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 |
Dividend is the certain portion of net profit.
It is distributed among shareholders as the shares of profit.
The dividend amount depends upon profit position of the company.
Dividend decision is taken by the board of directors.
Proposal is presented in annual general meeting of shareholders for final approval.
Dividend paid to shareholders cannot be considered as expenses.
Therefore, it is adjusted in profit and loss appropriation account and balance sheet.
Generally, interim dividend is declared middle of fiscal year (end of six months of a fiscal year).
Such dividend is paid to the shareholders when management of company found better profit position of the company.
If interim dividend is not paid, it appears in debit side of trial balance.
It is shown in debit side of profit and loss appropriation account.
ADJUSTMENT: 1A
Following extracted information is given to you:
Extracted Trial Balance
Particulars |
Debit |
Credit |
Interim dividend |
95,000 |
|
|
|
|
Required: Show in in related account
SOLUTION:
Profit and Loss Appropriation (Retained Earning) Account
Particulars |
Amount |
Particulars |
Amount |
To Interim dividend |
95,000 |
|
|
|
|
|
|
#####
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 |
#####
Proposed dividend is approved in the annual general meeting by the board of directors (BOD).
Proposed dividend will be paid to the shareholders after approval in annual general meeting.
Therefore, it is not appeared in trial balance.
It is given in additional information.
It is recorded in debit side of profit and loss appropriation account and liabilities side of balance sheet.
ADJUSTMENT: 1B
Trial Balance
Particulars |
Debit |
Credit |
Interim dividend |
25,000 |
|
Equity shares capital (8,500 share @ Rs 100) |
|
850,000 |
Calls in arrear |
50,000 |
|
Additional information:
Board of directors (BOD) proposed and declared dividend @ 10%.
Required: Effect in final account
SOLUTION:
Profit and Loss Appropriation (Retained Earning) Account
Particulars |
Amount |
Particulars |
Amount |
To Interim dividend |
25,000 |
|
|
To Proposed dividend on equity shares |
80,000 |
|
|
(800,000* @ 10%) |
|
|
|
|
|
|
|
Extracted Balance Sheet
Liabilities |
|
Amount |
Assets |
Amount |
Issued capital: |
|
|
|
|
8,500 equity shares @ Rs 100 |
850,000 |
|
|
|
Less: Calls in arrear |
−50,000 |
800,000 |
|
|
Provisions: |
|
|
|
|
Proposed dividend on equity shares |
80,000 |
|
|
|
|
|
|
|
Keep in Mind (KIM)
Proposed dividend is declared on issued share. A call in arrear is deducted to calculate proposed dividend. |
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