenues, and other common accounting topics. The document emphasizes applying the rules of double-entry accounting and selecting the appropriate debit and credit accounts based on whether an item is related to a personal, real, or nominal account.
This document discusses the accounting treatment for non-trading concerns. It notes that non-trading concerns include organizations like hospitals, schools, clubs, charities which exist to serve members rather than generate profit. Their final accounts typically include a receipts and payments account, income and expenditure account, and balance sheet. The receipts and payments account summarizes all cash transactions, while the income and expenditure account excludes capital items and adjustments outstanding income/expenses. The balance sheet presents assets and liabilities of a capital nature.
The document discusses the preparation of final accounts, which provide key financial information about a business. It describes the objectives and components of final accounts, including the trading account, profit and loss account, balance sheet, and manufacturing account. It outlines the items and format of each account, and explains the importance and purpose of preparing a worksheet to help prevent errors in compiling the final accounts from the trial balance.
The document discusses various aspects related to the chargeability and computation of profits and gains from business or profession under Section 28 of the Income Tax Act.
It provides details on the types of incomes that are included in business profits and gains such as profits from current and discontinued businesses, compensation received on termination of agency, etc. It also discusses deductions that are expressly allowed like rent, repairs, depreciation, amortization of certain expenditures. Special provisions for calculation of capital gains on sale of depreciable assets are covered. The rates of depreciation for different block of assets are mentioned.
The document discusses final accounts and their importance in accounting. It explains that final accounts like trading account, profit and loss account, and balance sheet are prepared from the trial balance and provide key financial information. The trading account shows gross profit or loss, while the profit and loss account provides net profit or loss. The balance sheet presents the assets and liabilities of the business at a point in time. Adjustment entries and the worksheet help ensure accurate preparation of final accounts.
Taxation of income from Business and Profession in Indiaminiverma1
This document discusses key aspects of business and professional income under India's Income Tax Act, including what constitutes a business or profession, allowable deductions like repairs, depreciation, interest paid, and bad debts, as well as accounting methods and standards. Businesses can use either a cash-based or mercantile accounting system to report profits but must do so consistently. The Income Tax Authority can intervene if the taxpayer's accounts do not accurately reflect income or comply with accounting standards and practices.
The document provides information about preparing a cash flow statement, including:
1) It defines key terms like cash, cash equivalents, and explains the objectives and uses of a cash flow statement such as for short-term financial planning and dividend decisions.
2) It outlines the three categories of cash flows - operating, investing, and financing activities - and provides examples of cash inflows and outflows for each.
3) It presents the standard format for a cash flow statement with sections for the three categories of cash flows.
The document summarizes various provisions related to the computation of income from business or profession under the Indian Income Tax Act. It discusses the meaning of business income and what types of incomes are chargeable under this head. It also outlines specific deductions allowed like rent, repairs, depreciation, scientific research, preliminary expenses, and more. It provides details on the calculation of profits, losses, treatment of unabsorbed depreciation and the methods of claiming depreciation.
It defines key terms like business, profession, and vocations. It outlines the general principles for assessing profits from business/profession including deductions allowed, expenses disallowed, and depreciation rates. It describes two methods for computing taxable profits- adjusting the assessee's profit and loss account or preparing a fresh income and expenditure account. It also provides details on specific deductions allowed for expenses related to business premises, machinery/equipment, and scientific research.
The document provides information about the final steps in the accounting process which include preparing final accounts such as trading account, profit and loss account, and balance sheet. It explains that these final accounts are needed to determine the profit or loss for the year and the year-end financial position of the business. The document then goes into detail about how to prepare each of these final accounts, the key components that make up each account, and various adjustments and accounting entries needed to accurately capture the financial activities and position of the business.
This document summarizes key provisions around deductions allowed under business and professional income in the Income Tax Act. It discusses sections related to deductible expenses like depreciation, preliminary expenses, scientific research, etc. It also covers inadmissible expenses and special provisions for certain industries. Specific deductions are outlined for tea/coffee development funds, site restoration funds, voluntary retirement schemes, and insurance premiums. The document categorizes the various deduction sections and provides explanations of select concepts like block of assets and mandatory claiming of depreciation.
