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:
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 |
It is possible to goods loss by fire or theft in the showroom.
Sometimes it may loss by accident while dispatching the goods.
This loss is abnormal loss in nature.
If goods are not insured, it is total loss to organization.
This loss is deducted from purchase of goods and debited in profit and loss account.
If goods are insured, insurance company accepts this loss.
Organization receives compensation from insurance company.
Sometimes, insurance company does not accept claim if there is suspicious circumstance.
There are three alternative solutions for goods lost by fire. They are:
Goods lost but not insured means there is total loss.
Goods lost but insurance company paid partial claim, there is partial loss.
Goods lost and insurance company accepted full claim, there is not any loss.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
ADJUSTMENT: 15A
Extracted Trail Balance
Particulars |
Debit |
Credit |
Purchase |
750,000 |
|
|
|
|
Additional information:
Stock worth Rs 50,000 was destroyed by fire.
Required: Journal entry and show in other effect for final account purpose
(a) The stock was insured but the company refused the claim due to suspicious circumstance of fire.
(b) The stock was insured but the company admitted a claim of Rs 35,000 only.
(c) The stock was insured and the company admitted the claim in full.
SOLUTION:
(a) The stock was insured but the company refused the claim due to suspicious circumstance of fire.
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Loss by fire account (P&L) |
Dr |
|
50,000 |
|
|
To Purchase account |
|
|
|
|
|
(Being- goods lost by fire but insurance company did |
|
|
|
|
|
not accept claim due to suspicious circumstance of fire) |
|
|
|
|
|
|
|
|
|
|
Trading Account
Particulars |
|
Amount |
Particulars |
Amount |
To Purchase |
750,000 |
|
|
|
Less: Free sample |
(50,000) |
700,000 |
|
|
|
|
|
|
|
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
Amount |
To Loss by fire |
|
50,000 |
|
|
|
|
|
|
|
Balance Sheet
Liabilities |
Amount |
Assets |
|
Amount |
|
|
Current assets: |
|
|
|
|
Insurance claim |
|
Nil |
|
|
|
|
|
#####
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 |
#####
(b) The stock was insured but the company admitted a claim of Rs 35,000 only.
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Insurance claim account |
Dr |
|
35,000 |
|
|
Loss by fire account (P&L) |
Dr |
|
15,000 |
|
|
To Purchase account |
|
|
|
50,000 |
|
(Being- goods lost by fire but insurance company |
|
|
|
|
|
Accepted partial claim) |
|
|
|
|
|
|
|
|
|
|
Trading Account
Particulars |
|
Amount |
Particulars |
Amount |
To Purchase |
750,000 |
|
|
|
Less: Free sample |
(50,000) |
700,000 |
|
|
|
|
|
|
|
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
Amount |
To Loss by fire |
|
15,000 |
|
|
|
|
|
|
|
Balance Sheet
Liabilities |
Amount |
Assets |
|
Amount |
|
|
Current assets: |
|
|
|
|
Insurance claim |
|
35,000 |
|
|
|
|
|
(c) The stock was insured and the company admitted the claim in full.
Journal Entries
Date |
Particulars |
|
LF |
Amount |
Amount |
|
Insurance claim account |
Dr |
|
50,000 |
50,000 |
|
Loss by fire account (P&L) |
Dr |
|
Nil |
|
|
To Purchase account |
|
|
|
|
|
(Being- goods lost by fire but insurance company |
|
|
|
|
|
Accepted partial claim) |
|
|
|
|
|
|
|
|
|
|
Trading Account
Particulars |
|
Amount |
Particulars |
Amount |
To Purchase |
750,000 |
|
|
|
Less: Free sample |
(50,000) |
700,000 |
|
|
|
|
|
|
|
Profit and Loss Account
Particulars |
|
Amount |
Particulars |
Amount |
To Loss by fire |
|
Nil |
|
|
|
|
|
|
|
Balance Sheet
Liabilities |
Amount |
Assets |
|
Amount |
|
|
Current assets: |
|
|
|
|
Insurance claim |
|
50,000 |
|
|
|
|
|
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