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 |
According to the rules of business, the firm should create reserve or consolidated fund.
Reserve or fund is the amount, which is created out of net profit to meet future contingencies.
Such funds are general reserve, reserve fund, dividend equalization fund, sinking fund, assets replacement fund etc.
General reserve fund amount can be used to overcome from unexpected financial crisis.
But, specific reserve funds are formed for specific purpose like dividend equalization fund, assets replacement fund, sinking fund, debenture redemption fund etc.
The amount of such funds can be used only in specified purpose.
Such reserves and fund are debited in profit and loss appropriation account and is shown in liability side of balance sheet.
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|
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 |
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ADJUSTMENT: 2A
The following extracted information of BC Ltd is provided to you:
Net profit of the year Rs 250,000
Board decided to set aside 10% of net profit as general reserve, Rs 50,000 to dividend equalization fund and Rs 35,000 to sinking fund before distribution dividend.
Required: Journal entry and effect in final account
Journal Entry
Date |
Particulars |
|
LF |
Amount |
Amount |
a. |
Profit and loss appropriation account (total) |
Dr |
|
110,000 |
|
|
To General reserve account |
|
|
|
25,000 |
|
To Dividend equalization fund account |
|
|
|
50,000 |
|
To Sinking fund account |
|
|
|
35,000 |
|
(Being- different reserve and fund created out of profit) |
|
|
|
|
Profit and Loss Appropriation (Retained Earning) Account
Particulars |
Amount |
Particulars |
Amount |
To General reserve |
25,000 |
By Net profit (current profit) |
250,000 |
To Dividend equalization fund account |
50,000 |
|
|
To Sinking fund account |
35,000 |
|
|
To Surplus (b/f) |
140,000 |
|
|
|
250,000 |
|
250,000 |
Extracted Balance Sheet
Liabilities |
Amount |
Assets |
Amount |
Reserve, fund and surplus: |
|
|
|
General reserve |
25,000 |
|
|
Dividend equalization fund account |
50,000 |
|
|
Sinking fund account |
35,000 |
|
|
Surplus |
140,000 |
|
|
|
|
|
|
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