Adjustment in Final Accounts: Prepaid Expenses
Arjun EP
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 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 |
Prepaid expenses, Advance Expenses
Prepaid means paid in advance.
Sometime a person or business organization has to pay amount in advance to complete or get complete the work.
It is also called as un-expired costs, which typically expire or get used up in the near future.
Some examples are prepaid rent, prepaid insurance and prepaid salaries etc.
Expenses paid for the future period are treated as current asset or advance till expenses incurred.
It is deducted from related entry and is shown in assets side of balance sheet.
ADJUSTMENT: 6A
Extracted Trail Balance
|
Particulars |
Debit |
Credit |
|
Office rent |
36,000 |
|
|
|
|
|
Additional information:
Office rent includes Rs 6,000 paid for advance.
Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet
Journal Entry
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Prepaid rent account |
Dr |
|
6,000 |
|
|
|
To Rent account |
|
|
|
6,000 |
|
|
(Being- rent paid in advance) |
|
|
|
|
P&L Account
|
Particulars |
|
Amount |
Particulars |
|
Amount |
|
To Rent paid |
36,000 |
|
|
|
|
|
Less: Prepaid |
(6,000) |
60,000 |
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
Liabilities |
|
Amount |
Assets |
|
Amount |
|
|
|
|
Loan & Advance: |
|
|
|
|
|
|
Prepaid rent |
|
6,000 |
|
|
|
|
|
|
|
#####
|
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 |
|
#####
ADJUSTMENT: 6B
Extracted Trail Balance
|
Particulars |
Debit |
Credit |
|
Advance commission paid |
50,000 |
|
|
|
|
|
Additional information:
Out of advance commission expired this year Rs 30,000.
Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet
Journal Entry
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Advance commission expired account |
Dr |
|
30,000 |
|
|
|
To Advance commission account |
|
|
|
30,000 |
|
|
(Being- advance commission expired) |
|
|
|
|
|
|
|
|
|
|
|
P&L Account
|
Particulars |
|
Amount |
Particulars |
|
Amount |
|
To Advance comm. expired |
|
30,000 |
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
Liabilities |
|
Amount |
Assets |
|
Amount |
|
|
|
|
Loan & Advance: |
|
|
|
|
|
|
Advance commission |
50,000 |
|
|
|
|
|
Less: Expired |
(30,000) |
20,000 |
|
|
|
|
|
|
|
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