V E R Y

I C M O P P T A N T N T O C R E

Accrual Basis

Cash Basis

Revenues are recognised when earned and expenses are recognised when incurred

Revenues are recognised when cash is received and expenses recorded when cash is paid

Not GAAP

Insurance Premium of Rs. 12000 paid to Oriental Insurance company covering risk due to fire on 30.06.13 for the whole year.

The Matching Principle

The Matching Principle states that we should attempt to match the expenses to the same periods in which they helped to create revenue.

An Adjusting Entry is a type of Journal Entry. IT is recorded to a) Bring an asset or liability account balance to its proper amount AND b) To recognise a revenue or expense.

 AJEs

are made on the last day of accounting period The cash account is never a part of the AJEs.

In order that the Profit and loss Account may show the true profit or loss made in the business and the Balance Sheet may give a true and fair view of the state of affairs of the business, AJEs are made.

Sr.no 1.

Type of AJEs Expenses incurred but not paidExpenses outstanding

Journal Entry Expenses A/c dr. xx To Expenses 0utstanding/unpaid/payables A/c xx Prepaid expenseA/c dr. xx To Expense A/c xx

2. 3.

Expenses paid in advancePrepaid expenses Incomes due but not receivedIncome outstanding

Income Outstanding A/c dr. xx To Income A/c xx

4.
5. 6. 7. 8.

Income received in advancePre-received income

Closing Stock Depreciation Bad debts Provision for Bad debts on debtors

Income A/c dr.xx To Income received in adv a/c xx

Closing Stock A/c To Trading A/c Depreciation A/c To Asset A/c Bad debts A/c To Debtors A/c dr.xx dr.xx xx dr. xx xx xx

Rent for the month of March 2013 of Scott Company Rs. 10000 paid in April 2013 On 31.03.2013 Rent A/c dr. 10000 To Rent Payable A/c 10000

On 01.12.2012, Scott Company paid insurance premium of Rs. 12,000 for next 6 months. What are the journal entries passed on 01.12.2012 and 31.03.2013. On 01.12.2012 Insurance Premium A/c dr.12000 To Cash/Bank A/c 12000 On 30.03.2013 Prepaid Insurance Premium A/c dr. 4000 To Insurance Premium A/c 4000

On 31.03.2013, Commission of Rs. 25000 yet to be received. On 31.03.2013 Commission Receivable A/c dr. 25000 To Commission A/c 25000

On 1.01.2013, Interest received Rs. 60000 for six months ending on 30.06.2013 On 31.03.2013 Interest A/c dr. 30000 To Interest received in advance A/c 30000

During 2012, Scott Company purchased goods worth Rs. 50,000. The company recorded this as expenditure for the year. On 31.03.2013 the companys account shows a balance of Rs.10,000 goods on hand. What adjustment is required ? Closing Stock A/c dr. 10000 To Trading A/c 10000

Depreciation is spreading the value of asset over its useful life / according to its usage. Exception Land Purchased a machinery for Rs.50000 on 01.04.2012, estimated life 10 years On 01.04.2012 Machinery A/c dr.50000 To Cash/Bank A/c 50000 On 31.03.2013 Depreciation A/c dr. 5000 To Machine A/c 5000