Adjustment of Unearned Income in Final Accounts (Financial Statements) Last Updated : 21 Apr, 2025 Comments Improve Suggest changes Like Article Like Report 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 adjustment to nullify the effect.Adjustment:A. If Unearned Income is given outside the trial balance: In such cases, two entries will be passed:Will be deducted from the related Income A/c in the Cr. side of the Profit & Loss A/cWill be shown in the Liabilities side of the Balance Sheet.B. If Unearned Income is given inside the trial balance: It will only be shown on the Liabilities side of the Balance Sheet.Illustration:The Trial Balance of Ms. Samriti for the year ended March 31 2023, appears as follows:The following adjustments were noted on that date:1. Rent received in advance amounts to ₹3,000.2. Amount of Closing stock on 31st March 2022 was ₹15,000.3. Outstanding wages amounting to ₹500.4. Salary paid in advance amounting to ₹5,000.5. Commission amounting to ₹1,500 is still to be received.Prepare Trading and Profit and Loss A/c and balance sheet after taking the following adjustments into consideration.Solution: Comment More infoAdvertise with us Next Article Adjustment of Interest on Capital in Final Accounts (Financial Statements) 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