The following were extracted from the books of a business for the year ended 31st March, 2024 :

| Particulars | ₹ |
|---|---|
| Capital | 25,000 |
| Cash | 10,500 |
| Rent | 2,500 |
| Furniture | 15,000 |
| Debtors | 9,500 |
| Creditors | 9,000 |
| Salary | 3,000 |
| Electricity

Question

The following were extracted from the books of a business for the year ended 31st March, 2024 :

| Particulars | ₹ |
|---|---|
| Capital | 25,000 |
| Cash | 10,500 |
| Rent | 2,500 |
| Furniture | 15,000 |
| Debtors | 9,500 |
| Creditors | 9,000 |
| Salary | 3,000 |
| Electricity charges | 1,700 |
| Interest received | 1,200 |
| General expenses | 800 |
| Discount received | 800 |
| Drawings | 2,000 |
| Closing stock | 6,000 |
| Gross Profit | 15,000 |

Other information
(1) Depreciate furniture by 10%.
(2) Rent due but not paid ₹ 1,500 and Salary outstanding ₹ 500.
(3) Create a provision for doubtful debts on debtors @10%.
(4) Electricity charges paid in advance ₹ 200.
Prepare Profit and Loss account and Balance sheet for the year ending 31st March, 2024.

Accepted Answer

>

> [!TLDR]
> After adjustments, the P&L Account shows a **Net Profit of ₹4,750**. The Balance Sheet foots at **₹38,750 on both sides** — capital ₹27,750 + creditors ₹9,000 + outstanding rent ₹1,500 + outstanding salary ₹500 = assets (cash ₹10,500 + furniture ₹13,500 + debtors ₹8,550 + closing stock ₹6,000 + prepaid electricity ₹200).
>
> This is a Kerala Plus One (DHSE) Accountancy final-accounts problem (Financial Statements with adjustments). Gross Profit ₹15,000 is already given, so we begin the Profit and Loss Account with it and bring in the other incomes and expenses.
>
> **Adjustment working:**
>
> | Adjustment | Effect on P&L | Effect on Balance Sheet |
> |---|---|---|
> | (1) Depreciation on furniture @10% of 15,000 = ₹1,500 | Expense ₹1,500 (debit) | Furniture 15,000 − 1,500 = **13,500** |
> | (2a) Rent due but unpaid ₹1,500 | Rent 2,500 + 1,500 = **4,000** | Outstanding rent ₹1,500 (liability) |
> | (2b) Salary outstanding ₹500 | Salary 3,000 + 500 = **3,500** | Outstanding salary ₹500 (liability) |
> | (3) Provision for doubtful debts @10% of 9,500 = ₹950 | Expense ₹950 (debit) | Debtors 9,500 − 950 = **8,550** |
> | (4) Electricity paid in advance ₹200 | Electricity 1,700 − 200 = **1,500** | Prepaid electricity ₹200 (asset) |
>
> **Profit and Loss Account for the year ended 31st March, 2024**
>
> | Particulars | ₹ | Particulars | ₹ |
> |---|---|---|---|
> | To Rent (2,500 + 1,500) | 4,000 | By Gross Profit b/d | 15,000 |
> | To Salary (3,000 + 500) | 3,500 | By Interest received | 1,200 |
> | To Electricity charges (1,700 − 200) | 1,500 | By Discount received | 800 |
> | To General expenses | 800 | | |
> | To Depreciation on furniture | 1,500 | | |
> | To Provision for doubtful debts | 950 | | |
> | To Net Profit (transferred to Capital) | 4,750 | | |
> | **Total** | **17,000** | **Total** | **17,000** |
>
> *Check:* Total expenses = 4,000 + 3,500 + 1,500 + 800 + 1,500 + 950 = ₹12,250; total incomes = 15,000 + 1,200 + 800 = ₹17,000; Net Profit = 17,0

Date	Particulars	Debit (₹)	Credit (₹)
March 31	Salary A/c Dr.	50,000
	To Outstanding Salary A/c		50,000
	(Being salary for March due but not paid)

Date	Particulars	Debit (₹)	Credit (₹)
April 10	Outstanding Salary A/c Dr.	50,000
	To Cash/Bank A/c		50,000
	(Being outstanding salary paid)

Date	Particulars	Debit (₹)	Credit (₹)
March 31	Accrued Commission A/c Dr.	20,000
	To Commission Income A/c		20,000
	(Being commission earned but not received)

Date	Particulars	Debit (₹)	Credit (₹)
April 15	Cash/Bank A/c Dr.	20,000
	To Accrued Commission A/c		20,000
	(Being accrued commission received)

Date	Particulars	Debit (₹)	Credit (₹)
March 31	Prepaid Insurance A/c Dr.	9,000
	To Insurance A/c		9,000
	(Being insurance prepaid for the remaining period)

Concept understanding — Accrual Basis Accounting

Accrual Basis Accounting – A First Look

The Precise Meaning

Why It Matters

Accounting Treatment – The Journal Entries

1. Outstanding Expenses (Expense incurred but not yet paid)

2. Accrued Income (Income earned but not yet received)

3. Prepaid Expenses (Expense paid in advance)

4. Unearned Income (Income received in advance)

Particulars	₹
Capital	25,000
Cash	10,500
Rent	2,500
Furniture	15,000
Debtors	9,500
Creditors	9,000
Salary	3,000
Electricity charges	1,700
Interest received	1,200
General expenses	800
Discount received	800
Drawings	2,000
Closing stock	6,000
Gross Profit	15,000

Adjustment	Effect on P&L	Effect on Balance Sheet
(1) Depreciation on furniture @10% of 15,000 = ₹1,500	Expense ₹1,500 (debit)	Furniture 15,000 − 1,500 = 13,500
(2a) Rent due but unpaid ₹1,500	Rent 2,500 + 1,500 = 4,000	Outstanding rent ₹1,500 (liability)
(2b) Salary outstanding ₹500	Salary 3,000 + 500 = 3,500	Outstanding salary ₹500 (liability)
(3) Provision for doubtful debts @10% of 9,500 = ₹950	Expense ₹950 (debit)	Debtors 9,500 − 950 = 8,550
(4) Electricity paid in advance ₹200	Electricity 1,700 − 200 = 1,500	Prepaid electricity ₹200 (asset)

Particulars	₹	Particulars	₹
To Rent (2,500 + 1,500)	4,000	By Gross Profit b/d	15,000
To Salary (3,000 + 500)	3,500	By Interest received	1,200
To Electricity charges (1,700 − 200)	1,500	By Discount received	800
To General expenses	800
To Depreciation on furniture	1,500
To Provision for doubtful debts	950
To Net Profit (transferred to Capital)	4,750
Total	17,000	Total	17,000

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