Scribd
Upload
48 views

Adjustments For Final Accou Nts

This document discusses adjustments that need to be made for accruals, prepayments, bad debts, and allowance for bad debts when preparing final accounts. It explains that expenses and income should be recorded when incurred, not when paid or received. Adjustments are needed for accruals (expenses incurred but not yet paid) and prepayments (payments made for future expenses). Bad debts are written off when uncollectible, and an allowance for bad debts estimates future amounts that may not be collected.

Uploaded by

gem030168
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
48 views

Adjustments For Final Accou Nts

This document discusses adjustments that need to be made for accruals, prepayments, bad debts, and allowance for bad debts when preparing final accounts. It explains that expenses and income should be recorded when incurred, not when paid or received. Adjustments are needed for accruals (expenses incurred but not yet paid) and prepayments (payments made for future expenses). Bad debts are written off when uncollectible, and an allowance for bad debts estimates future amounts that may not be collected.

Uploaded by

gem030168
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 7

Adjustments for Final Accou

nts
The Accruals (or Matching) Concept

We should account for income and expenses wh


en they are incurred (i.e. used up), not when the
y are paid and received. If an item of income o
r an expense belongs to a period of time then it
would appear as an income or expense for that
period - regardless of the amounts actually paid
or received.
Prepayments and Accruals
 Expenses are not always paid or received on tim
e.

 Cash paid and received in a year should not be e


ntered directly into the profit and loss account
of that year.

 Adjustments should be made.


Accruals (Accrued expenses)

those which have been used up in the current year, but


have not yet been paid for.

Adjustment required

Profit and loss entry = amount paid + accrued expenses s


till owing

Balance sheet entry = the amount that is an accrual sho


uld be included as a current liability
Prepayments (prepaid expenses)

those to be used in the following period but have b


een paid for in advance.

Adjustment required

Profit and loss entry = amount paid - prepayment f


or next period

Balance sheet entry = the amount that is a prepay


ment should be included as a current asset
Bad Debts
an amount that is written off by the business because it i
s unable to be collected, and all reasonable efforts have
been exhausted to collect the amount owed.

This usually occurs when the debtor has declared bankru


ptcy or the cost of pursuing further action in an attempt
to collect the debt exceeds the debt itself.

Adjustment required

Profit and loss entry = the amount written off is classifie


d as an expense
Allowance for Bad Debts
(Sometimes known as provision for bad debts) it is a charge set aside in anticipation
of some debtors defaulting.

By creating an allowance an organisation intends to protect itself from future expen


se which cannot be recovered.

Adjustment required

Profit and loss entry = estimated amount (often a percentage of debtors) is treated
as an expense

Balance sheet entry = the debtors shown in the current asset section of the balance
sheet will be reduced by this amount

You might also like