Adjustments in Final Accounts: Advance Income
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Adjustments in Final Accounts
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 OF FINAL ACCOUNTS:
|
Closing stock |
Goods loss by fire and insurance claim |
|
Outstanding expenses |
Goods loss by fire and insurance claim |
|
Prepaid expenses |
Goods distribute as free sample |
|
Accrued revenue or income |
Manager’s commission |
Advance income or unearned income |
Bonus or pension to employees |
|
Depreciation on assets |
Create reserve or fund |
|
Appreciation on assets |
Goods sold on sale or return basis |
|
Written off or amortized |
Hidden adjustment: |
|
Purchase or sale of fixed assets |
(a) Interest on loan or debenture |
|
Bad debts, provision and discount |
(b) Interest on investment |
|
Recovery of bad debts |
(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: 8A
Extracted data:
Extracted Trail Balance
|
Particulars |
Debit |
Credit |
|
Advance rent received |
|
12,000 |
|
|
|
|
Required: (1) Journal entry; (2) Show in balance sheet
Journal Entry
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Rent account |
Dr |
|
– |
|
|
|
To Advance rent account |
|
|
|
– |
|
|
(Being- unearned or advance rent received) |
|
|
|
|
|
|
|
|
|
|
|
P&L Account
|
Particulars |
|
Amount |
Particulars |
|
Amount |
|
|
|
|
By Rent |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
Liabilities |
|
Amount |
Assets |
|
Amount |
|
Current liabilities: |
|
|
|
|
|
|
Advance rent received |
|
12,000 |
|
|
|
|
|
|
|
|
|
|
#####
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Click on link for YouTube videos |
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Share (Accounting for Share) |
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Share in Nepali |
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Debentures |
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Final Account: Class 12 |
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Final Account in Nepali |
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Work Sheet |
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Ratio Analysis (Accounting Ratio) |
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Fund Flow Statement |
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Cash Flow Statement |
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Theory Accounting Xii |
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Theory: Cost Accounting |
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Cost Accounting |
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LIFO−FIFO |
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Cost Sheet, Unit Costing |
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Cost Reconciliation Statement |
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#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 8B
Extracted Trail Balance
|
Particulars |
Debit |
Credit |
|
Commission received |
|
25,000 |
|
|
|
|
Additional information:
Out of commission received, advance 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 |
|
|
Commission received |
Dr |
|
8,000 |
|
|
|
To Advance commission account |
|
|
|
8,000 |
|
|
(Being- commission earned and advance received) |
|
|
|
|
P&L Account
|
Particulars |
|
Amount |
Particulars |
|
Amount |
|
|
|
|
By Commission received |
25,000 |
|
|
|
|
|
Less: Unearned |
(8,000) |
17,000 |
|
|
|
|
|
|
|
Balance Sheet
|
Liabilities |
|
Amount |
Assets |
|
Amount |
|
Current liabilities: |
|
|
|
|
|
|
Unearned commission |
|
8,000 |
|
|
|
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