nd
2
Year Business Studies
Adjustments to the Final Accounts
14th January 2013
IMPORTANT!!!!!!
• Any adjustment you make to a gain or an
expense will be entered twice
• Once in The Trading, Profit & Loss Acount
• Once in The Balance Sheet
• Why?
Dividends
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Recap: What are dividends?
How do we treat them in the accounts?
What if dividends have not been paid yet?
We call this Dividends Proposed/Declared.
We treat them the same way as an accrual, by
entering them in the appropriation account
and showing them as dividends due in
Current Liabilities
What now?
• So………….We’ve looked at amounts due at the
end of the year, which are called????
• Yes, accruals!
• Now what? What else might have happened
with payments that may need to be adjusted
in the accounts?
Prepayments
• 2 types:
1. Amounts prepaid by the Firm
2. Amounts prepaid to the Firm
Firm
Prepaid by
the Firm
Prepaid to
the Firm
Amounts prepaid by the Firm
• This is the money that the firm has paid in
advance for next year, e.g. Rent, insurance
• Is this an asset or a liability?
• An Asset!
• Step 1: Subtract the amount prepaid from the
relevant expense in the Trading, Profit & Loss
Account
• Step 2: Show the amount as a current asset in
the balance Sheet
Example
• Insurance……………………€2,500
• Insurance prepaid ………...€500
Solution:
• Profit and Loss Account:
Expenses
Insurance (€2,500 - €500)………………€2,000
• Balance Sheet
Current Asset
Insurance prepaid…………………..…………€500
Question
• Rent………………………….€6,000
• Rent prepaid …………….€1,000
Solution:
• Profit and Loss Account:
Expenses
Rent (€6,000 - €1,000)………………€5,000
• Balance Sheet
Current Assets
Rent prepaid………………………………………€1,000
Amounts prepaid to the Firm
• This is the money that others have paid to the
firm in advance for next year.
• Is this an asset or a liability?7
• A liability!
• Step 1: Subtract the amount prepaid from the
relevant gain in the Trading, Profit & Loss
Account
• Step 2: Show the amount as a Current Liability
in the Balance Sheet
Example
• Rent Received…………………€12,500
• Rent Received prepaid………€1,500
Solution:
• Profit and Loss Account:
Gains
Rent Receivable(€12,500 - €1,500)……………€11,000
• Balance Sheet
Current Liabilities
Rent receivable prepaid………………………………€1,500
Question
• Interest Received……………€1,700
• Interest Received prepaid …€400
Solution:
• Profit and Loss Account:
Gains
Interest Receivable(€1,700 - €400)……………€1,300
• Balance Sheet
Current Liabilities
Interest receivable prepaid..………………………..€400