The document discusses key aspects of income from business and profession under the Income Tax Act in India. It defines business, profession, and vocation. It outlines essential features of a business like regular transactions, profit motive, use of labor and skill. It also discusses what constitutes a business under section 2(13) and explains concepts like trade, commerce, and manufacture. The document then covers important points about income from business like the business must be carried out by the assessee during the previous year, and income includes losses. It also discusses the cash and mercantile systems of accounting and conditions for claiming depreciation.
- The document discusses key steps in the accounting process including preparing trial balance, final accounts (trading account, profit & loss account, balance sheet), and various adjustments needed for the financial statements.
- It provides examples and explanations of key final account components like trading account, profit & loss account, balance sheet, and adjustments for closing stock, outstanding expenses, prepaid expenses, accrued income, and more.
- The purpose is to explain how to close accounts and prepare final financial statements that show the profit/loss for the period and current financial position.
This document provides an overview of financial accounting and financial statements. It discusses the objectives, components, and characteristics of financial statements, including the balance sheet, income statement, and statement of cash flows. The key components covered are the trading account, profit and loss account, manufacturing account, and appropriation account. Examples are provided of how to prepare trading and profit and loss accounts from given financial information. The document also discusses the treatment of adjustments in financial statements such as closing stock, outstanding expenses, prepaid expenses, and depreciation.
Adjustments to the final accounts of business organisations 12arn1356
This document discusses adjustments made to business accounts, including capital vs revenue expenditures and incomes, accruals and prepayments, bad debts, depreciation, and provisions for doubtful debts. Capital expenditures are expenses related to long-term assets that are capitalized on the balance sheet rather than expensed immediately. Revenue expenditures are day-to-day operating costs that are expensed in the period incurred. Accruals and prepayments ensure expenses and revenues are recorded in the appropriate period based on when they are incurred rather than when payment is made. Bad debts are customer balances written off as uncollectible, while provisions for doubtful debts account for expected future bad debts.
The document provides an overview of key financial statements including the balance sheet and profit and loss account. The balance sheet shows a company's financial position on a particular date by outlining assets, liabilities, and equity. The profit and loss account shows operating results for a period by outlining revenues, expenses, and net profit. It summarizes the financial performance of a business over a specific period of time.
Final account trading account pl acc balance sheetVJTI Production
The document provides details about the final accounts process in accounting. It explains that final accounts include the preparation of trading, profit & loss, and balance sheet statements. These statements are prepared from the trial balance to determine the profit/loss for the year and the year-end financial position. The document outlines the key components of the trading account, profit & loss account, and balance sheet, and provides examples of their format and various adjustments made in their preparation.
The document provides information on preparing final accounts, including a profit and loss account and balance sheet. It explains that the profit and loss account is used to determine the net profit or loss for the period by adjusting the gross profit for indirect expenses and other incomes. The balance sheet shows the assets, liabilities, and capital as of a certain date. It discusses various adjustments that need to be made like closing stock, outstanding expenses, prepaid expenses, and depreciation, and how they impact both accounts.
This document provides an introduction to financial accounting concepts. It defines accounting and bookkeeping, and outlines the accounting process and key financial statements. It describes the generally accepted accounting principles of materiality, money measurement, time period matching, and conservatism. It also explains the objectives of accounting and who the main users of financial statements are.
This document provides information about accounting adjustments for sole proprietors. It discusses various types of adjustments that may need to be made, including closing stock, outstanding expenses, prepaid expenses, depreciation, and others. The document explains the accounting entries and treatment in the final accounts for each adjustment. Examples are provided to illustrate how to calculate and record various common adjustments like provision for discount on creditors/debtors, interest on capital/drawings/loans, loss of goods or fixed assets, and errors and omissions. The overall purpose is to explain the accounting process and treatment of different adjustments in the financial statements of a sole proprietor.
The document provides information about preparing a cash flow statement according to Accounting Standard 3 (Revised). It defines key terms like cash flows, cash and cash equivalents. It explains the direct and indirect methods for calculating cash flows from operating activities and discusses treatment of non-cash items. It also covers calculating cash flows from investing and financing activities and treatment of special items like taxes, interest and dividends. The document outlines the four steps for preparing a cash flow statement as calculating cash flows from operating, investing and financing activities and the net change in cash.
