What is Final account of a company? Different of final account vs Trading account

Final account of a company

What is Final account of a company?Different of final account vs Trading account

Introduction of Final Account
Final account is the step of final accounting process. It is prepared to known financial result of a business operation during period of time. It also depicts the financial position of a business of a give date. Final account is the common name of trading account, profit & loss account, profit and loss appropriation account and balance sheet. These accounts are referred as final account because they are prepared at the final stage of accounting cycle. Final account is also called financial statement. Financial statement is the combination of income statement and balance sheet. In this chapter, the producers of preparing final account have been explained.
Concept and meaning of final account
Every company should prepared trading account, profit and loss account, profit and loss appropriation account and balance sheet at the end of accounting period. The profit and loss account is prepared to ascertain earned or loss suffered during an accounting period of time where the balance sheet is prepared to depict the financial position on a particulars date. Final account is the combination of income statement (trading and profit and loss account) and balance sheet.

The section of 109 of the company act, 2063 specifies the legal obligation of a company to prepared and submit financial statements. There is also a provision of sending summarized prepared and submit financial statement to the shareholder under section 109 of company act, 2063. The format of such statement shall be as prescribed by the office in consultation with authority empowered to set accounting standard under the law in force. It has been stated in the subsection 2 of sec 109. The financial account and cash flow statement must be prepared annually 30 days prior to the annual general meeting. In case of private limited company, it should be prepared within 60 days of the of accounting period.
Preparation of final account
The final account of a company is prepared at the end of every accounting year. The accounting year may be calendar year or otherwise. Nepal accounting standard has prescribed the format for profit and loss balance sheet in a vertical shape. Generally, final accounts include the following:
•    Trading account
•    Profit and loss account
•    Profit and loss appropriation and
•    Balance sheet
The accounting procedures and users of the final account are presented in the following diagram.
Trading account
Meaning of trading account
Trading accounting is the first step of final account. The main objective of preparing trading account is to find out gross profit earned or loss suffered during an accounting period. Since, it is a nominal account, all direct expenses are debited and direct incomes are credited. It includes opening stock, purchase and expenses relating to purchase and factory expenses in the debit side. Similarly, sales and closing stock are included in the credit side. When the credit side is heavier than debit side, gross profit appear and vice versa.
Importance or objective of trading account
it is necessary for a business to know the result of buying or manufacturing and sales during a particulars period of time. Hence, it is necessary to ascertain the gross profit or loss. The main importance or objectives of preparing a trading account are below:
i.    To know gross profit or gross loss
j.    To provides safety or gross loss
k.    To provides information about the direct expenses
l.    To have comparison stock with the stock of last years.
Advantages of trading account
The main advantages of trading account are:
i.    It shows the relationship between gross profit and sales which help to measure profitability position of the business.
ii.    It also show the ration between costs of goods sold and gross profit.
iii.    It provides the information regarding efficiency of trading activities.
iv.    It make easier to compare between sales, cost of goods sold and gross profit.
v.    It helps to provide information regarding closing stock, sales and cost of goods sold.
Items that are recorded in the debit side of the trading account
1.    Opening stock. In case of a merchandising business, the opening stock consists of different types of finished goods. In case of manufacturing concern, opening stock consists of raw materials work in progress and finished goods. The amount of the opening stock is obtained from trial balance.
2.    Purchase: it is also obtained from trial balance which includes both cash and credit purchase.
3.    Purchase returns:  in the trial balance, it appears in the credit side. There are two ways of showing the purchase return in the trading account. It may be shown by deduction from purchases in the account. An alternative way to show the purchase returns in the credit side of trading account.
4.    Direct expenses: direct expenses are those expenses which are directly attributable to the purchase of goods or to bring the goods in salable condition. Some examples of direct expenses are as follows:
i.    Freight or freight inward or freight on purchase: freight related with acquiring goods or making them saleable is called freight or carriage inward.
ii.    Carriage or carriage inward or carriage on purchase: carriage paid for bringing the goods to the go-down of factory is carriage inward.
iii.    Wages or wages & salary or labor or direct labor: wages incurred in a business is direct, when it is incurred on manufacturing or merchandise on making it salable. Other wages are indirect and debited to profit and loss account. If it is not mentioned whether wages are indirect or direct, it it should be assumed as direct and should appear in the trading account.
iv.    Fuel, motive power and lighting expenses: fuel and power expenses are incurred for running the machines. They are considered as direct expenses since they are directly related with the production and debited to trading account. Lighting expenses of factory is also charged to trading account.
v.    Packing charge: there are certain types of goods, which cannot be sold without a container or proper packing. These form a part of the finished product.
vi.    Duty on purchase: any duty paid for the purchase of goods is debited to trading account. E.g. import duty or customs duty.

