Write the correct effect of following adjustments (10 Marks) 1) Goods distributed as free sample 2) Interest on drawings 3) Depreciation 4) Outstanding Expenses 5) Prepaid expenses
Answers
1)goods distributed as free sample
ANSWER :
⊚ Adjustment entries always have two effects. The effects of the given adjustment entries are mentioned below :-
- (1) Goods Distributed as Free Sample
➺ Sometimes, the a portion of goods in which the business deals in is distributed as free samples for the purpose of advertising the goods. In this case, the amount of goods distributed as free sample will be deducted from Purchases in the Trading account as the quantity of goods available for sale decrease. Also, it will be shown in the Debit side of the Profit and Loss Account as it is a expenses for the business.
_________________________________________
- (2) Interest on Drawings
➺ Sometimes, the proprietor of the business may withdraw an amount of money or goods for his personal use which is known as Drawings. When the interest is charges on the amount of drawings and it appears as an adjustment entry; then the amount of interest on drawing will be shown in the Credit side of the Profit and Loss Account and it will also be shown as deduction from the Capital on the Liabilities side of the Balance Sheet.
_________________________________________
- (3) Depreciation
➺ The loss or decrease in the value of assets due to their constant use and expiry of time is known as Depreciation. When depreciation is being charged on assets and it appears as an adjustment entry; then the amount of depreciation will be shown on the Debit side of the Profit and Loss Account and it will also be shown as deduction from the respective Assets on the Asset side of the Balance Sheet.
_________________________________________
- (4) Outstanding Expenses
➺ When outstanding expenses appear as an adjustment entry; it will be added to the concerned expenses on the Debit side of the Trading or Profit and Loss Account as well as it will be shown on the Liabilities side of the Balance Sheet.
_________________________________________
- (5) Prepaid Expenses
➺ When prepaid expenses appear as an adjustment entry; it will be deducted from the concerned expenses on the Debit side of the Trading or Profit and Loss Account as well as it will be shown on the Asset side of the Balance Sheet.