This document provides an overview of key accounting concepts related to recording transactions, including debits and credits, journals, ledgers, the accounting equation, and preparing a trial balance. It defines key terms, provides examples of journalizing and posting transactions, and sample multiple choice and true/false questions related to accounting for transactions.
This document provides an overview of key accounting concepts related to recording transactions, including debits and credits, journals, ledgers, the accounting equation, and preparing a trial balance. It defines key terms, provides examples of journalizing and posting transactions, and sample multiple choice and true/false questions related to accounting for transactions.
The document provides guidance on analyzing and preparing the statement of cash flows. It begins by outlining the key learning objectives, which include understanding the components and structure of the statement of cash flows, as well as how to classify cash flows into operating, investing and financing activities. It then provides details on cash accounts and the transactions that affect cash, such as receipts and payments. The following sections describe the three categories of cash flows on the statement and provide examples of transactions that would be included in each section. The document concludes with examples of analyzing account activity to determine related cash flow amounts.
This document discusses the need for adjustments in accounting and how to record various types of adjustments in the financial statements. It provides examples of common adjustments like adjusting accounts for accrued expenses and incomes, prepaid expenses, outstanding expenses, depreciation, provisions, and errors. It explains that adjustments are needed to rectify errors, record omitted transactions, and account for accrued/prepaid items to determine accurate profit/loss and the financial position of a business.
Presentation on Final Accounts- SOMS, TUDebojit Deb
This document provides an overview of key concepts related to final accounts, including manufacturing account, trading account, profit and loss account, and balance sheet. It discusses the purpose and treatment of various adjustments that must be considered when preparing final accounts, such as prepaid expenses, accrued income, depreciation, and provisions. The document also explains common transactions like insurance claims, appropriation of profit to reserves, and manager's commission. Overall, it serves as a guide to understanding the accounting process for finalizing financial statements at the end of an accounting period.
This document provides an overview of key concepts related to final accounts, including manufacturing account, trading account, profit and loss account, and balance sheet. It discusses the purpose and treatment of various adjustments that must be considered when preparing final accounts, such as prepaid expenses, accrued income, depreciation, and provisions. The document also explains common transactions like insurance claims, appropriation of profit to reserves, and manager's commission. Overall, it serves as a guide to understanding the accounting process for finalizing financial statements at the end of an accounting period.
The document discusses key aspects of preparing a cash flow statement according to Accounting Standard 3. It defines cash flow statement, cash, and cash equivalents. It explains the three types of cash flows - from operating, investing, and financing activities. It provides examples of calculating cash flow from operating activities using the indirect method, and discusses the objectives and limitations of the cash flow statement.
This document discusses accounting for debentures. It defines debentures and different types of debentures such as secured vs unsecured, redeemable vs irredeemable, registered vs bearer, convertible vs non-convertible. It also discusses the issuance of debentures for cash, consideration other than cash, and as collateral security. The document covers accounting entries for interest on debentures, redemption of debentures through lump-sum payment, installments, or conversion to shares. It provides an overview of key concepts related to debentures.
Final account. financial accounting prepared by Prof.Satish R.TajaneDr. Satish Tajane
The document discusses the preparation of final accounts for a partnership firm. It explains that partnership accounts are prepared similarly to sole proprietorship accounts, including a Trading Account, Profit & Loss Account, and Balance Sheet.
It then provides details on the format and explanation of items for the Trading Account, Profit & Loss Account, and Balance Sheet. The Trading Account shows gross profit/loss, the Profit & Loss Account shows net profit/loss, and the Balance Sheet presents the firm's financial position as of a particular date with sources of funds/liabilities on one side and application of funds/assets on the other.
The document emphasizes that all adjustments outside of the trial balance must be considered when preparing final
The document provides definitions and explanations for various accounting terms and concepts. It distinguishes between assets and liabilities, current and non-current liabilities, capital and revenue expenditures, and income statements and balance sheets. It also defines accounting terms like depreciation, bad debts, accrued expenses, and cash versus trade discounts. The document is intended as a study guide for an accounting exam by providing clear summaries of key accounting principles and terminology.
The document provides rules for debit and credit entries in accounting. Increases in assets and expenses are debited, while decreases in assets and increases in liabilities and capital are credited. It also gives examples of basic double-entry transactions like starting a business, purchases, sales, and payments.