vii.    Octroi: when goods are brought into the municipal limits, octroi duty has to be paid to municipal committee or Municipal Corporation. It is a direct expense.
viii.    Manufacturing expenses: they are the expenses incurred in factory for manufacturing the goods such as factory rent, factory insurance, factory lighting etc.
ix.    Consumable stores: while manufacturing goods, various petty items of store are required to run the machine and to make the production possible. Such items including nuts, botls, grease oil, cotton waste cloth etc. total cost of stores consumed during the year are treated as direct expenses and debited to trading account.
x.    Royalty: royalty refers to the annual payment in the form of rent-payment to the owner of an asset for acquiring the right to use the patent or copyright or land. If royalty is paid on the basis of production, it is considered as direct expenses.
xi.    Commission on purchase: commission paid on purchase of goods is a part of cost of good purchased. Therefore it is also a direct expense.
Items that are recorded in credit side of trading account
1.    Sales: sale include both and credit sales of goods.
2.    Sales return: when goods are return by the customers for some reasons, it is knows as sales return or return from customers or return inward. Sales return should is deducted from total sales so as to come up with the net sales.
3.    Closing stock: the value of goods, which remain unsold at the end of the accounting period, is treated as closing stock. In case of merchandising business the closing stock consists of different types of finished goods. In case of manufacturing concern, closing stock consists of raw material; work is progress and finished goods. The closing stock is valued at cost or market price which is less. Generally closing stock does not appear in trial balance. The sheet only. However, the closing stock given in adjustment or outside the trial balance is recorded in credit side of trading account as well.
Balancing of trading account to ascertain cross profit/loss
After recording the above items in the respective side, the trading account is balanced to calculate gross profit or gross loss. If the credit side exceeds the debit side, the differences represent gross profit. Conversely, if the debit side is heavier than credit side, the different is gross loss. The profit and loss are transferred to credit and debit side of profit and loss account respectively.

Balance sheet
Meaning of balance sheet
Balance sheet is also known as position statement. Balance sheet is a statement of assets and liabilities presented on a given date usually at the end of accounting period to show the financial position of a firm. It obtains assets on one side, and shareholder's equity and liabilities on the other side. It is prepared either in the horizontal or in the vertical form.

Balance sheet is the last step of final account. It is prepared after the preparation of profit and loss appropriation account. It is a statement not an account; therefore, it has assets and liabilities sides instead of debit and credit sides. Balance sheet is a summary of the personal account and real account having debit and credit balances. It does not include the accounts which do not have any balance or have been closed by transferring to trading, profit and loss and profit and loss appropriation account.
Importance and objectives of balance sheet
The following are the importance/ objectives of balance sheet.
i.    It shows the financial position of a company off balance sheet.
ii.    It provides the information about share capital, reserve and surplus, liabilities and assets.
iii.    It helps to borrowing loan from outside easily.
iv.    It provides the detail information about value and types of assets used.
v.    It is very useful for business planning and control.
Items that appear in the capital and liabilities side of balance sheet
1.    Share capital: the capital employed by a company for its business operation is knows as share capital. It is the total amount of capital collection from its shareholders for achieving the common goal of the company as stated in memorandum of association. Share capital of a company can be divided into authorized, issued, subscribed, called up and paid up capital. However, the actual capital that the company employs each the paid up capital..
2.    Reserve and surplus: reserve and surplus are he amount set a site from profit meet future requirement and contingencies. For example, general reserve, specific reserve etc.
3.    Second loans: the loan that is is taken without any mortgagee is called secured loan. For example bank loan.
4.    Unsecured loan: the loan that is taken without and mortgage is called unsecured loan.
5.    Current liabilities and provision: the liabilities which are to be discharged within a short period of time that is normally within a year are called current liabilities. For example, sundry creditors, bills payable etc.
Provision: is the amount set a site from the profit to meet any losses or liabilities likely to arise in future. For example, provision for doubtful debt, provision for tax etc.

