(v) write the adjustment entry for “manager’s commission on net profit”.
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Sometimes the manager is entitled for a commission on profits which is usually calculated at a fixed percentage of the profits. Let us take an example.
Suppose, a firm has earned Rs. 300000 as profits in the financial year 2016-17 without charging the commission, which is 10 % of the profits. Then the manager's commision will be Rs. 30000.
The manager's commision will be treated as an outstanding expense and it is shown as an expense at the debit side of profit and loss account and also as a current liability it will be shown in the balance sheet.
Therefore, the adjustment entry for manager's commission will be as follows.
Profit & Loss A/c Dr. 30000
To Manager's commission Payable A/c 30000
(Being the Manager's commission payable)
Commission paid to the Manager is a current liability and hence, it will be shown in the balance sheet on the liabilities side.
Sometimes the manager is entitled for a commission on profits which is usually calculated at a fixed percentage of the profits. Let us take an example.
Suppose, a firm has earned Rs. 300000 as profits in the financial year 2016-17 without charging the commission, which is 10 % of the profits. Then the manager's commision will be Rs. 30000.
The manager's commision will be treated as an outstanding expense and it is shown as an expense at the debit side of profit and loss account and also as a current liability it will be shown in the balance sheet.
Therefore, the adjustment entry for manager's commission will be as follows.
Profit & Loss A/c Dr. 30000
To Manager's commission Payable A/c 30000
(Being the Manager's commission payable)
Commission paid to the Manager is a current liability and hence, it will be shown in the balance sheet on the liabilities side.
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