Accountancy: Financial Statements with Adjustments: Closing Stock, Outstanding and Prepaid Expenses

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In the previous chapter we have discussed about the financial statements without adjustments with the preparation of Trading and Profit& loss A/c. Balance sheet is basically prepared to ascertain the exact financial position of the business. In connection this, sometimes it is necessary to overcome some adjustments in respect of some items of expenses and incomes. These are as follows:

  • Closing stocks

  • Outstanding expenses

  • Prepaid expenses

  • Depreciation on fixed assets

Types of Financial Statements

Types of Financial Statements

The above-mentioned items are having dual effect in the books of accounts, such as both in the Trading and P&L A/c, as well as Balance sheet. To ascertain the exact figure, the accountant should make some necessary entries in the final accounts.

Closing Stocks

Closing stock is appeared in the Credit side of the trail balance as well as in the asset side of the balance sheet.

Outstanding Expenses

Outstanding expenses is appeared in the Debit side of the trail balance as well as in the liability side of the balance sheet.

Prepaid Expenses

Prepaid expenses are appeared in the Debit side of the trail balance as well as in the asset side of the balance sheet.

Depreciation on Fixed Assets

Depreciation are appeared in the Debit side of the trail balance as well as in the asset side of the balance sheet.

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