Points to be noted while preparing final accounts

1. Trial Balance items

All items given in the trial balance should appear only once, i.e., either in the trading account or in the profit and loss account or in the Balance Sheet.

2. Adjustments:

All items given under adjustments should appear twice(i.e., first in the trading account or in the profit and loss account, and secondly, in the balance sheet) to complete the debit and credit aspects of the transactions given under adjustments.

3. Outstanding Expenses in Adjustments

All outstanding expenses in the adjustments should be added to the respective expenses either in the trading account or in the profit and loss account. Then, they should be entered on the liabilities side of the balance sheet.

4. Outstanding Incomes in Adjustments

All outstanding incomes in the adjustments should be added to the respective incomes in the profit and loss account. Then, they should be entered on the assets side of the balance sheet.

5. Prepaid Expenses in Adjustments

All prepaid expenses in the adjustments should be deducted from the respective expenses either in the trading account or in the profit and loss account. Then, they should be entered on the assets side of the balance sheet.

6.Income Received in advance in Adjustments

All incomes received in advance given in the adjustments should be deducted from the respective incomes in the profit and loss account. Then, they should be entered on the liabilities side of the balance sheet.

7. Outstanding Expenses in Trial Balance

If any outstanding expense is given in the trial balance, it implies that it has already been adjusted with (i.e, added to) the concerned expense. So, it should not be entered in the trading account or profit and loss account. It should be entered only in the balance sheet. In the balance sheet, it should be entered on the liabilities side.

8. Outstanding Incomes in Trial Balance

If any outstanding income given in the trial balance, it signifies that it has already been adjusted with (i.e, added to) the concerned income. So, it should not appear in the profit and loss account. It should appear only in the balance sheet. In the balance sheet, it should appear on the assets side.

9. Prepaid Expenses in Trial Balance

If any prepaid expense is given in the trial balance, it implies that it has already been adjusted with (i.e., deducted from) the concerned expense. So, it should not appear in the trading account or profit and loss account. It should appear only in the balance sheet. In the balance sheet, it should appear on the assets side.

10. Incomes Received in advance in Trial Balance

If any income received in advance is given in the trial balance, it signifies that it has already been adjusted with(i.e., deducted from) the concerned income. So, it should not appear in the profit and loss account. It should appear only in the balance sheet. In the balance sheet, it should appear on the liabilities side.


Let us look at some more adjustments in the coming posts.....:)