LET US SUM UP

 8.6 LET US SUM UP

At the time of preparing the final accounts a number of items need adjustments. It is &cause certain expenses may relate to two or more accounting years or certain expenses incurred during the current year may still remain to be paid. Unless such adjustments are made, the final accounts will not reveal the true picture. Such items are usually given outside the Trial Balance and are shown at two places in the final accounts so as to complete the double entry, 

Adjustment entries can be passed in the journal for each item of adjustment. But, normally they are directly adjusted in the final accounts. In practice the adjustment entries are always passed for such items and a revised Trial Balance called 'Adjusted Trial Balance' or 'Final Trial Balance' is prepared. In such a situation, the adjustments will appear in the Trial Balance itself. Any item of adjustment which appears in the Trial Balance is shown only at one place in the final accounts.

8.7 KEY WORDS

Abnormal Loss: Loss caused by abnormal causes.

Adjustment Entry: Journal entry passed to make an adjustment in the relevant accounts. 

Adjustment Item: An item given outside the Trial Balance which requires adjustment at the time of preparing final accounts. 

Adjosted Purchases: Amount of purchases after adjusting both the opening and closing stocks. 

Adjusted Trial Balance: Trial Balance prepared after incorporating various adjustments. 

Depreciation: A permanent decrease in the value of a fixed asset caused by wear and tear or the passage of time. 

Doubthl Debts: Debts of doubtful recovery.

Outstanding Expenses: Expenses incurred during the accounting year but not yet paid.

Outstanding Incomes: Incomes earned during the accounting year but not yet received.

Prepaid Expenses: Expenses paid but the benefit of which is yet to be received. 

Unearned Income: Income in respect of which the services are yet to be rendered. 

8.8 ANSWERS TO CHECK UOLTR PROGRESS

8.9 TERMINAL QUESTION/EXERCISES

Questions

1 Why some adjustments become necessary at the time of preparing the final accounts? Name any two items of adjustment and explain how they are shawn in the final accounts. 

2 Distinguish between: 
a) Outstanding Expenses and Unexpired Expenses 
b) Provision for Discount on Debtors and Provision for Discount on Creditors 
c) Normal Loss and Abnormal Loss.

Exercises 

Exercises 

1 Give journal entries for the following adjuutnsents: 

i) Interest received in advance Rs. 600 

ii) Interest on drawings Rs. 1,2M9 

iii) Provision for discount on creditors Ks. 2130 

iv) Loss of goods by theft Rs. 8,580 

v) Drawings of goods by the proprietor Rs. 750 

2 The following information is extracted from the hooks of a businessman:

Debtors as on 31.12.1987             Rs. 25,000 

Bad Debts during 1987                 Rs. 1,000

Provision for Bad Debts is to be maintained at 5% of debtors. 

A Provision for discount on debtors is also to be made at 2%. You are required to 

calculate the amounts to be set aside in respect of provision for bad debts and 

provision for discount on debtors respectively.

(Answer: Provision for Bad Debts Rs. 1,250; Provision for Discount on Debtors Rs. 475)

3 The Proprietor withdrew the following amounts during the year ended December 31,1987.

                                        Rs.

Feb. .28                         4,000

May 1                            6,000

Aug. 31                         5,000

Nov. 1                            2,000

Dec. 1                            1.000

Calculate interest on drawings if the rate is 6% per annum. (Answer: Rs. 565)

4 From the following Trial Balance of Puri & Sons as on June 30,1988, prepare Trading and Profit and Loss Account and the Balance Sheet. 

Trial Belance 

Trial Balance

6 From the following Trial Balance of V. Ramana prepare his final accounts for the yead ended December 31,1986.

(Answer: Gross Profit Rs. 61,300; Net Profit Rs. 39,900; Balance Sheet total Rs. 1,30,000) 7 The Trial Balance of S. Karim as on December 31,1986 was as under:

Prepare the Profit and Loss Accoutlt for the year ending December 31, 1986 and the Balance Sheet as on that date. (Answer : Net Loss Rs. 11,100; Balance Sheet total Rs. 1,30,500)

Note: These questions will help you to understand the unit better. Try to write answers for them. But do not submit your answers to the University. These are for your practice only.