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Unit 12: Final Accounts

done, some adjustments are made. They are called adjustment entries. Usually adjustment entries Notes

are made in the books before preparing the final accounts for the following items:
1. For Outstanding Expenses of the Business
Outstanding Expenses: All those expenses which are not paid in the related accounting
period are termed as outstanding expenses.

Example: If a company has to pay `4000 as rent for the accounting period
31.03.2009 - 31.03.2010 but the company had paid `3000 only then the balance ` 1000 will
be treated as outstanding expense. The following general entries will be passed:
Relating Expenses Account Dr.

To Outstanding Expenses Account
The outstanding expenses at the time of preparation of final account are shown in the

liability side of the balance sheet and on the other hand, it is added in the relating expenses

in the Trading and Profit & Loss Account.
2. For Prepaid Expenses of the Business

Prepaid expenses: The benefit of some expenses already spent will be available in the next
accounting year, Such a portion of the expense is called pre-paid expense.

Example: Rent paid in advance for the next accounting year.
Prepaid Expenses Account Dr.
To Relating Expenses Account

The prepaid expenses are disclosed in the assets side of the Balance Sheet and on the other
hand it will be subtracted from the relating expenses in the debit side of Trading and Profi t
& Loss Account.
3. For Accrued Incomes of the Business
Accrued Income: There may be certain incomes which have been earned during the year but
not yet received till the end of the year.

Example: A company has earned interest on income for the year 2009 but has not
received it during that particular period.

Accrued Income Account Dr.
To Relating Income Account
The accrued incomes are disclosed in the assets side of the Balance Sheet and showed in the
credit side of the Trading and Profit & Loss Account.

4. For Unaccrued Incomes or income received in advance of the Business
Income received in advance: Sometimes, traders receive certain amounts during a particular
trading period which are to be earned by them in future periods.

Relating Income Account Dr.
To Unaccrued Income Account
Unaccrued incomes are disclosed in the liability side of the Balance Sheet and subtracted
from the relating incomes in the credit side of the Trading and Profit & Loss Account.

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