15 IMPORTANT ADJUSTMENT ENTRY IN FINAL ACCOUNTS

15 IMPORTANT ADJUSTMENT ENTRIES IN FINAL ACCOUNTS

Important Adjustment Entry in Final Account: Many students are the gatting problem when starting to prepare a final account here are some difficult entries provided by us for the students. Now read all the posts carefully and after getting the knowledge you can apply for all these entries in your work. 

1.   Closing Stock  
2.   Outstanding Expenses  
3.   Prepaid or unexpired expenses  
4.   Accrued Incomes  
5.  Unearned incomes or income received in advance  
6.   Drawing  
7.  Goods delivered for donation 
8.   Stock in showroom included in opening stock 
9.  Goods in Transit 
10.  Sale of Waste Paper/Material or any type of waste product 
11.   Normal Loss of Goods 
12.   Deferred Revenue Expenditure  
13.   Set off Debtors and Creditors  

  Closing Stock  

            Closing stock means the unsold or unused stock of goods remaining at the end of the accounting period. Its entry is useful to prepare a final account.

Example: Mr Ram Purchase 100 kg sugar @ Rs. 30 per kg. on 01-01-2021. He sold 80 Kg. sugar to Mr Ramesh @ Rs. 40 per kg. on 15-01-2021. The closing stock will remain in the hand of Mr Ram is 20 Kg. @ Rs. 30 per kg. the end of the year.

Particular	Amount	Amount
Closing Stock, A/C………………. Dr.     To Trading A/C (Being closing stock remain 20 Kg @ Rs. 30 per Kg.)	600	600

  Outstanding Expenses  

            Those expenses which have been incurred and are due for payment i.e., not paid as yet, are called outstanding expenses.

Example: Rs. 5000 /pm paid as salary to staff but during the year 2021. But two months’ salary i.e., Rs. 10000 which is due but not paid i.e. called outstanding expenses.

Outstanding Expenses = Due but not paid

Particular	Amount	Amount
Salary A/C………………. Dr.    To Outstanding Salary A/C (Being two months outstanding salary due but not paid @ Rs. 10000)	10000	10000

  Prepaid or unexpired expenses  

           which expense is to be paid in advance or paid for the future period which is not set over or not yet expired such expenses are called prepaid or unexpired expenses.

Example: Mr Kapil took one-year fire insurance @ Rs. 2000 for Jan to Dec 2021. And also, he pays Rs. 2000 for the next year, which amount is to be paid for the next year i.e., called Prepaid or unexpired expenses. 

Particular	Amount	Amount
Prepaid Insurance A/C………………. Dr.    To Insurance A/C (Being Insurance amount @ Rs. 2000 paid for next year)	2000	2000

  Accrued Incomes  

           Which income that has been carried but not received during the accounting year is called accrued income. Income like interest on investments, rent of property, sublet, etc.

Example: Mr Ramesh deposit Rs. 50000 in SBI Bank @ 7% Interest on 1^st April, 2021

During the financial year Rs. 3500 will be credited in his account as interest. But Mr Ramesh has not received interest till the closing date.

Particular	Amount	Amount
Accrued Interest A/C………………. Dr.    To Interest A/C (Being accrued interest @ Rs. 3500 credited but not received at the end of financial year)	3500	3500

 Unearned incomes or income received in advance  

            Income received but not earned during the accounting, the year is called income received in advance.

Example: Mrs Sharma has been given her house to a tenant on Rs. 5000 P.M. But she received 15000 for the whole year, under yearly amount Rs. 3000 extra received by Mrs Sharma.

Particular	Amount	Amount
Rent A/C………………. Dr.    To Unearned Income A/C (Being unearned income received Rs. 3000 by a tenant)	3000	3000

  Drawing  

            A purchase of goods or assets in a business for the private use of a proprietor is treated as a Drawing.

Example: Mr Kamal purchases a car as business assets @ Rs. 500000. But he decided to the car for personal purposes.

Particular	Amount	Amount
Drawings A/C………………. Dr.    To Cash/Creditors A/C (Being business assets purchase for personal use)   Capital A/C …………………. Dr.      To Drawing A/C (Being Capital with drowning for personal use)	500000       500000	500000       500000

 

 Goods delivered for donation 

            The rules of recording of goods delivered for donation but not entered in the books of account in Journal Proper, Final Accounts, and The balance sheet is given below.

Example: Mr Raju is a mobile store; he gives an android set as a donation to his father the cost price of the mobile is Rs. 15000 only. 