Items that appear on the assets side of balance sheet
1.    Fixed assets: the assets which are acquired to use them for a long of time are called fixed assets. For example, plant and machinery, land and building etc.
2.    Investment: Investments are the stock shares, bonds and other securities which are held by the company to earn income or exercise influence over other companies.
3.    Current assets, loans and advances: the assets which are normally converted into cash within one year are called current assets. For example, cash, sundry debtors etc.
Loans: refer to the payment before getting good or services. For example, prepaid rent, loan to staff.
Advance: refer to the payment before getting goods or services. For example, prepaid rent advance tax etc.
4.    Miscellaneous expenditure: they refer to the expenditures which are made for a long period of time. Such expenditures are written of within a certain period of time. For example, preliminary expenses, discount or loss or loss on issue of shares and debentures etc.
5.    Profit and loss appropriation account (debit balance): it is the balance of profit and loss appropriation account.
Marshalling of assets and liabilities in the balance sheet
The assets and liabilities should be arranged in balance sheet in some specific order. The assets and liabilities may be arranged in any of the following two orders.
In order of permanency        In order of liquidity
liabilities    assets        liabilities    assets

Share capital
Share premium
Reserve and surplus
Debenture
Loan-term loan
Sundry debtor
Outstanding expenses
Bills payable
Bank overdraft
   
Goodwill
Land and building
Plant and machinery
Furniture and fixture
Prepaid expenses
Stock
Account receivable
Cash in hand bank        
Sundry creditors
Bills payable
Outstanding expenses
Bank overdraft
Long term-loan
Debentures
Share premium
Reserve and surplus
Share capital

   
Cash and hand
Cash at bank
Bills receivable
Debtors
Stock
Furniture and fixture.
Plant and machinery
Land and building
Good will

1.    In the order of permanency
According to this basis, assets are listening in order of their permanency. First of all the most permanent assets such as goodwill, patent; trademark etc are mentioned following by other assets. The most liquid assets such as cash nin hand is mentioned at last. Similarly, on the liability side. The most permanent liability i.e. share capital which is to be paid last is shown as first items followed by fixed and long-term liabilities and lastly, the current liabilities which are to be paid first.
2.    In the order of liquidity
Accounting to this basis, assets are arranged in order of the case with which they can be converted into cash therefore, the cash in hand will come first the cash at bank following by other assets and land and building at the button of the list. In regard to the liabilities, they are so arranged in the order they are to be discharged by loans like outstanding expenses. Therefore, reserve and surplus and capital will appear at the bottom.

