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.
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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.
These adjustment entries too much important for an accountant. After making these entries you can easily adjust expenses and revenue which you made in current accounting period.
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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.
Adjustments Entries of Final Account
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
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.
I hope you like this Adjustments Entries of Final Account guide. Give your important suggestions in comment box. Thanks.