Adjustment of Bad Debts in Final Accounts (Financial Statements) Last Updated : 21 Apr, 2025 Comments Improve Suggest changes Like Article Like Report Every business makes cash and credit transactions in its day-to-day life. When the goods are sold on credit to any person or firm, we record them as debtors in books of account, and this shows that some amount is recoverable from them in the near future. When the business is unable to recover its payment for the goods given, bad debts take place, and this is a loss for the business, which is recorded in Trading and Profit & Loss A/c.Adjustment:The following treatment takes place in respect of Bad Debts:A. If Bad Debts are given outside the trial balance: In such a case, two effects will take place:First, bad debts will be shown in the Dr. side of the Profit & Loss A/c, being a loss for the business.Second, the amount of debtors appearing in the Balance Sheet would be reduced by the amount of bad debts.B. If Bad Debts are given Inside the trial balance: In such a case, these will be shown only on the Dr. side of the Profit & Loss A/c.Illustration:The following adjustments were noted :1. Further Bad Debts amounting to ₹2,000 and Provision to be created at 5% of debtors.2. The value of Plant and Machinery is appreciated by 10%.3. Depreciation on the building is charged at 12.5%.Solution: Comment More infoAdvertise with us S sukantkumar Follow Improve Article Tags : Accountancy Commerce Commerce - 11th Similar Reads Adjustment of Closing Stock in Final Accounts (Financial Statements) Value of unsold goods at the end of an accounting period is recorded as closing stock. Stock is the sum total of all the inventory of products or materials that a company holds for sale or production. The valuation of closing stock is reckoned on the base of its cost price or the realisable value, w 2 min read Adjustment of Outstanding Expenses in Final Accounts (Financial Statements) Outstanding expenses refer to those expenses which relate to the current accounting period but have not been paid so far. These expenses lead to an increase in liability for a firm. Some of the types of these expenses are Outstanding wages, Outstanding salaries, Outstanding Interest on loan, etc. Al 2 min read Adjustment of Prepaid Expenses in Final Accounts (Financial Statements) Prepaid expenses refer to those expenses which are paid in advance by the firm but the benefit of which are availed in the next accounting period. So, these expenses have to be adjusted, which have not been incurred in the current accounting period to know the true figure of Profit/ Loss.Adjustment: 2 min read Adjustment of Accrued Income in Final Accounts (Financial Statements) Accrued income refers to those incomes which have been earned by the firm in the current accounting period but have not been received yet. Such types of income can be Interest on loan, rent received, commission, etc. So, following the accrual concept of accounting, these incomes are recorded in the 2 min read Adjustment of Unearned Income in Final Accounts (Financial Statements) Such an income that has not been earned as yet but has been received in advance is called Unearned Income. It doesn't belong to the current financial year but has been received in advance. Any unearned income received depicts a false image of the profitability of the business and hence requires an a 1 min read Adjustment of Interest on Capital in Final Accounts (Financial Statements) Interest on Capital means when the proprietor renders money to the firm for running the business, in turn, the firm provides interest on capital to the proprietor. The rate of interest shall be pre-determined on the basis of the time period. For example, if the proprietor has lent an amount at the b 2 min read Adjustment of Interest on Drawings in Final Accounts (Financial Statements) Drawings is the amount withdrawn by partners for their personal use from the business. Therefore, the firm charges a certain rate of interest for the amount withdrawn by partners. The interest on Drawings is considered an income for the firm and an expense for the partners.Adjustment:A. If Interest 1 min read Adjustment of Interest on Loan in Final Accounts (Financial Statements) A business usually takes loans from banks in order to make expenditures in their business. They also need to pay certain interest on this loan amount. If a business is unable to pay the interest on the loan in the same financial year, then this interest is called Outstanding Interest. The adjustment 2 min read Adjustment of Proprietor’s Salary in Final Accounts (Financial Statements) If the proprietor works in the firm, the firm is liable to pay salary to the proprietor. The proprietor’s salary is an expense to the firm, and adjustments have to be made in respect of that at the time of preparing final accounts.Adjustment:A. If Proprietor’s Salary is given outside the trial balan 1 min read Adjustment of Interest on Deposits in Final Accounts (Financial Statements) When an investment is made and deposited into the bank, the bank pays interest on that deposit. This is known as interest on deposits. For example, Opening of Fixed Deposit into the bank. The bank pays a fixed rate of interest on these deposits. While preparing final accounts of the firm, adjustment 1 min read Like