This document discusses key concepts related to the statement of cash flows (SCF). It begins by outlining the learning objectives for understanding the SCF. It then defines cash and the cash account, explaining the sources and uses of cash. It introduces the SCF and describes its three sections for reporting cash flows from operating, investing, and financing activities. Examples of transactions in each section are provided. The document also demonstrates how to analyze changes in accounts like accounts receivable, inventory, and accounts payable to determine cash amounts. It contrasts the direct and indirect methods for preparing the operating activities section of the SCF.
This document defines financial accounting and outlines key concepts. Financial accounting involves recording, classifying, and summarizing financial transactions and events in terms of money, and communicating this information to users. Key users include owners, creditors, investors, and managers. The objectives of accounting are to determine profitability, financial position, and generate information. Final accounts include a profit and loss account and balance sheet, which are affected by adjustments like closing stock, outstanding expenses, depreciation, and provisions.
The document provides information on accounting for liabilities according to LKAS 37. It defines liabilities, provisions, and contingent liabilities. Provisions are liabilities of uncertain timing or amount that meet certain criteria: a present obligation from a past event, probable outflow of resources, and reliable estimate. Contingent liabilities are possible obligations or present obligations where outflow is not probable or cannot be reliably estimated. The document outlines how to recognize, measure, and disclose provisions and contingent liabilities according to LKAS 37.
The document discusses various accounting concepts and principles including:
1. The accounting justification for debiting purchases and crediting sales is based on the "golden rule of debit receiver, credit giver". When goods are purchased, the purchases account is debited as the receiver and when goods are sold, the sales account is credited as the giver.
2. The five major accounting entities that form the accounting equation are assets, liabilities, owner's equity, revenue, and expenses.
3. Transaction analysis involves reviewing source documents to determine the dual effect of each transaction on accounting elements and ensuring the accounting equation remains balanced.
1-2Enter First & Last Name Before Starting Homework!!!!!Hide .docxdorishigh
1-2Enter First & Last Name Before Starting Homework!!!!!Hide (Otherwise you'll have to do homework twice!!)0056 possibleFirst Name:CorrinneCeLast Name:Bailey RaeBeChapter:2 - Debits & Credits24NAME TABLESScore:0%24Exercise 1 Match the following definitions to the appropriate term:factor4a)Costs incurred to generate revenues (assets consumed or liabilities incurred to generate revenue)XDropdown ChoicesAnswRanDefinitionAnswerFeedbackb)Assets received for selling a product or performing a service.XAccounts PayableExpenses15Things of value the business owns (economic resources)Assetsc)Amounts you're owed by customersXAccounts ReceivableRevenues26Snapshot of company's financial position at a moment in timeBalance Sheetd)Amounts you owe suppliers and vendorsXAssetsAccounts Receivable37Shares of ownership issued in exchange for cash receivedCommon Stocke)Things of value the business owns (economic resources)XBalance SheetAccounts Payable48Shareholder's claim to assetsShareholder's Equityf)Snapshot of company's financial position at a moment in timeXCash Flow StatementAssets59Reports payments and receipts of cash by categoryCash Flow Statementg)Shares of ownership issued in exchange for cash receivedXCommon StockBalance Sheet610Income not distributed to shareholdersRetained Earningsh)Shareholder's claim to assetsXDividendsCommon Stock711Reports changes in undistributed earnings from net income and dividends.Retained Earnings Stmti)Reports payments and receipts of cash by categoryXExpensesShareholder's Equity812Distribution of assets to shareholdersDividendsj)Income not distributed to shareholdersXIncome StatementCash Flow Statement913Detailed accout of company's performance over period of timeIncome Statementk)Reports changes in undistributed earnings from net income and dividends.XLiabilitiesRetained Earnings1014Debts or obligations (creditor's claim to assets)Liabilitiesl)Distribution of assets to shareholdersXRetained EarningsRetained Earnings Stmt111Costs incurred to generate revenues (assets consumed or liabilities incurred to generate revenue)Expensesm)Detailed accout of company's performance over period of timeXRetained Earnings StmtDividends122Assets received for selling a product or performing a service.Revenuesn)Debts or obligations (creditor's claim to assets)XRevenuesIncome Statement133Amounts you're owed by customersAccounts ReceivableShareholder's EquityLiabilities144Amounts you owe suppliers and vendorsAccounts PayableTrial BalanceLeftAssignedRightAssignedExercise 2For each account, identify the type, normal balance (how you increase it), and on what financial statement it appears.a1a2AccountTypeNormal BalanceStatementDropdown ChoicesAnswAnswAnswRanAccountStatementTypeDr. /Cr.b2b4a)Service revenueXXXBalance SheetEquityIncome StatementCredit13Accounts payable (A/P)Balance SheetLiabilityCreditc2c4b)Unearned revenueXXXIncome StatementLiabilityBalance SheetCredit24Accounts receivable (A/R)Balance SheetAssetDebitd8d4 ...
