Advance Income Adjustment in Final Accounts

  

Adjustments given below trial balance must be adjusted for final account.

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit. 

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):  

 

Major Adjustments in Final Accounts

Closing stock Outstanding expenses Prepaid expenses Accrued income or income receivable   Advance income or unearned income Depreciation on assets Appreciation on assets Written off or amortized Purchase or sale of fixed assets Bad debts, provision and discount Bad debts recovered

Goods loss by fire and insurance claim Goods loss by fire and insurance claim Goods distribute as free sample Manager’s commission Bonus or pension to employees Create reserve or fund  Goods sold on sale or return basis Hidden adjustment: (a) Interest on loan or debenture (b) Interest on investment (c) Monthly rent and salary

 

Advance Income or Unearned Income

Sometimes organization can receive some income in advance.

It is not income till work complete.

Revenue received in advance before actually performing is called unearned income or revenue.

It is liability till the organization completes the task.

Receipts are considered as income only if they are earned in particular accounting year.

Some unearned or advance revenue are commission and rent.

There are two situations:

The entire amount received is credited to the profit and loss account

The entire amount received is credited to a liability account like unearned revenue account.  

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

ADJUSTMENT: 5A

Extracted data:

Unearned rent received for the year Rs 12,000.

Required: (1) Journal entry; (2) Show in balance sheet 

 

Journal Entry

Date	Particulars		LF	Amount	Amount
	Cash account                                                To Advance rent account (Being- unearned or advance rent received)	Dr		12,000	12,000

 

P&L Account

Particulars		Amount	Particulars		Amount

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Current liabilities: Advance rent received		12,000

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

ADJUSTMENT: 5B

Extracted information:

Out of commission earn Rs 25,000; advance commission is Rs 8,000.

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

Journal Entry

Date	Particulars		LF	Amount	Amount
	Cash account           To Advance commission account           To Commission earned account (Being- commission earned and advance received)	Dr		25,000	8,000 17,000

 

P&L Account

Particulars		Amount	Particulars		Amount
			By Commission received        Less: Unearned	25,000 (8,000)	17,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Current liabilities: Unearned commission		8,000

 

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