Particular	Amount	Amount
Donation A/C………………. Dr.    To Purchases A/C (Being mobile phone give as donation)   Profit & Loss A/C …………………. Dr.      To Donation A/C (Being mobile phone give as donation purpose)	15000       15000	15000       15000

  Stock in showroom included in opening stock 

             If the stock of goods uses in business at a current year as opening stock.

Example: Mr Ram purchases 200 TV sets @ Rs. 5000 each. He stores 80 TV sets in her showroom and used 120 TV sets as opening stock for selling purposes. During the year he sold 100 TV sets after the closing date again in next year he uses 200 TV sets as opening stock (including 80 TV sets which was a store in the showroom, and new purchase 100 TV sets)

Particular	Amount	Amount
Stock in Showroom A/C………………. Dr.    To Trading A/C (Being reserved goods use as an opening stock)	400000	400000

 Goods in Transit 

                If goods are on the way, it does not enter in the godown. 

               Example: Mr Kapil purchase the goods from ABC Company @ Rs. 5000. 

                But the goods do not reach in the godown of Mr Kapil till now.

Particular	Amount	Amount
Stock in transit A/C………………. Dr.    To Trading A/C (Being goods are on the way)	5000	5000

 Closing Stock 

          If some goods are left during the accounting period, remains goods treated as closing stock.

Example: Mr Anil purchase 50 pieces of computer @ Rs. 15000 each, during the year he sold only 30 pieces @ Rs. 20000. 20 pieces of unsold goods during the accounting year.

Particular	Amount	Amount
Closing Stock, A/C………………. Dr.    To Trading A/C (Being goods are on the way)	300000	300000

 Sale of Waste Paper/Material or any type of waste product 

Example: Mr Sharma Purchase Purchases a goods @ Rs. 5000, the sale these goods @ Rs. 3000. But Rs. 2000 goods have been destroyed these goods sold as a scrap/waste material. 

Particular	Amount	Amount
Sales A/C………………. Dr.    To Waste Products A/C (Being Waste products sold)   Waste Products A/C …………………. Dr.      To Profit & Loss A/C (Being mobile phone give as donation purpose)	2000       2000	2000      2000

 Wages for repairing assets included in productive wages

Example: Mr Hari Purchases an asset @ Rs. 50000 and he will be paid repairing charge with productive wages @ Rs. 5000.

Particular	Amount	Amount
Repair Charge A/C………………. Dr.    To Wages A/C (Being Wages paid for repair the assets/Machine)   Profit & Loss A/C …………………. Dr.      To Repair Charge A/C (Being mobile phone give as donation purpose)	5000       5000	5000    5000

  Normal Loss of Goods 

           Which loss is not recovered under general insurance these losses are called Normal Loss, like material cut by the mouse, any liquid leakage in go down or tangiest.

Example: Mr Ranjit is a garment seller he purchases 1000 pieces of garments @ Rs. 100 each. Under these garments closing stock will be included @ Rs. 25000. The portion of closing stock value up to Rs. 2000 has been treated as Normal Loss.

Particular	Amount	Amount
Trading, A/C………………. Dr.    To Closing Stock A/C (Being Normal Loss occurred @ Rs. 2000)	2000	2000

  Deferred Revenue Expenditure  

             The expenditure which is paid in an accounting period, but its activities or effects will continue more than one accounting period is called deferred revenue expenditure. It is to be treated in the books of account as an expense paid in advance.

Example: Mr Suresh has taken general insurance for 2 years @ Rs. 5000 for his business building and office. 

Particular	Amount	Amount
Deferred Revenue Expenditure, A/C………………. Dr.    To Expenditure A/C (Being general insurance taken for 2 years @ Rs. 5000)	5000	5000

  Set off Debtors and Creditors  

            A person may be included in debtors and creditors balances of a business.

Example: Creditor will be received from debtors @ Rs. 5000 and debtors also found the amount from creditors @ Rs. 4000, and the balance amount is paid in cash by the creditor.

To determine the correct financial position of the business, the net amount payable to that person, or net amount receivable from that person is to be determined. The lowest amount, which is included in debtors or creditors, for the same person is to be deducted from debtors and creditors. 

Particular	Amount	Amount
Creditor, A/C………………. Dr.    To Debtors A/C (Being common amount is setoff i.e., Rs. 4000)   Cash A/C……………………. Dr.          To Debtors A/C (Being Balance amount Rs. 1000 Pay by the creditor)	4000       1000	4000      1000