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2. For Quick Revision of following topics, please see my presentation
‘Financial Statements of Sole Trader with Adjustments 1
2
⚫ Meaning and Need of Adjustments
⚫ ImportantAdjustments:
⚫ Closing Stock
⚫ Outstanding Expenses
⚫ Prepaid or Unexpired Expenses
⚫ Accrued Income
⚫ Unearned Incomeor Income Received in Advance
⚫ Depreciation
⚫ Bad Debts
⚫ Provision for Bad and Doubtful Debts
⚫ Provision fordiscounton debtors
3. Learning Objectives:
3
Accounting Treatmentof Adjustments:
⚫ Provision fordiscount on creditors
⚫ Intereston Capital
⚫ Intereston Drawings
⚫ Intereston Loan
⚫ Loss of goods by fire, theft, accidentsetc.
⚫ Goods withdrawn by proprietorforpersonal use
⚫ Goodsgiven ascharity
⚫ Goodsdistributed as freesample
⚫ Goods used in construction of a fixed assets
⚫ Goods sold on saleorreturn basis
4. Learning Objectives:
4
Accounting Treatmentof Adjustments:
⚫Loss of fixed assets
⚫Commission payable to manager
⚫Writing off deferred revenueexpenditure
⚫Errorsand omissions
⚫Otheradjustments
5. Provision for Discount on Creditors
5
⚫This adjustment is not supported by Prudence
Principle.
⚫If it is given in the question, then it will be treated
accordingly.
⚫Calculation of provision for discount on creditors,
depends uponourpastexperience.
Adjustment Entry:
Provision for Discounton Creditors Dr.
To Profitand Loss A/c
6. Provision for Discount on Creditors
6
Treatment in Final Accounts:
1. It is shown on thecredit side of Profitand Loss A/c.
2. It isdeducted from creditors on the liabilities side of
Balance Sheet.
⚫Net amount credited to Profit and Loss Account may
also becalculated with the helpof following equation:
Discount received + Provision to be maintained -
Provision given in the trial balance
7. Provision for Discount on Creditors - Example
7
⚫Make a provision fordiscounton creditors @3%.
Informationgiven in trial balance
Dr. (Rs.) Cr. (Rs.)
80,000
4,500
Creditors
Provision fordiscount on creditors 4,000
Discount received
Solution
⚫Amount to be shown in P & L A/c = Discount received +
Provision to be maintained - Provision given in the trial
balance
⚫ = 4,500 + 2,400 – 4,000 = 2,900
8. Profit and Loss Account
Particulars Rs. Particulars Rs.
By Discount Received 4,500
Add: New Prov. For Discount on
creditors 2,400
Less: Existing Provision - 4.000 2,900
8
Balance Sheet
Liabilities Rs. Assets Rs.
Creditors 80,000
Less: Prov. for
discount to be
received
2,400 77,600
9. Interest on Capital
9
⚫Adjustment Entry:
Intereston Capital A/c Dr.
To Capital A/c
⚫Treatment in the final accounts:
i. It is shown on thedebitsideof Profitand Loss A/c.
ii. It is added tocapital on the liabilities side of Balance
Sheet.
10. Interest on Drawings
10
⚫Adjustment Entry:
Capital A/c Dr.
To Intereston Drawings A/c
⚫Treatment in the final accounts:
i. It is shown on thecredit side of Profitand Loss A/c.
ii. It is deducted from capital on the liabilitiessideof
Balance Sheet.
11. Outstanding Interest on Loan Borrowed
11
⚫Adjustment Entry:
Intereston Loan A/c Dr.
