Adjustment entries

Outstanding Expenses Incurred within the year but payment has not been made.Profit and Loss Account

Expenses Employee BenefitSalaries XXAdd Outstanding SalariesXXXX

Balance SheetCapital and Liabilities Current Liabilities Outstanding SalariesXX

Prepaid Expenses Expenses which have been paid, but some amount is to be recorded next year Profit and Loss Account

Expenses Other ExpensesInsurance PremiumXXLess Prepaid ExpensesXXXX

Balance SheetCapital and Liabilities Current AssetsPrepaid ExpenseXX

Prepaid Expenses Expenses which have been paid, but some amount is to be recorded next year Profit and Loss Account

Expenses Other ExpensesInsurance PremiumXXLess Prepaid ExpensesXXXX

Balance SheetAssetsCurrent AssetsPrepaid ExpenseXX

Depreciation of Assets Depreciation means diminution or fall in value of assets due to its constant use.

Profit and Loss Account

Expenses Depreciation Depreciation of assets XX

Balance SheetAssetsNon Current AssetsFixed Assets Less DepreciationXXX XXXXX

Bad Debts Bad debts represent money due from Drs. which is irrecoverable

Profit and Loss Account

Expenses Other expensesBad DebtsXXProvision for Bad and doubtful debtsXX

Balance SheetAssetsCurrent AssetsSu.Debtors Less Bad debts XXX XX Less Provision for bad debtsXXX

Closing Stock

Profit and Loss Account

Expenses Change in inventoryOpening closing XXLess Closing stockXX

Balance SheetAssetsCurrent AssetsClosing StockXXX

Outstanding Income and Accrued IncomeIncome earned but money has not been received

Other Income Interest on Loan Add Outstanding interest XXInterest on Investment XXAdd Accrued Interest

Balance SheetAssetsOutstanding InterestAccrued InterestXXX

Income received in Advance Incomes received during the current year but part of the amt relates to next year.

ExpensesFinance CostInterest XXLess Received in Advance XX

Balance SheetLiabilities Received in Advance XXXXX

Interest on Capital & Drawings

ExpensesFinance CostInterest on CapitalXXXX

Balance SheetEquity and Liabilities Share CapitalXXAdd Interest on CapitalXXX

Interest on Capital & Drawings

Other Income Interest on Drawings XX

XX

Balance SheetEquity and Liabilities Share CapitalLess Drawings XXLess Interest on DrawingsXXX

Q5. From the following balance extracted from the books of M/s Rajendra Kumar Gupta & Co., prepare a Trading and Profit and Loss Account and a Balance Sheet.

Particulars RsParticulars RsOpening Stock 1,250Plant and Machinery 6,230Sales 11,800Return Outwards1,380Depreciation 667 Cash in hand 895Commission (Cr.) 211Salaries 750Insurance 380Debtors1,905Carriage Inwards 300Discount (Dr.) 328Furniture 670Bills Receivable2,730Printing Charges 481Wages1,589Carriage Outwards 200Return Inwards1,659Capital 9,228Bank Overdraft4,000Creditors 1,780Purchases8,679Bills Payable 541 Cash in hand 47Bad Debts 180 Closing Stock3,700

1. From the following trial balance of ABC Co., prepare trading and profit and loss account and balance sheetAdjustments Closing stock Rs 80000Interest on Capital @6%Prepaid advertisement Rs 2000Drawings Rs 1800Outstanding salaries Rs 3000Depreciation on building @ 5 %, furniture @ 5 % and motor car @ 10 %

Capital 500000Commission 7500Purchase returns 1800Creditors 56000Sales 350000915300915300

Particulars Dr Cr Cash in hand 3500Cash in bank 6000Purchases 225000Stock (Opening)72000Debtors 50000Motor Car 30000Furniture 15000Building 425800Advertisement 22000Repairs and maintenance 13000General Expenses 16000Insurance 7000Salaries 30000

Differentiate the following : Accounting Income vs. Economic Income Revenues vs. Gains; Expenses vs. Losses Fiscal Year vs. Calendar Year Revenue Recognition vs. Expense Recognition Accruals vs. Prepaids Balance Sheet Approach vs. Income Statement Approach Cash Basis vs. Accrual Basis

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