Question

What is Objectives of adjustments in final accounts ?

Answer 1

The main objectives of adjustment in final

account are as follows:

To give effect to national incomes and expenses

or non cash:

In business, there can be certain transactions

that do not contribute to any inflow or

outflow of cash into the business but are required to calculate the correct

amount of profit. Such transactions are associated to depreciation on fixed

assets, interest on capital and drawings, Provision for doubtful debts etc.

Bringing into accounts expenses of current year

not yet entered in the books of accounts:

Matching concept of accounting states that all

expenses of current year that are paid or not must be debited to the profit and

loss account of current year. In order to show true profit, all expenses which

are due but not yet paid or that are paid before due must be adjusted.

Bringing into accounts incomes of current year

not yet recorded in the books of accounts:

Matching concept of accounting

also states that income of current year must be credited in profit or loss account

of current year regardless

of whether they have been received or not.