Question

Treatment of the following adjustments (outside the Trial Balance) in the Final Accounts:

a) Closing stock
b) Prepaid/Unexpired expenses or expenses paid in advance
c) Unearned income or income received in advance
d) Bad deb.ts
e) Provision for discount on debtors
f) Interest on capital
g) Goods taken by the proprietor for personal use
h) Abnormal/Accidental losses
i) Goods distributed among staff as staff welfare
j) Goods distributed as samples
k) Manager's commission
l) Provision for doubtful deb.ts
m) Depreciation
n) Accrued/Outstanding income
o) Outstanding expenses or expenses due but not paid​

Answer 1

Answer:

Explanation:

(A) Closing stock

1. Trading account credit side
2. Balance sheet Asset side

(B) Prepaid expense

1. P&L a/c debit side
2. Balance sheet asset side

(C) Income received in advance

1. P&L a/c credit side deduct from the item
2. Balance sheet liability side

(D) Bad debt

1. Balance sheet asset side , deduct from sundry debtors
2. P&L a/c debit side

(E) Provision for Discount on debtors

1.  Balance Sheet Assets side, deduct from sundry debtors.
2. Profit and Loss Account Debit side, show as an item

(F) Interest on Capital

1. Balance Sheet Liabilities side, add with capital.
2. Profit and Loss Account Debit side, show as an item.

(G) Drawings of Goods by proprietor

1.  Balance Sheet Liabilities side, deduct from capital.
2. Trading Account Credit side, show as an item.

(J) Free Samples to customers

1.  Trading Account Credit side, show as an item.  
2.  Profit and Loss Account Debit side, show as an item

(K) Manager Commission

1.  Profit and Loss Account Debit side, show as an item.  
2.  Balance Sheet Liabilities side show as an item.

(M) Depreciation

1. Balance Sheet Assets Side, deduct from particular asset.
2. Profit and Loss Account debit side, show as an item.

(N) Accrued Income or Outstanding Income

1.   Profit and Loss Account Credit side, add with particular income.
2.   Balance Sheet Assets side, show as an item.

(O) Outstanding Expenses

1.  Profit and Loss Account Debit side, add with particular expense.
2.  Balance Sheet Liabilities side show as an item.

Answer 2

a) Closing stock: The closing stock is an adjustment made to account for the value of unsold goods or inventory at the end of an accounting period. It is treated as an asset in the final accounts. The value of closing stock is added to the purchases or cost of goods sold and deducted from the trading account. It is then included in the balance sheet under the current assets section.

b) Prepaid/Unexpired expenses or expenses paid in advance: Prepaid expenses refer to expenses that have been paid for in advance but relate to a future accounting period. To account for prepaid expenses, they are deducted from the relevant expense account in the profit and loss account and shown as a current asset in the balance sheet.

c) Unearned income or income received in advance: Unearned income represents the receipt of payment for goods or services that have not yet been delivered or rendered. It is treated as a liability in the final accounts. Unearned income is deducted from the relevant income account in the profit and loss account and shown as a current liability in the balance sheet.

d) Bad debts: Bad debts are accounts receivable that are considered uncollectible and are written off as an expense in the profit and loss account. The amount of bad debts is deducted from the debtors' balance in the balance sheet to reflect the reduced value of the accounts receivable.

e) Provision for discount on debtors: A provision for discount on debtors is created to account for expected future discounts that will be given to customers for prompt payment. It is treated as an expense in the profit and loss account. The provision for discount on debtors is deducted from the debtors' balance in the balance sheet.

f) Interest on capital: Interest on capital represents the interest earned on the capital invested by the proprietor or partners in the business. It is considered an expense in the profit and loss account and reduces the net profit of the business.

g) Goods taken by the proprietor for personal use: When the proprietor takes goods from the business for personal use, it is considered a withdrawal or drawing. The value of the goods taken is treated as a reduction in the closing stock and deducted from the trading account in the profit and loss account.

h) Abnormal/Accidental losses: Abnormal or accidental losses refer to unexpected losses incurred by a business due to unforeseen events such as theft, fire, or natural disasters. These losses are treated as expenses in the profit and loss account, reducing the net profit of the business.

i) Goods distributed among staff as staff welfare: When goods are distributed among staff as part of employee welfare or benefits, it is treated as an expense in the profit and loss account. The value of the goods distributed is deducted from the closing stock in the trading account.

j) Goods distributed as samples: Goods distributed as samples are treated as an expense in the profit and loss account. The cost of the goods distributed is deducted from the closing stock in the trading account.

k) Manager's commission: Manager's commission represents the remuneration paid to the manager of the business. It is treated as an expense in the profit and loss account and reduces the net profit of the business.

l) Provision for doubtful debts: A provision for doubtful debts is created to account for the estimated amount of accounts receivable that may not be collected in the future. It is treated as an expense in the profit and loss account and is deducted from the debtors' balance in the balance sheet.

m) Depreciation: Depreciation is the systematic allocation of the cost of an asset over its useful life. It is treated as an expense in the profit and loss account, reducing the net profit of the business. The accumulated depreciation is shown as a deduction from the value of the respective fixed assets in the balance sheet.

n) Accrued/Outstanding income: Accrued or outstanding income refers to income that has been earned but not yet received or recorded in the books of accounts. It is treated as a current asset in the balance sheet and added to the respective income account in the profit and loss account.

o) Outstanding expenses or expenses due but not paid: Outstanding expenses represent expenses that have been incurred but not yet paid or recorded in the books of accounts. They are treated as current liabilities in the balance sheet and added to the respective expense accounts in the profit and loss account.

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