Session 8 - Treatment of various adjustments

Practice/Practical/Practicum Session Plan : Treatment of various adjustments

Introduction (5 min): Explain meaning of adjustments in final accounts and their necessity.

Common Adjustments (10 min): Outstanding expenses, prepaid expenses, accrued income, depreciation, bad debts.

Illustrations (15 min): Solve examples showing journal entries and effect on Trading, P&L A/c and Balance Sheet.

Class Activity (10 min): Students solve practice problems on adjustments.

Recap & Q/A (5 min): Summarize treatment and clear doubts.

Instruction for Practice/Practical/Practicum : (PDF, PPT)

Treatment_of_Various_Adjustments.pptx 

Practice Material (IV Quadrant Approach)

(Q1) : Practice Questions/Problems (PDF Formats)

In accounting, adjustments are crucial entries made at the end of an accounting period to ensure that all revenues and expenses are recorded in the period they pertain to, adhering to the accrual basis of accounting. These adjustments ensure that the financial statements reflect the true financial position and performance of a business.

Common Adjustments and Their Treatments

1. Closing Stock

   • Treatment:

     • Trading Account: Credited to reflect the cost of unsold goods.

     • Balance Sheet: Shown as a current asset.

2. Outstanding Expenses

   • Treatment:

     • Profit & Loss Account: Added to the respective expense to reflect the total expense incurred.

     • Balance Sheet: Shown as a current liability.

3. Prepaid Expenses

   • Treatment:

     • Profit & Loss Account: Deducted from the respective expense to reflect only the expense pertaining to the current period.

     • Balance Sheet: Shown as a current asset.

4. Accrued Income

   • Treatment:

     • Profit & Loss Account: Added to the respective income to reflect income earned but not yet received.

     • Balance Sheet: Shown as a current asset.

5. Income Received in Advance (Unearned Income)

   • Treatment:

     • Profit & Loss Account: Deducted from the respective income to reflect only the income earned during the period.

     • Balance Sheet: Shown as a current liability.

6. Depreciation

   • Treatment:

     • Profit & Loss Account: Recorded as an expense to allocate the cost of tangible assets over their useful lives.

     • Balance Sheet: Deducted from the respective asset's value to reflect its book value.

7. Bad Debts

   • Treatment:

     • Profit & Loss Account: Recorded as an expense to reflect debts that are no longer recoverable.

     • Balance Sheet: Deducted from accounts receivable to reflect the net realizable value.

8. Provision for Doubtful Debts

   • Treatment:

     • Profit & Loss Account: Recorded as an expense to anticipate potential future bad debts.

     • Balance Sheet: Deducted from accounts receivable to reflect the expected collectible amount.

9. Goods Withdrawn for Personal Use

   • Treatment:

     • Trading Account: Deducted from purchases to reflect goods taken out for personal use.

     • Balance Sheet: Deducted from the owner's capital account.

10. Goods in Transit

    • Treatment:

      • Balance Sheet: Shown as a current asset to reflect goods purchased but not yet received.

11. Deferred Revenue Expenditure

    • Treatment:

      • Profit & Loss Account: A portion is charged as an expense for the current period.

      • Balance Sheet: The unamortized portion is shown as a non-current asset.

12. Contingent Liabilities

    • Treatment:

      • Balance Sheet: Not recorded but disclosed in the notes to accounts to inform stakeholders of potential obligations.

These adjustments ensure that the financial statements present an accurate and fair view of the company's financial performance and position.

(Q2) : Video Based Content (Youtube): www.youtube.com/watch?v=pLRKuMJL7lA 

(Q3) : Formative Assessment (Google Form/Any Other Online Quiz Platform): forms.fillout.com/t/1V2piZT8Fuus