Adjusting Entries while preparing Final Accounts


          In this article let us see what are all the adjustments are to be made in order to prepare final accounts. When we are preparing final accounts at the end of every accounting period adjustments gets into scenario. The adjustments may be in the form of the expenses of current year are still payable or income of the current year remains still receivables or income of the next year has been received during current year. So now let us see the adjustments to be made one by one.

§  Closing Stock:

Closing Stock A/c          Debit
          To Trading A/c

§  Depreciation:

Depreciation A/c Debit
          To Asset A/c
Adjustment – To be posted on  Debit Side of P&L A/c

§  Appreciation:

Asset A/c              Debit
          To Appreciation A/c
In Trading and Profit and Loss A/c credit side

§  Outstanding Expenses:

Expense A/c                   Debit
          To O/S Expense A/c
Adjustment in trading and P&L A/c to be added debit side and adjustment in B/S on liability side

§  Prepaid Expenses:

Prepaid Expenses A/c    Debit
          To Expenses A/c
Adjustment in trading and Profit and Loss A/c – Deduction from debit side and adjustment in B/S shown at the asset side

§  Accrued Income

Accrued Income A/c       Debit
          To Income A/c
Adjustment – Added to concerned income at credit side of P&L A/c and Shown at the asset side of the B/S

§  Unearned Income

Income A/c           Debit
          To Unearned Income A/c
Adjustment – Deducted from concern income at credit side of P&L A/c and Shown on Liability side of B/S

§  Interest on Capital

Interest on Capital A/c   Debit
          To Capital A/c
Adjustment- Posted on debit side of P&L A/c and shown on asset side of B/S

§  Interest on Drawings

Drawings A/c                 Debit
          To Interest on Drawing A/c
Adjustment – Posted on credit side of the P&L

§  Interest on Investments

Investment A/c               Debit
          To Interest on Investment A/c
Adjustment - Posted on credit side of P&L A/c and added to investment on the asset side of BalanceSheet

§  Interest on Loans (Borrowed)

Interest on Loan A/c      Debit
          To Interest on Investment A/c
Adjustment – Posted on debit side of P&L A/c and added to loan at the liabilities side.

§  Interest on Loan (Advanced)

Loan A/c              Debit
          To Interest on Loan A/c
Adjustment – To be posted on credit side of P&L A/c and added to loan on the asset side of the BalanceSheet.

§  Bad debts

Bad Debts A/c               Debit
          To Debtors
Adjustments – To be posted on debit side of P&L A/c and deducted from debtors at asset side

§  Provision for Bad Debts

P&L A/c               Debit
          To Debtors A/c
Adjustment -  To be posted on debit side of P&L A/c and Deducted from debtors at asset side of Balance Sheet.

§  Provision for Discount on Debtors

P&L A/c               Debit
          To Provision for Bad Debts A/c
Adjustments – Debit side of P&L A/c and Deduct from debtors on the asset side of B/S

§  Provision for Discount on Creditors

Provision for Discount on Creditors A/c              Debit
          To P&L A/c
Adjustment – Credit side of P&L A/c and Deduct from creditors from liabilities side of B/S

§  Accidental Loss of Stock

Loss of Stock A/c          Debit
          To Trading / Purchase A/c
Adjustment – Deduct from purchase or post credit side of trading A/c or debit side of P&L A/c.

§  Accidental Loss of Goods if Insured

Insurance Company A/c          Debit
Loss of Goods                         Debit
          To Trading A/c
Adjustment – Credit Side of trading A/c or debit side of P&L A/c and Insurance company  A/c shown on the asset side of B/S

§  Loss of Asset by Fire

Loss by fire A/c             Debit
          To Asset A/c
Adjustment – Debit side of P&L A/c and Loss will be deductible from asset side of B/S

§  Accidental Loss of Asset (If insured)

Insurance Company A/c          Debit
Loss of Asset A/c           Debit
          To Asset A/c
Adjustment – Debit side of P&L A/c and Insurance company A/c to be shown on asset side. Loss of asset will be deductible from concerned asset in B/S

§  O/s Managers Commission

P&L A/c               Debit
To O/S Managers commission A/c
Adjustment – To be posted on debit side of P&L A/c and shown on the liability side of B/S

§  Goods Taken By Proprietor for Personal Use

Drawing A/c                  Debit
          To Purchase A/c
Adjustment – Deduct from purchases in trading A/c and Deduct from Capital on Liability side of B/S

§  Goods Given as Charity

Charity A/c                    Debit
          To Purchase A/c
Adjustment – Deduct from purchase from debit side of trading A/c and deductible from capital from asset side of B/S

§  Goods Distributed as free samples

Advertising / Free Sample A/c          Debit
                   To Purchase A/c

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