How to make adjustments entries of Final Account

Dear Friends, at the end of the financial year we need to adjust all accounts and due to that purpose we have to make few adjustment entries. So, today we talk about adjustments Entries of Final Account in business or any commercial firm. Adjusting Entries are journal entries that are made at the end of the accounting period, to adjust expenses and revenues to the accounting period where they actually occurred. Generally speaking, they are adjustments based on reality, not on a source document. After reading this article you will be able to make adjustments Entries of Final Account.

This is in sharp contrast to entries during the accounting period (such as utility bills or fees for services rendered) that depend on source documents. We already discuss about how to preparing final accounts format or what is a final account in previous post. Preparing adjusting entries is a key step in the ongoing accounting cycle, coming right after you’ve completed preparing a trial balance.You can use these adjustment entries during preparation of final accounts in your company or firm.

Must Read: How to use Journal Voucher in Tally

Adjustments Entries of Final Account

Closing Stock

Cr. (Trading A/c)                                                                                              Asset Side

Depreciation on Machinery

Dr. (Profit & Loss A/c)                                                                                     (-) From Machinery

Appreciation on Building

Cr. (Profit & Loss A/c)                                                                                     (+) in Building

DUE/ADVANCE (Unpaid/Due/Arrears/Outstanding Rent (Expenses))

(+) in Rent                                                                                                          Liabilities side

Accrued Rent (Income)

(+) in Rent                                                                                                          Assets side

Prepaid/Paid in advance/Unexpired Rent (Expenses)

(-) in Rent                                                                                                           Assets side

Prereceived/Rent received in advance (Income)

(-) in Rent                                                                                                          Liabilities side

INTEREST (Interest on Capital)

(+) in  Capital                                                                                                     Dr. (P&L)

Interest on Bank overdraft

(+) in Bank overdraft                                                                                        Dr. (P&L)

Interest on Loan (Liab. Side)

(+) in Loan (Liab. Side)                                                                                     Dr. (P&L)

Interest on Loan (Assets side)

(+) in Loan (Assets side)                                                                                   Cr. (P&L)

Interest on Investment

(+) in Investment                                                                                               Cr. (P&L)

Interest on Fixed Deposit

(+) in Fixed Deposit                                                                                            Cr. (P&L)

Interest on Drawing

(-) from Capital                                                                                                    Cr. (P&L)

FREE GOODS (Free Goods distributed as sample)

(-) from Purchase                                                                             Dr. (P&L) To Advertisement

Free goods given as charity

(-) From Purchase                                                                            Dr. (P&L) To Charity

Goods taken up by the proprietor for personal use

(-) From Purchase                                                                                              (-) From Capital

GOODS DESTROYED BY FIRE  (Uninsured Goods worth Rs. 7,000 destroyed by fire. OR Goods worth Rs. 7,000 destroyed by fire but insurance Co. admitted no claim)

(-) Rs. 7,000 from purchases                           Dr. side of P&L A/c (To Loss by Fire) Rs. 7,000

Insured Goods worth Rs. 5,000 destroyed by fire and insurance company admitted full claim.

(-) Rs. 5,000 from Purchase                                    Assets side of Balance sheet (Insurance Co.)

Insurance Goods worth Rs. 25,000 destroyed by fire but insurance Co. admitted a claim of Rs. 23,000.

(-) Rs. 25,000 from purchase                                  Rs. 23,000 in Assets side (Insurance. Co.)

Dr. (P&L Rs. 2,000 To loss by fire)

DISCOUNT (Discount on Debtors)

(-) from Debtors                                                                                   (+) in given Bad debt

(Dr. side of P&L A/c)

Discount on Creditors

(-) from Creditors                                                                                 Cr. Side of P&L A

MANAGER COMMISSION (Manager Commission/Office Manager Commission)

-Dr. side of P&L A/c;                                                                             Liabilities side

Factory Manager Commission

-Dr. Side of Trading A/c                                                                        Liabilities side

 Calculation of Manager Commission

10% on Net profit BEFORE CHARGING Manager Comm.. = Net profit BCMC* 10/1

10% on Net profit AFTER CHARGING Manager Comm. = Net profit BCMC* 10/1

NEW PROVISION FOR BAD DEBT

Further Bad debt

(+) given Bad debt (Dr. side of P&L A/c                                               (-) From Debtors

Reserve a provision for Doubtful debt.

(+) in given Bad debt (Dr. side of P&L A/c)                                         (-) From Debtors

GOODS SALE OR RETURN ON APPROVAL BASIS

(Goods costing Rs. 12000 were sent to customer on sale or return for Rs. 12500 on 30th Dec. and had been recorded as actual sales)

Rs. 12000 will be (+) in both the closing stock                       Rs. 12500 (-) from Sales

Rs. 12500 (-) from Debtors

EXTRA ADJUSTMENT

Wages include a sum of Rs. 10,000 spent on the erection of a scooter for the employee and customers.

Rs. 10,000 (-) from wages.                                                        Rs. 10,000 (+) from in Building.

Purchases include two Typewriters costing Rs. 27,000.

Rs. 27,000 (-) from Purchases                      Rs. 27,000 (+) in given Typewriter in Assets side.

Must Read: Set or Edit Credit Limit in Tally ERP9 on ledger account

I hope you like this Adjustments Entries of Final Account guide. Give your important suggestions in comment box. Thanks.

4 response on “How to make adjustments entries of Final Account

  1. Sumitgupta

    Doubt about the posting of profit & loss ac cr given in trial blance how to post in finl accounts

    Reply
  2. Anand vallabh oli

    Now, I am satisfied. I was so confused about approval consept, but now i happy.
    What we do when the stock will be overcast by 7000?

    Reply

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