Any information given outside the Trial Balance is called adjustment or additional information. It is important to note that every item appearing outside the trial balance should be treated at two places out of the three: Trading Account, Profit and Loss account and Balance Sheet.

1. CLOSING STOCK

Meaning:   Closing stock means the unsold goods lying in store at the end of accounting year.

Treatment:

Closing Stock a/c          Dr.

        To Trading a/c

Two fold effect of this adjustment will be:

1. Show on Credit side of the Trading account.

2. Shown on the asset side of Balance Sheet.

2. OUTSTANDING EXPENSES

Meaning: Outstanding expenses are the expenses which have been incurred & but not yet paid.

Treatment: 

Expenses a/c             Dr.

       To outstanding expenses

Two fold effect:

1. Shown on debit side of trading or profit & loss a/c (as the case may be, depending on the type of expense), by way of addition to particular expense.

2. Shown on liabilities side of Balance Sheet.

3. PREPAID EXPENSES

Meaning: Those expenses which have been paid in advance i.e., whose benefit will be available in future is called prepaid expenses.

Treatment:

Prepaid Expenses a/c    Dr.

         To Expenses a/c

Two fold effect:

1. Shown in trading account or Profit & Loss a/c by way deduction from particular expense.

2. Shown on asset side of Balance Sheet.

4. ACCRUED INCOME

Meaning: That income which has been earned but not received during the accounting year is called accrued income.

Treatment:

Accrued Income a/c       Dr.

         To Income a/c

Two fold effect:

1. Shown on credit side of P & L a/c.

2. Shown on asset side of Balance Sheet.

5. INCOME RECEIVED IN ADVANCE

Meaning: Income received but not earned during accounting year is called income received in advance.

Treatment:

Income a/c                 Dr.

          To Income Received in advance

Two fold effect:

1. Shown on credit side of P & L a/c by the way of deduction from particular income.

2. Shown on liabilities side of Balance Sheet.

6. DEPRECIATION

Meaning: Depreciation is the reduction in the value of fixed asset due to its use, wear & tear.

Treatment:

Depreciation a/c            Dr.

        To Asset a/c

Two fold effect:

1. Shown on debit side of P & L a/c.

2. Shown on the Asset side of the Balance Sheet by way of deduction from value of concerned asset.

(Appreciation means increase in the value of an asset and the treatment is exactly opposite to that of Depreciation i.e. credited in the Profit and Loss account and added to asset in the balance sheet.)

Check for More Posts in This Category