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):
1 |
Dividend |
13 |
Bad debts, provision and discount |
2 |
Transfer to reserve and fund |
14 |
Recovery of bad debts |
3 |
Adjustment of tax |
15 |
Goods loss by fire and insurance claim |
4 |
Closing stock |
16 |
Goods distribute as free sample |
5 |
Outstanding expenses |
17 |
Manager’s commission |
6 |
Prepaid expenses |
18 |
Bonus or pension to employees |
7 |
Accrued revenue or income |
19 |
Create reserve or fund |
8 |
Unearned or prepaid revenue |
20 |
Goods sold on sale or return basis |
9 |
Depreciation on assets |
21 |
Hidden adjustment: |
10 |
Appreciation on assets |
|
(a) Interest on loan or debenture |
11 |
Written off or amortized |
|
(b) Interest on investment |
12 |
Purchase or sale of fixed assets |
|
(c) Monthly rent and salary |
Selling of goods on credit (or service provide on credit) is part of debtors.
It is risky but unavoidable in the modern marketing system.
When debtors are failed to pay their due, it is called bad debts.
Sometimes organization estimates provision for bad debts on debtors.
When cash discount is allowed to receive money earlier, it is called discount on debtors.
When goods are sold on credit with guarantee of recovery, it is called bills receivable or account receivable.
When debtor becomes insolvent, he cannot pay his all dues.
Out of his personal assets, some portion of credit amount can be received.
Uncollected amount is also called bad debts.
After deducting bad debt, there may be provision for bad debt, provision for doubtful debts, reserve for doubtful debts etc; they are also deducted from debtor.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 13A
ABC Traders became insolvent and received only 60% of his due of Rs 20,000.
Required: Journal entry
Journal Entry
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Bank account (Rs 20,000 @ 60%) |
Dr |
|
12,000 |
|
|
Bad debts account (Rs 20,000 @ 40%) |
Dr |
|
8,000 |
|
|
To ABC Traders |
|
|
|
20,000 |
|
(Being- debtor became insolvent and received only |
|
|
|
|
|
60%of 20,000) |
|
|
|
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 13B
Extracted trial balance
Name of ledgers |
Amount Dr |
Amount Cr |
|
Debtors |
100,000 |
− |
|
Bad debs |
10,000 |
− |
|
Provision for bad debts |
|
5,000 |
|
Additional information:
· Further bad debts is Rs 20,000
· Provision for bad debts is 5%
Required: (a) Journal entry; (b) Show in profit and loss account; (c) Show in balance sheet
SOLUTION:
Journal Entry
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Bad debts account |
Dr |
|
20,000 |
|
|
To Debtors account |
|
|
|
20,000 |
|
(Being- bad debts written off on debtors) |
|
|
|
|
|
Provision for bad debts account |
Dr |
|
4,000 |
|
|
To Debtors account |
|
|
|
4,000 |
|
[Being- provision bad debts written off (100,000 – |
|
|
|
|
|
20,000) @ 5%] |
|
|
|
|
P&L Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Bad debt, old |
10,000 |
|
By Provision for bad debts (old) |
|
5,000 |
Add: Bad debts, new |
20,000 |
|
|
|
|
Add: PBD, new |
+4,000 |
34,000 |
|
|
|
|
|
|
|
|
|
Or
P&L Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Bad debt, old |
10,000 |
|
|
|
|
Add: Bad debts, new |
20,000 |
|
|
|
|
Add: PBD, new |
4,000 |
|
|
|
|
Less: PBD, old |
(5,000) |
29,000 |
|
|
|
|
|
|
|
|
|
Balance Sheet
Liabilities |
|
Amount |
Assets |
|
Amount |
|
|
|
Current assets: |
|
|
|
|
|
Debtors |
100,000 |
|
|
|
|
Less: Bad debts, new |
(20,000) |
|
|
|
|
Less: PBD, new 5% |
80,000 |
|
|
|
|
|
(4,000) |
76,000 |
|
|
|
|
|
|
#####
Click on link for YouTube videos |
|
Share (Accounting for Share) |
|
Share in Nepali |
|
Debentures |
|
Final Account: Class 12 |
|
Final Account in Nepali |
|
Work Sheet |
|
Ratio Analysis (Accounting Ratio) |
|
Fund Flow Statement |
|
Cash Flow Statement |
|
Theory Accounting Xii |
|
Theory: Cost Accounting |
|
Cost Accounting |
|
LIFO−FIFO |
|
Cost Sheet, Unit Costing |
|
Cost Reconciliation Statement |
#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 13C
Extracted trial balance
Name of ledgers |
Amount Dr |
Amount Cr |
|
Debtors |
160,000 |
− |
|
Bad debs |
15,000 |
− |
|
Provision for bad debts |
|
5,000 |
Additional information:
Further bad debts is $/₹/Rs 10,000
Provision for bad debts is 5%
Discount allowed to debtors @ 2%
Required: (a) Journal entry; (b) Show in profit and loss account; (c) Show in balance sheet
SOLUTION:
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Bad debts account |
Dr |
|
10,000 |
10,000 |
|
To Debtors account |
|
|
|
|
|
(Being- bad debts written off on debtors) |
|
|
|
|
|
Provision for bad debts account |
Dr |
|
7,500 |
|
|
To Debtors account |
|
|
|
7,500 |
|
[Being- provision bad debts (160,000 – 10,000) @ 5%] |
|
|
|
|
|
Discount allowed account |
Dr |
|
2,850 |
|
|
To Debtors account |
|
|
|
2,850 |
|
[Being- discount allowed (160,000 – 10,000 – 7,500) @ 2%] |
|
|
|
|
P&L Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Bad debt, old |
15,000 |
|
By Provision for bad debts (old) |
|
5,000 |
Add: Bad debts, new |
10,000 |
|
|
|
|
Add: PBD, new |
7,500 |
|
|
|
|
Add: Discount |
2,850 |
35,350 |
|
|
|
|
|
|
|
|
|
Or
P&L Account
Particulars |
|
Amount |
Particulars |
|
Amount |
To Bad debt, old |
15,000 |
|
|
|
|
Add: Bad debts, new |
10,000 |
|
|
|
|
Add: PBD, new |
7,500 |
|
|
|
|
Add: Discount |
2,850 |
|
|
|
|
Less: PDB, old |
(5,000) |
30,350 |
|
|
|
|
|
|
|
|
|
Balance Sheet
Liabilities |
|
Amount |
Assets |
|
Amount |
|
|
|
Current assets: |
|
|
|
|
|
Debtors |
160,000 |
|
|
|
|
Less: Bad debts, new |
(10,000) |
|
|
|
|
|
150,000 |
|
|
|
|
Less: PBD, new 5% |
(7,500) |
|
|
|
|
|
142,500 |
|
|
|
|
Less: Discount 2% |
(2,850) |
139,650 |
|
|
|
|
|
|
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