**NOTE **PleaseReadtheS.NO.6,7&S.No.

11ofthechartofcommonadjustment

fromthispdf.Inthemainpdf,thereisasmallmistakeinthesameS.No.
Lesson10
FinalAccounts
LearningObjective
Toknowhowtomakevariousadjustmentsintrialbalance
Adjustments
Allthetransactionswhichpertaintotheperiodoffinalaccountsbutarenot
consideredwhilepreparingthetrialbalancearecalledadjustments.Thesetransactions
havebeenrecordedandappearintrialbalancebutdonotpertaintotheperiodoffinal
accounts.
Adjustmentsgivenoutsidethetrialbalancerepresententriesyettobemadeinthe
journalandtheledger,withtheresultthattheeffectsofeachoftheadjustmentshaveto
berecorded.Therefore,theeffectofnominalaccountappearsinthetradingorprofitand
lossaccount.Atthesametime,theeffectconcerninganassetorliabilityappearsinthe
balancesheet.
Inshort,alltheadjustmentsgivenoutsidethetrialbalancewillappearinboththetrading
orprofitandlossaccountandthebalancesheet.Theexceptionwillbeinthecaseswhere
anadjustmentissuchthatitaffectstwonominalaccountsonlyandwhenboththeeffects
oftheadjustmentwillhavetobedealtwithinthetradingandprofitandlossaccount.

CommonAdjustments

Thefollowingchartshowstheeffectsofadjustmentsinfinalaccounts:
S.
Adjustment Journalentry
Treatmentofadjustmentin
No.
for
thefinalaccounts
1.
Depreciation DepreciationAccount
Dr.
(i)Tobedebitedtoprofit
ToAssetAccount
andlossaccount.
(ii)Tobedeductedfromthe
valueofanassetinthe
balancesheet.
2.
Closing
StockAccount
Dr. (i)Tobecreditedtotrading
stock
ToTradingAccount
account.
(ii)Tobeshownonthe
assetssideofthebalance
sheet.
3.
Baddebtsto
BadDebtsAccount
Dr. (i)Amountofbaddebts
ToSundryDebtorsA/c
bewritten
tobedebitedtoprofit
off
andlossaccount.
(ii)Tobedeductedfrom
sundrydebtorsinthe

4.

Reservefor
doubtful

ProfitandLossAccount
ToR.D.D.

Dr.

balancesheet.
(i)Tobedebitedtoprofit
andlossaccount.

debts

5.

6.

7.

8.

10.

11.
12.
13.

(ii)Tobeshownbyway
ofdeductionfrom
sundrydebtorsinthe
balancesheet.
OutstandingExpenses(Name)AccountDr.(i)Amounttobeaddedto
Expenses
ToOutstandingCreditorsfor
particulariteminthe
tradingorprofitand
ExpensesA/c
lossaccounts.
(ii)Tobeshownonthe
liabilitiessideofthe
balancesheet.
OutstandingOutstandingIncomeAccountDr.
ToIncome(Name)Account
income

(i)Amounttobe

addedfromthe
particulariteminthe
tradingorprofitand
lossaccounts.
(ii)Tobeshownonasset
sideofthebalance
sheet.
PrePaid
PrePaidExpensesA/c
Dr.
(i)Amounttobe
expenses
deductedfrom
ToExpenses(Name)Accounts
particulariteminthe
profitandloss
accounts.
(ii)Tobeshownonthe
assetssideofthe
balancesheet.
Income
Income(Name)Account
Dr. (i)Tobedebitedtoprofit
receivedin
ToIncomeReceivedin
andlossaccount.
advanceor
AdvanceAccount
or
(ii)Tobeaddedtocapital
accrued
ToAccruedIncome
inthebalancesheet.
Intereston
InterestAccount
Dr. (i)Tobedebitedtoprofit
ToCapitalAccount
capital
andlossaccount.
(ii)Tobeaddedtocapital
inthebalancesheet.
Intereston
CapitalAccount
Dr. (i)Tobecreditedtoprofit
drawings
ToIntereston Drawings
andlossaccount.
Account
(ii)Tobedeductedfrom
capitalinthebalance
sheet.
Netprofit
Profit&LossAccount Dr. Tobeaddedfromcapital
inthebalancesheet.
ToCapitalAccount
Netloss
CapitalAccou
Dr. Tobeaddfromcapital
ToProfit&LossAccount
inthebalancesheet.
Goodsused
DrawingsAccount
Dr. (i)Tobedeductedfrom
ToPurchasesAccount
purchases.
by
(ii)Tobeaddedto
proprietor
drawings.
forpersonal

use

14

Reservefor

discounton
creditors

15

ReserveforDiscounton
CreditorsAccount
ToProfit&LossAccount

AdvertisementAccount
ofgoods as ToPurchasesAccount
Distribution

Dr.

Dr. (i)Tobedebitedtoprofitand

loss account as toward

advertisement.
(ii)Tobedeductedfrom
purchasesintradingaccount.

freesamples

16

Goodslost

fire

by GoodsLostbyFireAccount
ToTradingAccount
(TotalCostValue)
InsuranceClaimAccount
Profit&LossAccountDr.
ToGoodsLostbyFireA/c

(i)Tobecreditedtoprofit
andlossaccount.
(ii)Tobedeductedfrom
sundrycreditors in the
balancesheet.

(i) Trading account, credit

side(fullcostvalue).
(ii) Profit and loss account,
Dr. debitside,the lossamount/or
the amount not recovered
throughinsuranceclaim.
(iii)Balance sheet, assetside,
amountofinsuranceclaimif
Received.
Dr.

Summary
1.Allthe transactionswhich pertainto theperiodof finalaccountsbut arenotconsidered while
preparingthetrialbalancearecalledadjustments.
2.Adjustmentsgivenoutsidethetrialbalancerepresententriesyettobe madeinthe journal and
theledger.
3.Allthe adjustmentsgiven outsidethe trialbalance willappearinboththetradingor profitand
lossaccountandthebalancesheet.