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Liabilities

Liabilities may also be shown according to the urgency with which payment has to be made. One way is to first show the capital , then long-term liabilities and last of all short term liabilities. The other way is to start with short-term liabilities and then show long term liabilities and last of all capital.

 

 


The treatment of various items is summarized below in a tabular form for quick revision:

Main Adjustments  how Presented in the Accounts

(a)     Closing Stock:

 Closing Stock Account              Dr.   …..

  To Trading Account                   ……

 

Trading and Profit & Loss Account
 

By Closing Stock

xxx

 

Balance Sheet
 

Liabilities

Assets

Closing Stock

xxx

 


 

 



(b) Outstanding expenses:

 

Salaries Account

Dr.           …...

 

To Salaries Outstanding Account               

 

Profit & Loss Account

To Salaries

Add: Outstanding

xxx

xxx


Balance Sheet

 

Liabilities

Salaries outstanding

 

xxx

Assets

 

 

 


(c)   Prepaid or Unexpired Expenses:
 

Insurance Prepaid Account

Dr.   …..

 

To Insurance Premium Account        


Profit & Loss Account

 

To Insurance Premium

Less: Prepaid

xxx

xxx

xxx


Balance Sheet

 

Liabilities

Assets

Prepaid Insurance

xxx

 

 

 

 

(d)  Accrued or Outstanding income:
 

Accrued Income Account

Dr.   …..

 

To Concerned Income Account         …..

    

Profit & Loss Account
 

By Rent

Add: Rent Receivable

xxx

xxx

 

Balance Sheet
 

Liabilities

Assets

Rent Receivable

xxx

 

 
 

 

 

(e)  Unearned Income or Income Received in Advance:
 

Rent Account

Dr.   …..

 

To Rent Received in Advance Account    …..

 

Profit & Loss Account
 

 

 

By Rent

Less: Received in Advance

xxx

xxx


Balance Sheet

 

Liabilities

Rent Received in Advance

 

xxx

Assets

 


 

 

 

(f)  Depreciation:
 

Depreciation Account

Dr.   …..

 

To Fixed Assets Account            …..


Profit & Loss Account

 

To Depreciation on Furniture

xxx

                                                          Balance Sheet

 

Liabilities

 

Assets

Fixed Assets at cost or WDV

 

xxx

 

 

Less: Depreciation

xxx


 

 

 

(g)  Interest on Capital:
 

Interest on Capital Account Dr…..

 
  To Capital Account                   …..

 


 

Profit & Loss Account

 

To Interest on Capital

xxx

 

Balance Sheet
 

Liabilities

 

 

Assets

 

Capital

 

xxx

 

 

Add: Interest

Xxx

 

 
 

 


(h)  Interest on Drawings:

 

Capital Account

Dr.   …..

 

To Interest on Drawings                   …..


Profit & Loss Account

 

By Interest on Drawings

xxx

 


Balance Sheet

 

Liabilities

 

 

Assets

 

Capital

 

xxx

 

 

Less: Interest on Drawings

Xxx

 


 

 

 

(i)  Interest on Loan:
 

Interest Account

Dr.   …...

 

To Interest Outstanding Account               

           (for Loan account)

 

Profit & Loss Account
 

To Interest on Loan

xxx

 

Balance Sheet
 

Liabilities

 

 

 

Assets

 

Interest on Loan o/s

Xxx

 

 
 

 

 

(j) Bad debts:
 

Bad Debts Account

Dr.   …..

 

To Debtors Account               …..

 

Profit & Loss Account
 

To Bad Debts

xxx


Balance Sheet

 

Liabilities

 

Assets

 

 

xxx

 

 

 

Debtors

Less: Bad Debts

xxx

 
 

 

 

(k) Provision for bad debts:
 

Profit and Loss Account

Dr.   …..

 

To Provision for Bad and Doubtful Debts Account

  

Profit & Loss Account
 

To Provision for Bad and

Doubtful Debts Account

 

xxx

 

Balance Sheet
 

Liabilities

 

Assets

Debtors

 

xxx

 

Less: Provision for

         Bad and Doubtful

         Debts Account

xxx






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