Final Accounts - Adjustments

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

Debit side of Trading

Prepaid and Profit & Loss a/c Assets side of
Expenses by way of deduction Balance Sheet
from Expenses

Contd…
Adjustment item 1st Effect 2nd Effect
Accrued Income Credit side of profit & loss
(income earned but a/c by way of addition to Assets side of Balance Sheet
not received) 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)

Assets side of Balance Sheet

Debit side of Profit & Loss
Depreciation by way of deduction from
a/c
the value of concerned asset.

Assets of Balance Sheet by

Debit side of Profit & Loss
Bad Debts way of deduction from
a/c
sundry debtors.
Contd…
 Adjustment item 1st Effect 2nd Effect

Liabilities side of the

Debit side of Profit &
Interest on Capital Balance Sheet by way of
Loss a/c
addition to the capital.

Liabilities side of Balance

Credit side of Profit & Sheet by way of addition
Interest on Drawings
Loss a/c to the drawings which are
deducted from the capital.

Debit side of Profit &

Assets side of Balance
Loss a/c or by way of
Sheet by way of
addition to Bad Debts.
Provision for Doubtful deduction from sundry
(Old provision for
Debts Debtors (After deduction
doubtful debts at the
of further bad debts, if
beginning of the year
any).
will be deducted)
Contd…
 Adjustment item 1st Effect 2nd Effect
Deduction from Debtors
(after deduction of further
Provision for
Debit side of Profit & bad debts and provision
Discount on
Loss a/c for doubtful debts) on the
Debtors
assets side of the Balance
Sheet.

Reserve for Liabilities side of the

Discount on Credit side of Profit & Balance Sheet by way of
Creditors Loss a/c deduction from creditors.

Assets side of Balance

Deferred Revenue Debit side of Profit & Sheet by way of deduction
Expenditure Loss a/c from capitalized
expenditure.

Contd…
Adjustment item 1st Effect 2nd Effect

Loss of Stock by Fire

If the stock is fully Credit side of Trading Assets side of Balance

insured Account Sheet

Loss of stock by fire is

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
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 Debit side of Profit & Loss

Credit side of Trading a/c
insured a/c

Contd…
 Adjustment item 1st Effect 2nd Effect
Liabilities side of the
Balance Sheet. If
reserve fund is already
Debit side of Profit & loss
there, it will be shown
Reserve Fund a/c along with net profit in
by addition to the
the inner column
existing reserve fund on
the liabilities side of the
Balance Sheet.

Debit side of Trading a/c Debit side of Profit and

Goods distributed as
by way of deducted from Loss a/c as
Free Samples
the purchases Advertisement expenses.

Contd…
Adjustment item 1st Effect 2nd Effect

Managers Debit side of Profit & Loss Liabilities side of Balance

Commission a/c Sheet

Credit side of Trading a/c by Assets side as a deduction

way of deduction from the
Goods on sale or
sales at sale price and added
Approval Basis
to the closing stock at cost
price
from sundry debtors sale
price) and stock at cost on
the Assets side of the
Balance Sheet.