Financial Statements - II

Adjustments are necessary because the accrual

Adjustments are necessary because the accrual concept requires revenues to be recorded when earned (not when received) and expenses when incurred (not

Represents unsold goods at the end

Represents unsold goods at the end of accounting period. Adjusted by crediting Trading A/c and showing as asset in Balance Sheet. Entry: Closing Stock

Expenses incurred during the accounting period

Expenses incurred during the accounting period but not yet paid (like wages, salaries, rent). Entry: Expense A/c Dr. To Outstanding Expense A/c. Added

Expenses paid in advance where benefits

Expenses paid in advance where benefits extend to next accounting period. Entry: Prepaid Expense A/c Dr. To Expense A/c. Deducted from expense in P&L

Income earned during current period but

Income earned during current period but not yet received (like interest, commission, rent). Entry: Accrued Income A/c Dr. To Income A/c. Added to inco