Class 11 Accountancy - Chapter Financial Statements - 2 NCERT Solutions | What are adjusting entries? Why are they
What are adjusting entries? Why are they necessary for preparing final accounts?
Entries which are given outside the trial balance are called adjustment entries, to record those entries a proper treatment is required according to the double entry system. Here it is to be remembered that all adjustments given outside the Trial Balance are posted at two places. Adjustment is generally done for those items which are omitted or entered with the wrong amount and/or recorded under wrong heads.
The following are reasons for recording or incorporating these adjustment entries in preparation of the final account.
(i) Through these adjustment entries we come to know the actual figure of profit or loss.
(ii) Because of these adjusting entries we can assess the true financial position of an organisation based on accrual basis of accounting.
(iii) These adjustment entries enable us to record the omitted entries and help in rectifying all those errors.
(iv) These adjusting entries help in providing depreciation and making different provisions, such as Bad Debts and Depreciation.
More Questions From Class 11 Accountancy - Chapter Financial Statements - 2
- Q:-
If the rent of one month is still to be paid the adjustment entry will be :
(a) Debit outstanding rent account and Credit rent account.
(b) Debit profit and loss account and Credit rent account.
(c) Debit rent account and Credit profit and loss account.
(d) Debit rent account and Credit outstanding rent account. - Q:-
State the meaning of:
(a) Outstanding expenses
(b) Prepaid expenses
(c) Income received in advance
(d) Accrued income - Q:-
What adjusting entries would you record for the following :
(a) Depreciation
(b) Discount on debtors
(c) Interest on capital
(d) Manager’s commission - Q:-
Rahul’s trial balance provide you the following information :
Debtors Rs. 80,000
Bad debts Rs. 2,000
Provision for doubtful debts Rs. 4,000It is desired to maintain a provision for bad debts of Rs. 1,000
State the amount to be debited/credited in profit and loss account :
(a) Rs. 5,000 (Debit) (b) Rs. 3,000 (Debit)
(c) Rs. 1,000 (Credit) (d) none of these. - Q:-
If the opening capital is Rs. 50,000 as on April 01, 2016 and additional capital introduced Rs. 10,000 on January 01, 2017. Interest charge on capital 10% p.a. The amount of interest on capital shown in profit and loss account as on March 31, 2017 will be :
(a) Rs. 5,250 (b) Rs. 6,000
(c) Rs. 4,000 (d) Rs. 3,000 - Q:-
What is meant by closing stock? Show its treatment in final accounts?
- Q:-
If the rent received in advance Rs. 2,000. The adjustment entry will be :
(a) Debit profit and loss account and Credit rent account.
(b) Debit rent account Credit rent received in advance account.
(c) Debit rent received in advance account and Credit rent account.
(d) None of these. - Q:-
If the insurance premium paid Rs. 1,000 and prepaid insurance Rs. 300. The amount of insurance premium shown in profit and loss account will be :
(a) Rs. 1,300 (b) Rs. 1,000
(c) Rs. 300 (d) Rs. 700 - Q:-
Give the journal entries for the following adjustments :
(a) Outstanding salary ₹ 3,500.
(b) Rent unpaid for one month at ₹ 6,000 per annum.
(c) Insurance prepaid for a quarter at ₹ 16,000 per annum.
(d) Purchase of furniture costing ₹ 7,000 entered in the purchases book. - Q:-
Why is it necessary to record the adjusting entries in the preparation of final accounts?
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