FINAL ACCOUNTS-

ADJUSTMENTS
Closing Stock
Outstanding Expenses
Prepaid Expenses
Accrued Income
Income received in advance
Interest on Capital
Interest on Drawings
 FINAL ACCOUNTS-
ADJUSTMENTS
 Depreciation
 Bad debts
 Provision for doubtful debts
 Provision for discount on debtors
 Provision for discount on creditors
 Creation of reserves
 Commission to manager at a certain
percentage of net profits
 Goods used in business.
 1. CLOSING STOCK
 Journal entry

 Accounting treatment
 OUTSTANDING EXPENSES
 Expenses which have become due
and have not been paid.

 Journal entry

 Treatment in the Final accounts

 PREPAID EXPENSES
 Prepaid expenses are those expenses
which have been paid in advance.

 Journal entry

 Treatment
 ACCRUED INCOME
 Income earned but not received.

 Journal entry

 Treatment
 INCOME RECEIVED IN
ADVANCE
 Income received by the business
before it being earned by the
business.

 Journal entry

 Treatment
 INTEREST ON CAPITAL
 An amount invested by the
businessman is considered as a loan
to the business on which interest
becomes payable by the business to
the owner.
 Journal entry
 Treatment
 INTEREST ON DRAWINGS
 Drawings is a loan from the business
to the owner.

 Journal entry

 Treatment
 DEPRECIATION
 Journal entry

 Treatment
 BAD DEBTS
 When the amount of goods sold
becomes irrecoverable, it is called a
Business loss and is termed as “Bad
debts”.

 Journal Entry

 Treatment
PROVISION FOR BAD DEBTS

 Adjusting Entry

 Treatment
 EXAMPLE
 Following are the extracts from the
Trial Balance of a firm.
Trial Balance
as on 31st Dec, 2007
Particulars Rs. Rs.
S. Debtors 40,000
Bad debts 5,000
Additional information:
A debtor Anuj became insolvent and
Rs. 2,000 due from him is
irrecoverable. Create 10% provision.
 EXAMPLE
 The following balances appear in the Trial
Balance of a firm as on December 31,
2007:
Rs.
Sundry Debtors 20,500
Bad debts 500
Provision for bad debts 1000
Firm decided to write off a further sum of
Rs. 500 as bad debt and to maintain the
reserve for bad debts at 5%. Give Journal
entries and show the treatment in the final
accounts.
BAD DEBTS WRITTEN OFF
RECOVERED
Cash A/c……….Dr
To Bad debts recovered A/c
 PROVISION FOR DISCOUNT
ON DEBTORS
 Journal entry

 Treatment
 EXAMPLE
 Mr. B prepares his accounts on 31st of
December each year. Debtors on this
date amounted to Rs. 20,000, Rs.
1,000 to be written off as bad, a
provision for bad debts is to be
created at 5% and a provision for
discount on debtors is to be created
at 2%. Show the treatment.
 PROVISION FOR DISCOUNT
ON CREDITORS
 Journal entry

 Treatment
 ADJUSTMENT OF
COMMISSION ON PROFITS
 Commission onon profits is the
remuneration on the basis of certain
percentage of profits.

 Adjusting Entry

 Treatment
 CALCULATION OF
COMMISSION
1. Prepare a Trading account in the
usual manner.

2. Transfer gross profit to Profit &

Loss account and debit and credit it
with all the expenses and incomes
except the commission.
 CALCULATION OF
COMMISSION
1. If commission is payable at fixed
percentage on net profits before charging
such commission:
Manager’s commission= Rate X profit
100centage
2. If commission is payable at fixed
percentage on net profits after charging
such commission:
Manager’s commission= Rate_____ X profit
(100+Rate)
 ILLUSTRATION
 A Trader prepared his trading Account for
the year 2007, and found his gross profit
to be Rs. 20,000. He was unable to
prepare the profit & Loss account. By
considering the following information,
calculate his net profit:
Salary Rs. 4,000, Selling expenses Rs.
1,000, Advertisement Rs. 1,000, Postage
Rs. 500, Sundry Income Rs. 1,500,
Interest on securities Rs. 500, Office
expenses Rs. 2,000. Manager is to be
allowed commission at 10% net profit.
1. Before charging such commission.
2. After charging such commission.
 LOSSES BY ACCIDENTS
 Journal entry

 Treatment
 Goods sent on approval
 Treatment in Trading Account:
 Sales value is shown on the credit side by
way of deduction from sales.
 Cost of such goods is shown on the credit
side by way of addition to closing stock in
hand.
Treatment in Balance sheet:
 Sales value is shown on the asset side by
way of deduction from debtors.
 Cost of such goods is shown on the asset
side by way of addition to closing stock.
 DRAWINGS IN GOODS
 Journal entry

 Treatment