Concept of adjustments
In the previous chapter, we have discussed how the final account. i.e. trading account, profit and loss account, profit and loss appropriation account and balance sheet are prepared with the help of trial balance. The items, which appear in the trial balance, are recorded either in trading account or profit & loss account or profit and loss appropriation account or balance sheet. They have single effect in final account. The transactions which do not appear in the trial balance are called adjustments. They are presented outside the trial balance. They may have dual effect in final account. The adjustments indicate such items of incomes and expenses, which relate to current year but have not yet brought into the book of accounts. Such transactions are adjusted after the preparation of trial balance. Adjustments help to ascertain true operation results and financial position of the business.
When adjustment entry is passed, it has at least two effects:
i.    Trading account and profit & loss account, or
ii.    Trading account and balance sheet, or
iii.    Profit and loss account and  balance sheet, or
iv.    Profit and loss appropriation account and balance sheet or
v.    Balance sheet and balance sheet.
vi.    Trading account and profit & loss account and balance sheet (effects in the accounts)
1a. closing stock of finished or unsold goods
The stock of goods remained unsold at the end of the accounting period is called closing stock of finishing goods. Closing stock is valued at cost price or market price whichever is lesser. The adjustment of closing stock is made with the following manner.
1b. closing stock of unused or non-consumed expenses
The stock of some items other than goods like stationary, suppliers, medicines etc. may remain unused at the end of the accounting period. It is not credited in the trading account as the case of finished goods. However, it is deducted from the convened expenditures in the debit of profit and loss account and kept in the current assets of balance sheet.
3.    Outstanding expenses or expenses due of expenses payable or accrued expenses  or owing expenses or unpaid expenses
Those expenses which have incurred but not paid are outstanding or unpaid expenses. All such expenses should be recorded in that accounting year on which they have incurred. Such unpaid expenses increase the expenses on the concerned heads and on the other hand become liabilities of business. For example, salary relating to the month of chaitra paid in baishkh will be considered as outstanding salary as on 31st chitra. They are added with the concerned heads in the debit side of trading or profit and loss account and shown in the liability side of the balance sheet. The adjustment entry will be follows:
3a. prepaid expenses or advance paid or unexpired expenses
Prepaid expenses represent the expenses paid in advance for the next accounting period. In their words, it is the unused part of expenses paid in current year the reaming of which will other words, it is the unused in the next accounting period. For example, insurance premium paid for one year is consumed in the next account ting period. For example, insurance premium paid for one year up to 1st kartik 2062. It the accounting period ends on 31st chaitra 2061, the insurance premium for the period of six months starting from 1st baishakh 2062 to 30th ashwin will be treated as prepaid insurance during the account ting period ending 31st chitra 2061. These prepaid expenses are considered as assets and debited in adjustment entry and recorded in assets side of balance sheet. On the other hand be deducted from related expenses in trading in trading or profit and loss account, since they are not related with current year-end. The adjustment entry will be as follows:
3b. prepaid/ advance expenses expired
Prepaid expenses may be given in trial balances; actual expenses will be appeared outside of trial balance as expired expenses. The expired amount (given in the adjustment) is shown in the debit side of the profit and loss account and balance (unexpired amount) is shown in the assets side a balance sheet as shown below:
4a. income received in advance or unearned income
Income received in the current accounting year but the work to be done in the future is termed as advance received income. Unearned income represents to the liability and it is to be shown in liability side of balance sheet, on the other hand, it related to the next year's income and it should be deducted form related income in credit side of profit and loss account.
4b. income received in advance/ unearned income earned
Income received in advance during the accounting period may be given in trial balance and form advance some amount is earned during the period that amount is income, and recorded in credit side of profit and loss account and remaining unearned will be posted on liabilities side of balance sheet. If such advance income is given in trial balance following entry should pass for unearned portion of income.
4.    Accrued incomes or income earned but not yet received or income receivable or outstanding incomeThese are the incomes earned in current account ting year but yet to be received. For example, interest on investment, rent from sub-letting, commission earned by the business during the accounting year but not yet received. One side accrued income is assets and it is recorded in assets side of the balance sheet another side it is income and should be added to the related income in credit side of profit and loss account.
5.    Depreciation
Depreciation is the reduction in the value of fixed assets due to wear and tear, passage of time and other reason. It is non-cash expenses and should be recorded in debit side of profit and loss account. On the other hand, it is shown in asset side of balance sheet deducting from related fixed assets.
6.    Miscellaneous expenditure and intangible assets written off (amortization)
Preliminary expenses, underwriting commission, discount or loss on issue of share or debenture, are the example of the miscellaneous expenditure or fictitious assets. Likewise, goodwill, patent, copyright and trademark are the example of intangible assets. They are recorded in asset side of balance sheet. These assets should be amortized or written of within the fixed time period prescribed by the income tax act. The adjustment entry and tradesman in final account of miscellaneous expenditure and intangible assets are follows:
7.    appreciation
When the value of fixed assets increase than the its book value, the increased value is said to be appreciation. It normally takes place with land. It is considered as income and recorded in credit side of profit and loss account. On the other hand, the appreciation In the value of assets is added with related assets in the balance sheet.
9a. purchase of fixed assets
A company may purchase additional fixed assets within the accounting year. This may be included in the purchase account or omitted to be recorded in the book of account in this case, the following treatments is to be made in final accounts.
9b. sales of fixed assets
A company may sell the unsuited or obsolete fixed assets. Sometimes the selling price be omitted to be recorded in the books of account and sometimes the sales of fixed assets may be included in sales account.
9.    Bad debts to be written off (including further bad debts)
A debt means the person or party to whom goods are sold on credit. Debtors account represents amount receivable from debtor. Sometimes debtors fail to pay their due amount and the debt decode irrecoverable. Such irrecoverable amount is knows as bad debts. It is considered as loss, which is incurred during the course of business transaction. Bad debt may be given in trial balance and on the adjustment or in both. The bad debt appearing in trial balance is considered as old bad debt and bad debt given in adjustment is considered as new bad debt or further bad debt. The following adjustment entry should be passed to record the bad debt.
10.    Provision for doubtful debt
Besides bad debts, there be certain debts recovery may be doubtful. A bad debt is different from doubtful debts. The bad debt is definitely irrecoverable and a doubtful. It may be recoverable or not. A bad debt is knows as loss. But a doubtful debt an expected loss. An exported loss need not be treated as a loss before it actually occurs. Such debts cannot be written off as bad debt because non-recovery of such an amount is not certain. For such loss, as expected some provision is made in the form of provision for doubtful debts.
The provision for doubtful is created to show the true value of debtor. This provision is created by debiting the profit and loss account. In the other hand, the amount of provision for doubtful debt is to deducted from debtor after writing off further bad debt provision for doubtful debt may be in trial balance and adjustment. The provision for doubtful debt given in trial balance is considered as old provision and give in adjustment is considered as new provision for doubtful debt.
11.    Provision for discount on debtors
Some business forms settle their accounts with the creditors by marking payment at the proper and scheduled time. This will create goodwill for them, prompt payment to creditor help the business to earn discount. Discount received form creditors is a profit. When a help the businessman received regular income on discount from creditors, he makes a provision for the some by crediting to profit and loss account and debiting to provision for discount on creditor account.
12.    Interest on loan (outstanding)
The amount of borrowing is called loan. To fulfill the requirement to finance, money may be borrowed from banks or other financial financial institutions. A fixed rate of interest is payable on loan, interest paid on that loan is considered as expenses and unpaid amount of interest is considered as outstanding expenses.
13.    Interest on debenture (outstanding)
It is expense of profit and loss account. Generally interest on debentures is paid half yearly. The unpaid amount of interest on debenture is considered outstanding interest on debentures.
14.    Interest on investment (accrued)
The amount lending outside the business is considered as investment. Company may invest its cash or cash equivalent in the purchase of marketing securities or government's bond etc. a fixed rate of interest is receivable on investment. The interest received on investment given in the trial balance is considered as income and shown in credit side of p/l account. Interest earned but not received yet is considered as receivable and adjustment entry will be as follows:
15.    Goods used in the business
Due to the various reasons, goods are used in the business. Following are the main purposes.
a.    Goods given away as charity or donation: the value of goods given away as donation or charity is treated as expenses for the business. It is deducted from purchase is debit side of trading account. On the other hand, it is to be shown in debit side of profit and loss account.
b.    Goods distributed as free sample: to promote the sales of its product, the business entities may distribute goods as free sample. The amount of goods given way of free samples are treated as selling expenses or advertisement expenses and charged to debit side of P/L account and on the other hand it is to be deducted from purchase in the debit side of trading account.
16.    Goods used for making of an assets
The amount of goods used for making an asset for the business is debited to related assets account and deducted from purchase in the debit of trading account. In the same way part of the ways paid for the making of such asset should be added to the related assets and deducted from wages in the debit side of trading account.
17.    Managerial remuneration and commission of profit
 The amount of managerial remuneration may be specified in memorandum or article of association. It is not specified in article, the directors may be given a bonus commission of not more than 5% of net profit, as per company act 2063. Commission on profit is the remuneration, which is charged on the basis of certain percentage of net profit either before or after charging such commission.
18.    Loss of goods due to abnormal reason ( abnormal loss)
Generally, this type of loss occurs due to the carelessness of the management like accident, fire flood, theft ect. Such losses are considered as absobormal losses. The amount of abnormal loss debited with the amount of loss and trading is credited with same amount. At the end of the accounting year, the amount of abnormal loss is transferred to profit and loss account and closing it.
19.    Sale of goods on approval basis
In a business goods can be sold on sale or returnable basis. These types of sales indicate that if the quality or other conditions are acceptable to the buyer they will send information of his approval for the purchase of such goods otherwise he would return the goods to the suppliers. When goods are sold on these terms, it should not be treated as actual sales till the approval is received from the debtor. Under certain circumstances, if has been included in sales, on the one hand the sales value of such goods should be deducted from actual sales and on the other hand cost  price  of such goods should be treated as stock with customer.
20.    Tax adjustments
a.    Tax deducted at source (tds)
Generally, tax may be deducted at source on certain expenditures of the company like salary, interest; stationary etc. the deducted amount of tax at source should be deposited into the income tax office. The journal entry of such items will be as follows:
b.    Advance payment of income tax
The advance payment of tax is also known as "pay as you earn'. Though the income of the previous year will be assessment year, an assesses  has to pay tax in advance in the previous year itself against his probable liability to tax in the assessment year immediately following.

