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19.2 Double Entry Book Keeping—CBSE XI

CHAPTER SUMMARY

• Accrual basis of accounting requires that revenue be recognised as it is earned and
expenses be recognised as they are incurred. Therefore, expenses whether paid or not, incomes
whether received or not, prepaid expenses and unearned incomes are adjusted.
• Adjustments are made for (i) matching of cost with revenue for ascertaining true and fair
view of the profit earned or loss incurred by the business entity for the accounting period and
(ii) for showing the true and fair value of assets and liabilities of the business as on the last
date of the accounting period.

• Adjustment is recorded on the basis of the Dual Aspect Concept. It means every
adjustment is shown at two places once in the debit and once in the credit.

Treatment of Items of Adjustment Appearing in the Trial Balance

Item given in Trial Balance Treatment in Trading/Profit and Loss A/c Treatment in Balance Sheet
1. Closing Stock ... Shown on the Assets side as a Current Asset.
2. Outstanding ... Shown on the Liabilities side as a Current
Expenses Liability.
3. Prepaid Expenses ... Shown on the Assets side as a Current Asset.
4. Accrued Income ... Shown on the Assets side as a Current Asset.
5. Unearned Income/ ... Shown on the Liabilities side as a Current
Income Received Liability.
in Advance
6. Depreciation Shown on the Debit side of the Profit ...
& Loss A/c.
7. Bad Debts, if no Shown on the Debit side of the Profit & ...
Provision for Doubtful Loss A/c.
Debts A/c appears
8. Bad Debts, if Provision Shown on the Debit side of the Provision ...
for Doubtful Debts A/c for Doubtful Debts A/c.
appears
Continued on Page No. 3 and 4