Adjustment entries

Outstanding Expenses

Incurred within the year but payment has

not been made.
Profit and Loss Account

Expenses
Employee Benefit
Salaries

XX

Add Outstanding Salaries

XX
XX

Balance Sheet
Capital and Liabilities
Current Liabilities
Outstanding Salaries

XX

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

XX

Less Prepaid Expenses

XX
XX

Balance Sheet
Capital and Liabilities
Current Assets
Prepaid Expense

XX

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

XX

Less Prepaid Expenses

XX
XX

Balance Sheet
Assets
Current Assets
Prepaid Expense

XX

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 Sheet
Assets
Non Current Assets
Fixed Assets
Less Depreciation

XXX
XX
XXX

Bad Debts
Bad debts represent money due from Drs.
which is irrecoverable
Profit and Loss Account

Expenses
Other expenses
Bad Debts

XX

Provision for Bad and doubtful debts

XX

Balance Sheet
Assets
Current Assets
Su.Debtors
Less Bad debts

XXX
XX

Less Provision for bad debts

XXX

Closing Stock
Profit and Loss Account
Expenses
Change in inventory
Opening closing

XX

Less Closing stock

XX

Balance Sheet
Assets
Current Assets
Closing Stock

XXX

Outstanding Income and Accrued

Income

Income earned but money has not been

received

Other Income
Interest on Loan
Add Outstanding interest
Interest on Investment

XX
XX

Add Accrued Interest

Balance Sheet
Assets
Outstanding Interest
Accrued Interest

XXX

Income received in Advance

Incomes received during the current year but

part of the amt relates to next year.

Expenses
Finance Cost
Interest

XX

Less Received in Advance

XX

Balance Sheet
Liabilities
Received in Advance

XX
XXX

Interest on Capital & Drawings

Expenses
Finance Cost
Interest on Capital

XX
XX

Balance Sheet
Equity and Liabilities
Share Capital

XX

Add Interest on Capital

XXX

Interest on Capital & Drawings

Other Income
Interest on Drawings

XX
XX

Balance Sheet
Equity and Liabilities
Share Capital
Less Drawings

XX

Less Interest on Drawings

XXX

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
Rs
Opening Stock
1,250
Sales
11,800
Depreciation
667
Commission (Cr.) 211
Insurance
380
Carriage Inwards
300
328
Furniture
670
Printing Charges
481
Carriage Outwards 200
Capital
9,228
Creditors
1,780
Bills Payable
541
Bad Debts
180

Particulars
Rs
Plant and Machinery 6,230
Return Outwards
1,380
Cash in hand
895
Salaries
750
Debtors
1,905
Discount (Dr.)
Bills Receivable
Wages
Return Inwards
Bank Overdraft
Purchases
Cash in hand
Closing Stock

2,730
1,589
1,659
4,000
8,679
47
3,700

1. From the following trial balance of ABC Co., prepare trading and profit and loss
account and balance sheet
Adjustments

1.Closing stock Rs 80000

2.Interest on Capital @6%
3.Prepaid advertisement Rs 2000
4.Drawings Rs 1800
5.Outstanding salaries Rs 3000
6.Depreciation on building @ 5 %, furniture @ 5 % and motor car @ 10
%

Capital
Commission
Purchase returns
Creditors
Sales
915300

500000
7500
1800
56000
350000
915300

Particulars
Cash in hand
Cash in bank
Purchases
Stock (Opening)
Debtors
Motor Car
Furniture
Building
Advertisement
Repairs and maintenance
General Expenses
Insurance
Salaries

Dr
3500
6000
225000
72000
50000
30000
15000
425800
22000
13000
16000
7000
30000

Cr

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