Title:

General Journal Financial Statement Adjustments

Products: Paramo Pro, WRC
Last Updated: 10 April 2015
Related Links:  General Journal

Some adjustments that may need to be made at the end of the financial year.

Accrual Expenses 

A accrual expense (or expense owing) is an expense incurred in the financial year (or period) which has not been paid for in that year. This should be shown in the balance sheet as a current liability.

For each accrual expense:

When the invoice is paid in the next financial year:

Prepayment Expenses

A prepayment expense (amount paid in advance) is an expense for the following financial year paid for in the current year. This should be shown in the balance sheet as a current asset. 

For each prepayment expense:

In the following year

Accrued Other Income

Accrued income (amount owing) is other income (e.g. Rent) that is due but unpaid at the end of the financial year. Accrued income is shown in the balance sheet as an current asset

For each accrued income:

In the following year when the income is received

PrePayment of Other Income

Prepayment of other income is income that has been paid in advance by an agent (e.g. rent prepayment). Prepayment of other income is shown in the balance sheet as a current liability. It is a liability because it could be returned.

For each prepayment income:

In the following year

Recording Fixed Asset Depreciation

Each asset class (e.g. machinery) can have a corresponding depreciation accounts (e.g. Machinery Depreciation).  An asset is held at its cost in an asset account and the depreciation entries to date are stored in a separate depreciation account. This account is also called an ‘accumulated provision for depreciation account’ or ‘accumulated depreciation account.

The depreciation amount can be determined by either the straight line method or the reducing balance method. The amount is posted into the accumulated depreciation account. To record depreciation:

  1. Debit the Profit and Loss account , and
  2. Credit the appropriate depreciation account.

Note: You can extract a list of assets from Plant Asset Management including their net cost price and date of installation.

Bad Debts Provision

A provision for bad debts may be necessary if there is a possibilty of future bad debts. A provision for bad debts is displayed in the balance sheet as a current asset deduction. The bad debts provision is estimated from past experience, or may be derived as a percentage of the debtors account balance.  

Creating a provision for estimated value of debts that may go bad at the close of the accounting year involves:

Note: once an entry has been made to the provision for bad debts account, it may only need to be adjusted at the end of succeeding years. An increase in provision for bad debts would mean creditng the account and debiting the profit and loss account, and vice versa.