c.    Provision for tax
Income tax payable by a company is a charge against the profit of the company. At the end of each accounting year, taxable income is computed by the company as per the provision of the income tax act. After determining the tax liability, the company makes a provision for it in the final accounts. If the provision for it in the final accounts. If the provision for tax appears outside the trial balance, the adjustment entry will be as follows.
d.    If income tax paid and provision for tax: are given in the debit and credit side of trial balance respectively, that is considered as last year's tax paid and  provision. The treatment of the above items in the final accounts will be as follows:
(i)    The amount of tax paid be shown in debit side of profit and loss appropriation account.
(ii)    The amount of provision for tax  given in credit side will be shown in credit side of profit and loss appropriation account.
e.    If income tat paid is given in debit side of trial balance but provision for tax is not given in credit side of trial balance, in this case the tax paid should be considered as advance paid tax and shown in assets side of balance sheet under the head of loan and advance or  it can be shown in side of profit and loss account considering the payment of last year's tax liabilities.
23. Dividend
A dividend may be defined as a distribution of divisible profit of a company among the shareholders according to the number of shares held by each of them in the capital of the company. The board of directors recommends the amount of profit which is to be distributed as a dividend. The shareholders in the annual general may declare the dividend, recommended by the board, but no dividend shall exceed the amount recommend by the board.
a.    Proposed dividend
The dividend recommended by the board of directors is termed as proposed dividend. When the proposed dividend is adopted in the annual general meeting by the shareholders, it is termed as "declared should be paid within 45 days of declaration. The amount of dividend is calculated on the basis of paid up capital. Paid up capital means total called up minus call-in-arrears if any.