To Outstanding InterestA/c
⚫Treatment in the final accounts:
i. It isadded to intereston loan oras a separate item
on thedebitsideof Profitand Loss Account.
ii. It is added to loan orshown as a separate itemon the
liabilities side of Balance Sheet.
12. Interest on Loan Borrowed
12
⚫Implied or hidden adjustment. If a loan account
carrying certain rate of interest is given on the credit
side of the trial balance, then it is essential to calculate
interest at the rate mentioned and check whether full
interest has been paid or not. If not, then adjustment
should be made for outstanding interest on loan, as
mentioned above.
13. Interest on Loan Borrowed - Example
13
Makeadjustments from the informationgiven below.
Dr. (Rs.) Cr. (Rs.)
Loan @ 15% p.a. 1,00,000
Interest on loan 9,000
Capital 60,000
Drawings 12,000
Solution
1. Allow intereston capital @ 12%.
2. Charge interest on drawings @ 8%.
⚫Outstanding interest on loan is Rs. 6,000 (15,000 - 9,000).
14. Profit and Loss Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Interest on Loan 9,000 By Interest on Drawings 960
Add: O/S Interest 6,000 15,000
To Interest on Capital 7,200
14
16. Loss of goods by fire, theft, accident etc.
16
(i)
(ii)
For gross loss of goods:
Abnormal Loss of Goods A/c Dr.
To Purchases/Trading A/c
(Being loss of goods recorded)
For insurance claim accepted:
Insurance Claim A/c Dr.
To Abnormal Loss of Goods A/c
(Being insuranceclaim accepted by the insuranceco.)
(iii) For net loss of goods, i.e., gross loss minus insurance
claim accepted:
Profitand Loss A/c Dr.
To Abnormal Loss of Goods A/c
(Being net lossof goods transferred to Profitand Loss A/c)
17. Loss of goods by fire, theft, accidents etc.
17
Direct Entry
In placeof above threeentries, following entry mayalso
be passed if abnormal loss account is not shown in
books:
Insurance Claim A/c
Profitand Loss A/c
Dr.
Dr.
To Purchases/Trading A/c
(Being insuranceclaimand lossof goods recorded)
18. Loss of goods by fire, theft, accidents etc.
18
Treatment in Final Accounts:
1) Cost of goods lost/destroyed is either deducted from
purchases or shown on the credit side of Trading
A/c.
2) Net Loss, i.e., gross loss less insurance claim
accepted, if any, shall be shown on the debit side of
Profitand Loss A/c.
3) Insurance claim accepted will be shown on the assets
sideof Balance Sheet.
19. Goods withdrawn by proprietor for personal use
19
Dr.
⚫Adjustment Entry:
Drawings A/c
To Purchases A/c
⚫Treatment in the final accounts:
i. It is deducted from the purchaseson thedebitside
of Trading Account.
ii. It is deducted from thecapital on the liabilitiesside
of balance Sheetas drawings.
20. Goods given as Charity
20
⚫Adjustment Entry:
Charity A/c Dr.
To Purchases A/c
(Being goodsgiven as charity)
⚫Treatment in the final accounts:
i. The cost of goods given as charity shall be deducted
from the purchases on thedebitside of Trading A/c.
ii. It is shownon thedebitsideof Profitand Loss A/c.
21. Goods distributed as free sample
21
Dr.
⚫Adjustment Entry:
Free SamplesorAdvertising A/c
To Purchases A/c
(Being goodsgiven as charity)
⚫Treatment in the final accounts:
i. The costof goodsgiven as free sample is deducted
from purchases in the Trading Account.
ii. It is shownon thedebitsideof Profitand Loss
Accountas it is an expense for the business.
22. Goods used in construction of a fixed assets
22
⚫Adjustment Entry:
Building A/c Dr. (costof goods)
To Purchases A/c
(Being goods used in constructionof building)
⚫Treatment in the final accounts:
i. Thecostof goods used in constructionof building is
deducted from purchases in Trading Account.
ii. Add to Building in the Balance Sheet.
23. Goods used in construction of a fixed assets
23
⚫Example: A firm dealing in iron and steel items, used
some steels and iron worth Rs. 10,000 in construction of
building.
⚫Adjustment Entry:
Building A/c Dr. (cost of goods)
To Purchases A/c
(Being goods used in construction of building)
⚫Treatment in the final accounts:
i. Thecost of goods used in construction of building is
deducted from purchases in Trading Account.
ii. Add to Building in the Balance Sheet.
