Financial Statements (With Adjustments)

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Accounting adjustments are needed to show the correct net profit or loss and the correct financial position of a business. They also record expenses that are due but unpaid, expenses paid in advance, …

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These are items that must be adjusted before preparing final accounts so that income, expenses, assets, and liabilities are shown correctly.

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Closing stock is the stock of goods which remains unsold at the end of the accounting year. It is generally shown outside the Trial Balance and then appears in the Trading Account and Balance Sheet.

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Closing stock is shown on the credit side of the Trading Account and on the assets side of the Balance Sheet.

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No adjustment entry is passed. It is not shown on the credit side of the Trading Account. It is shown only on the assets side of the Balance Sheet.

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Closing stock is valued at cost price or market price, whichever is less. This avoids showing stock at a value higher than its real worth.

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The stock was valued at cost price or market price, whichever is less. Since the market value was ₹20,000 and the book value was ₹38,000, ₹20,000 was used.

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An expense which relates to the current year but has not been paid till the end of the accounting year is known as outstanding expenses. Examples include factory rent, wages, salaries, office rent, an…