The preference shareholders are entitled are entitled to receive a dividend at a fixed rate. If the directors decide to declare a dividend on equity shares, it is compulsory to make a provision first for the payment of one yaear's dividend to preference shareholder.
 The adjustment entry and treatment in final account of proposed dividend given in outside the trial balance will be as follows:
b.    Interim dividend
The dividend declared by the board of director before the preparation of final account is termed as interim dividend. The interim dividend is paid during the year and appears in the debit side of trial balance. The amount of interim dividend paid given in trial balance should be shown in debit side of profit and loss appropriation account.
c.    Unclaimed dividend
Any dividend, which remains unpaid or unclaimed for any reason up to 45 days of declaration of dividend is called unclaimed dividend. The amount of unclaimed dividend appearing the credit side of trial balance should be shown be shown in liabilities of balance sheet under the head of current liability.
d.    Final dividend
The directors after declaring interring dividend may declare dividend at the end of the accounting year as well. This dividend is declared unless the resolution mentions it specifically. Like interim dividend also appears in the debit side of trial balance and it is shown in debit side of profit and loss appropriation account.
e.    Bonus shares or stock dividend
Stock dividend or bonus share is the payment of dividend to the shareholders in the form of equity share. If amount of stock dividend paid in the debit side of trial balance should be shown in debit side of profit and loss appropriation account.
24. Transfer to reserve
As per the provision of company act, 2063, dividend can be declared or paid by the company for any financial year out of the profit of the company for any financial year out of the profit of the company for that year after transferring certain amount of profit to reserve. General reserves and funds are created to meet the future contingency of the company. It provides financial strength to company to the contingencies, which may arise in future. Any amount of reserve and funds except those related to employee or workers are appropriated from the prifit and they are considered as the part of the profit. Reserve and fund relating to the employee or workers like bonus, pension fund and provident fund are not considered as that part of profit and they are considered as liability. If reserve and funds except those related employees are given in outside the trial balance, the adjustment entry and treatment in final accounts will be as follows:
25. reserves and funds related with the employees like bonus, pension fund, provident fund etc. If bonus, pension fund and provident fund etc are given outside the trial balance, one side they are considered as expenses and shown in debit side of profit and loss and on the other hand they are considered as current liability.
 26. Bonus and retirement benefits to employees in cash
Joint Stock Company has policy to pay certain amount out of profit as bonus in cash and certain amount at the time of retirement as retirement benefit in cash. Treatment of these items on final accounts will be as follows:
27. Hidden adjustments
Hidden adjustments are those adjustments, which are not clearly given, in additional information. It should be find out inside the trial balance. It is called hidden because it cannot be seen at once. For example, 10% debenture Rs. 100, 000. There is no mentioned regarding amount. Before determining the type of entries, it is essential to observe whether there is any hidden part to be adjusted.