24. Goods sold on sale or return basis or
Sale of goods on approval basis
24
⚫AdjustmentEntries:
a)
b)
Sales A/c Dr. (Sale priceof goods)
To Debtors A/c
(Being goodssold on approval basis, but notyet
confirmed adjusted)
Closing Stock (with customers) A/c Dr.
To Trading A/c
(Being stockwith customers recorded)
25. Goods sold on sale or return basis or
Sale of goods on approval basis
25
⚫Treatment in the final accounts:
i. Sales amount is deducted from sales in Trading
Accountand from debtors in the Balance Sheet.
ii. Costof such goods is added toclosing stock shown
on the credit side of the Trading Account and the
assets sideof Balance Sheet.
26. Goods sold on sale or return basis - Example
26
⚫Goods priced Rs. 10,000 was sold on sale or return
basis. Confirmation not received. Sale price includes a
profit of 20%.
⚫Treatment in the final accounts:
i. Salesamount (Rs. 10,000) shall bededucted from
sales in Trading A/cand from debtors in the B/S.
ii. Cost of such goods Rs. 8,000 shall be added to
closing stock shown on thecredit sideof the Trading
A/cand theassets side of B/S.
27. Loss of Fixed Asset
27
Adjustment Entry:
Insurance Claim A/c
Profitand Loss A/c
Dr. (Claimaccepted)
Dr. (Net Loss)
To Fixed AssetsA/c (Gross Loss)
(Being lossof fixed and insuranceclaim recorded)
28. Loss of Fixed Asset
28
Treatment in Final Accounts:
i. Net lossof fixed assets is shown on thedebitside of
Profitand Loss Account.
ii. Insuranceclaim accepted is shownon theassets side
of Balance Sheetasa separate item.
iii. Valueof fixed assetsdestroyed is deducted from the
respectiveasseton theassets sideof Balance Sheet.
29. Loss of Fixed Asset - Example
29
Information from Trial Balanceason 31 March, 20x1
Furniture Rs. 50,000
Adjustment:
i. Furniture having a book value (at the beginning of
theyear) of Rs. 10,000 wasdestroyed by fire on the
last week of March and insurance company has
accepted a claim of Rs. 3,400.
ii. Companycharges depreciationon furniture @10%
on written downvalue method.
30. Solution
30
Treatment in Final Accounts:
i. Gross Loss = 10,000 – 1,000 (Dep.) = 9,000. Itwill be
deducted from the Furnitureon theassets side of
Balance Sheet.
ii. Net loss of fixed assets Rs. 5,400 (9,000 – 3,400) will
be shown on thedebitsideof Profitand Loss A/c.
iii. Insurance claim accepted Rs. 3,400 will be shown on
the assets side of Balance Sheet as ‘Insurance Claim’
in CurrentAssets.
31. Manager’s Commission Payable on Profits
Calculationof Commission
100
ii. When commission is payableon net profitafter
charging such commission:
i. When commission is payableon net profit before
charging such commission:
Commission = Net Profits before Commission
Rate
Rate
31
100 Rate
Commission = Net Profits before Commission
32. Manager’s Commission Payable on Profits
32
Adjustmententry:
Profit & Loss A/c Dr.
To Commission Payable A/c
(Being commission payable to manager)
Treatment in Final Accounts:
i. Itwill be shown on thedebitsideof Profit & Loss
accountand
ii. Shown as a separate item on the liabilities sideof
Balance Sheet.
33. Manager’s Commission Payable on Profits
33
Example: A firm’s net profit beforecharging manager’s
commission is Rs. 55,000.
Calculate the manager’s commission and net profit, if rateof
commission is –
(a) 10% on net profits beforecharging such commission, and
(b) 10% on net profitsaftercharging such commission.
34. Manager’s Commission Payable on Profits
Calculationof Commission
a) When commission is payableon net profit before
charging such commission:
Commission = Net Profit beforecommission
𝑅𝑎𝑡
𝑒
100
Commission = 55,000
10
34
100
= Rs. 5,500
35. Manager’s Commission Payable on Profits
Calculationof Commission
b) When commission is payableon net profit before
charging such commission:
Commission = Net Profit beforecommission
𝑅𝑎𝑡
𝑒
100+𝑅𝑎𝑡𝑒
Commission = 55,000
10
35
100+5
= Rs. 5,000
36. Write off deferred revenue expenditure
36
⚫Deferred revenue expenditures are those expenditures
which are revenue in nature but these benefit for more
than oneyear.
⚫According to matching concept, the whole of such
expenditure can not be charged to P and L A/c of the
year in which it has been incurred as its benefits are
derived over a number of years. An appropriate part of
it should bewritten off bydebiting to P and L A/c .
Example. Rs. 30,000 have been spent by a firm on
advertisement campaign to launch a new product. It is
estimated that its benefit will last for 3 years.
37. Write off deferred revenue expenditure
37
10,000
Adjustment Entry:
Profit & Loss A/c Dr. 10,000
To Deferred Advertisement Exp. A/c
(Being Deferred Advertisement Exp. written off )
Treatment in final accounts:
i. Theamountwritten off (Rs. 10,000) will be shown on the
debit side of the Profit and Loss Account.
ii. The unwritten off amount (Rs. 20,000) will be shown on
theassets sideof the Balance Sheet.
38. Errors and Omissions
38
⚫Goods sold and dispatched but omitted to be
recorded.
It will beadded to sales in the Trading Account and also be
added to thedebtors on theassets side of Balance Sheet.
Note: It is to be noted that such amount should also be
considered for the purposeof calculating provision for bad
debts.
39. Errors and Omissions
39
⚫Goods purchased and included into stock but
omitted to be recorded.
Adjustment Entry:
Purchases A/c Dr.
To Creditors (Individual) A/c
Treatment in Final Accounts:
It will beadded to purchases in the Trading Account and
also be added to the creditors on the liabilities side of
Balance Sheet.
Note: It is to be noted that for the purpose of calculating
provision for discount on creditors, such amount should
also beconsidered
40. Errors and Omissions
40
⚫Capital expenditure wrongly treated as revenue
expenditure. Deduct the amount from revenue
expenditure in the Trading/Profit and Loss Account
and add to the respective asset on the assets side of
Balance Sheet.
⚫Note: It is to be noted that depreciation should be
charged on increased valueof such asset.
41. Errors and Omissions
41
Capital expenditure wrongly treated as revenue
expenditure.
⚫Example: Balances in trial balance:
Cr.
Machineryand equipments
Repairs
Dr.
72,000
15,000
⚫An equipmentpurchases for Rs. 8,000 has been
debited to Repairs A/c.
⚫Chargedepreciation@10% on machinery and
equipments.
42. Errors and Omissions
42
⚫Revenue expenditure wrongly treated as capital
expenditure. Add the amount to the revenue expenses in
the Trading/Profit and Loss Account and deduct from the
asset wrongly charged, on the assets side of Balance Sheet.
It is to noted that depreciation should be charged on the
reduced valueof such asset.
⚫Example: Balances in trial balance:
Dr. Cr.
Building 82,000
Wages 15,000
⚫Wages (Rs. 3,000) paid forconstruction of building has
been debited towages account.
43. Errors and Omissions
43
⚫Remuneration paid to an employee was debited to
his personal account. It will be added to salaries on
the debit side of Profit and Loss Account, and also
deducted from debtors on the assets side of Balance
Sheet.
⚫Example: Balances in trial balance:
Dr. Cr.
Salaries 12,000
Mr. X 2,000
⚫Salaries paid to Mr. X has been debited to his personal
A/c
44. Other adjustments
44
A person has a debit balance as debtors and also a
credit balance as creditor.
⚫In this case, lower of the two balances shall be
deducted from debtors as well as from creditors.
⚫It is to be noted that provision for bad debts shall be
created on the reduced debtors.
45. Example
45
⚫Information froma Trial Balance
⚫Sundry Debtors Rs. 29,000
⚫Sundry Creditors Rs. 14,800
⚫Mr. Harish is included in debtors for Rs. 3,000 and also
in creditors for Rs. 2,000.
Solution:
⚫Deduct Rs. 2,000 (lowerof the two) from Debtorsas
well Creditors.
⚫Any adjustment for provision for Bad debts and
discountshall be madeon the balanceof debtorsand
creditors, i.e., Rs. 27,000 and 12,800 respectively.