Final Accounts - Adjustments

Adjustment
item
1
st
Effect 2
nd
Effect
Closing Stock
Credit side of Trading
a/c
Assets side of
Balance Sheet
Outstanding
Expenses
Debit side of Trading
and Profit & Loss a/c
by way of addition to
expenses
Liabilities side of
Balance Sheet
Prepaid
Expenses
Debit side of Trading
and Profit & Loss a/c
by way of deduction
from Expenses
Assets side of
Balance Sheet
Contd
Adjustment item 1
st
Effect 2
nd
Effect
Accrued Income
(income earned but
not received)
Credit side of profit & loss
a/c by way of addition to
income
Assets side of Balance Sheet
Income Received in
Advance (income
received but not
earned in the
financial year)
Credit side of Profit & loss
a/c by way of deduction
from the income
Liabilities side of the
Balance Sheet
Depreciation
Debit side of Profit & Loss
a/c
Assets side of Balance Sheet
by way of deduction from
the value of concerned asset.
Bad Debts
Debit side of Profit & Loss
a/c
Assets of Balance Sheet by
way of deduction from
sundry debtors.
Contd
Adjustment item 1
st
Effect 2
nd
Effect
Interest on Capital
Debit side of Profit &
Loss a/c
Liabilities side of the
Balance Sheet by way of
addition to the capital.
Interest on Drawings
Credit side of Profit &
Loss a/c
Liabilities side of Balance
Sheet by way of addition
to the drawings which are
deducted from the capital.
Provision for Doubtful
Debts
Debit side of Profit &
Loss a/c or by way of
addition to Bad Debts.
(Old provision for
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
Adjustment item 1
st
Effect 2
nd
Effect
Provision for
Discount on
Debtors
Debit side of Profit &
Loss a/c
Deduction from Debtors
(after deduction of further
bad debts and provision
for doubtful debts) on the
assets side of the Balance
Sheet.
Reserve for
Discount on
Creditors

Credit side of Profit &
Loss a/c
Liabilities side of the
Balance Sheet by way of
deduction from creditors.
Deferred Revenue
Expenditure
Debit side of Profit &
Loss a/c
Assets side of Balance
Sheet by way of deduction
from capitalized
expenditure.
Contd
Adjustment item 1
st
Effect 2
nd
Effect
Loss of Stock by Fire
If the stock is fully
insured
Credit side of Trading
Account
Assets side of Balance
Sheet
If the stock is partly
insured
It will be shown on the credit
side of Trading Account with
the value of stock and shown
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
insured
Credit side of Trading a/c
Debit side of Profit & Loss
a/c
Contd
Adjustment item 1
st
Effect 2
nd
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.
Contd
Adjustment item 1
st
Effect 2
nd
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.