NCERT Textbook - Financial Statements Commerce Notes | EduRev

Accountancy Class 11

Commerce : NCERT Textbook - Financial Statements Commerce Notes | EduRev

 Page 1


360 Accountancy
Financial Statements - II 10
I
n chapter 9, you learnt about the preparation of
simple final accounts in the format of trading and
profit and loss account and balance sheet. The
preparation of simple final accounts pre-supposes
the absence of any accounting complexities which
are normal to business operations. These
complexities arise due to the fact that the process
of determining income and financial position is
based on the accrual basis of accounting. This
emphasises that while ascertaining the profitability,
the revenues be considered on earned basis and
not on receipt basis, and the expenses be considered
on incurred basis and not on paid basis. Hence,
many items need some adjustment while preparing
the financial statements. In this chapter we shall
discuss all items which require adjustments and
the way these are brought into the books of account
and incorporated in the final accounts.
10.1 Need for Adjustments
According to accrual concept of accounting, the profit
or loss for an accounting year is not based on the
revenues realised in cash and the expenses paid in
cash during that year. There may exist some receipts
and expenses in the current year which partially
relate to the previous year or to the next year. Also,
there may exist incomes and expenses relating to the
current year that still need to be brought into books
of account. Such items duly adjusted, the final
accounts will not reflect the true and fair view of the
state of affairs of the business.
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• describe the need for
adjustments while
preparing the financial
statements;
• explain the accounting
treatment of adjust-
ments for outstanding
and prepaid expenses,
accrued and advance
receipts of incomes;
• discuss the adjust-
ments to be made
regarding deprecia-
tion, bad debts, provi-
sion for doubtful debts,
provision for discount
on debtors;
• explain the concepts
and adjustment of
manager’s commission
and interest on capital;
• prepare profit and loss
account and balance
sheet with adjust-
ments.
2020-21
Page 2


360 Accountancy
Financial Statements - II 10
I
n chapter 9, you learnt about the preparation of
simple final accounts in the format of trading and
profit and loss account and balance sheet. The
preparation of simple final accounts pre-supposes
the absence of any accounting complexities which
are normal to business operations. These
complexities arise due to the fact that the process
of determining income and financial position is
based on the accrual basis of accounting. This
emphasises that while ascertaining the profitability,
the revenues be considered on earned basis and
not on receipt basis, and the expenses be considered
on incurred basis and not on paid basis. Hence,
many items need some adjustment while preparing
the financial statements. In this chapter we shall
discuss all items which require adjustments and
the way these are brought into the books of account
and incorporated in the final accounts.
10.1 Need for Adjustments
According to accrual concept of accounting, the profit
or loss for an accounting year is not based on the
revenues realised in cash and the expenses paid in
cash during that year. There may exist some receipts
and expenses in the current year which partially
relate to the previous year or to the next year. Also,
there may exist incomes and expenses relating to the
current year that still need to be brought into books
of account. Such items duly adjusted, the final
accounts will not reflect the true and fair view of the
state of affairs of the business.
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• describe the need for
adjustments while
preparing the financial
statements;
• explain the accounting
treatment of adjust-
ments for outstanding
and prepaid expenses,
accrued and advance
receipts of incomes;
• discuss the adjust-
ments to be made
regarding deprecia-
tion, bad debts, provi-
sion for doubtful debts,
provision for discount
on debtors;
• explain the concepts
and adjustment of
manager’s commission
and interest on capital;
• prepare profit and loss
account and balance
sheet with adjust-
ments.
2020-21
361 Financial Statements - II
For example, an amount of ` 1,200 paid on July 01, 2016 towards insurance
premium. Any general insurance premium paid usually covers a period of 12
months. Suppose the accounting year ends on March 31,
 
2017, it would mean
that one fourth of the insurance premium is paid on July 01, 2016 relate to the
next accounting year 2017-18. Therefore, while preparing the financial
statements for 2016-17, the expense on insurance premium that should be
debited to the profit and loss account is ` 900 (` 1,200 – ` 300).
Let us take another example. The salaries for the month of March, 2017
were paid on April 07, 2017. This means that the salaries account of 2016-17
does not include the salaries for the month of March 2017. Such unpaid salaries
is termed as salaries outstanding which have to be brought into books of
account and is debited to profit and loss account along with the salaries already
paid for the month of April, 2016 up to Feburary, 2017.
Similarly, adjustments may also become necessary in respect of certain
incomes received in advance or those which have accrued but are still to be
received. Apart from these, there are certain items which are not recorded on
day-to-day basis such as depreciation on fixed assets, interest on capital, etc.
These are adjusted at the time of preparing financial statements. The purpose of
making various adjustments is to ensure that the final accounts reveal the true
profit or loss and the true financial position of the business. The items which
usually need adjustments are:
1. Closing stock
2. Outstanding/expenses
3. Prepaid/Unexpired expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager’s commission
11. Interest on capital
It may be noted that when we prepare the financial statements, we are
provided with the trial balance and some other additional information in respect
of the adjustments to be made. All adjustments are reflected in the final
accounts at two places to complete the double entry. