Question 3
- What are end of year adjustments?
- Explain how the following items are treated in the final accounts:
- provision for doubtful debts.
- prepaid rent
- depreciation of fixed assets.
- accrued income.
Comments
Many candidates attempted this question but the performance was below average. A good number of them were incorrectly writing on the meaning of the items.
Some of the suggested answers were:
- End of year adjustments are amendments made in the books of account at the end of an accounting period in order to match revenue with expenses.
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- The following items are treated in the final accounts as follows:
- Provision for doubtful debts: it is posted to the debit side of profit and loss account and deducted from the debtor’s figure in the balance sheet.
- Prepaid rent: it is deducted from the amount of rent debited to the profit and loss account and recorded under current asset in the balance sheet.
- Depreciation of fixed assets: it is posted to the debit side of profit and loss account and deducted from the cost of the fixed assets to arrive at net book value in the balance sheet.
- Accrued income: it is added to the income value on the credit side of profit and loss account and classified under current asset in the balance sheet.
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The following items are treated in the final accounts as follows:
OR
End of year adjustments are amendments made for business transactions which have not been included in the accounting records of a business at the end of an accounting period.
OR
End of year adjustments are journal entries made in the account of a business prior to the preparation of final account for a given period.