meaning final accounts prepared at the year consist of trading, profit & loss account and...
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Final accounts prepared at the year consist of trading, profit & loss account and balance sheet. In order to decided as to which item will be taken to which place the following accounting principle is applied….
All revenue expenditure and receipts are taken to trading & profit and loss a/c.
All capital expenditure and receipts are taken to balance sheet.
Closing stock
(a)Trading a/c credit side
(b) balance sheet asset side
Outstanding expenses
(a)Add in Trading or P&L a/c debit side
(b) balance sheet liabilities side
Prepaid expenses
(a)Less in Trading or P&L a/c debit side
(b) Balance sheet assets side
Outstanding income/accrued income
(a)Add in credit side P&L a/c
(b)Balance sheet assets side
Income received in advance(a)Less from credit side P&L a/c(b)Balance sheet liabilities side
Depreciation(a)P&L a/c debit side(b) balance sheet less from fixed assets
Bad debts(a)Debit side P&L a/c(b) deducted from debtors asset side
Note: if bad debts is given in the trial balance it will be shown only on the debit side of P&L a/c
Provision for bad & doubtful debts: doubtful debts are those whose recovery is doubtful. It is known at present whether they would be recovered or not
It should not be written off from the book of a/c like bad debt, It is only an anticipated loss, for meeting in emergency where the doubtful debts become bad debts later on.
(a)Debit in P&L a/c ( probable loss)(b) less from debtors assets side
Interest on capital(a)P&L a/c debit side(b) add to the capital on liabilities side
Interest on drawing(a)Credit side P&L a/c(b) less from capital on liabilities side
Both old & new provision for bad debts are given in questions
bad debts(T/B) +new provision for bad debts(adjustment)-old provision for (T/B)
(a)Debit side in P&L a/c(b) deducted from debtors on balance sheet