Page 73 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes Total amount of the Insurance premium of the year i.e. 12 months
= Total amount of the premium paid for 15 months (Amount paid in advance for 3 months)
= 1,500 - 300 = 1,200
How is the adjustment entry of prepaid insurance premium effected in the Profit & Loss A/c and
Balance sheet?
Dr Profit & Loss account for the year ended………….. Cr

To Insurance Premium paid 1,500
Less: Prepaid insurance 300
To insurance premium 1,200

Balance sheet as on dated…………………..
Liabilities Assets
Insurance premium prepaid 300
300

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.
March 31,2006: Total amount of Dividend outstanding is 3,500 out of 10,000 dividend income
from XYZ Ltd..
How much is the dividend income received from XYZ Ltd?
Dividend income received
= Total amount of dividend

(–)
Amount of dividend yet to be received
10,000 – 3,500 = 6,500
The journal entry for an adjustment is as follows:

Debit the asset for the amount of income to be received
should be brought under the balance sheet.
Credit the income not yet received which is also an income of the enterprise in order to determine
the total amount of dividend during the year; brought under the credit side profit & loss account
and should be added with the amount of dividend received.

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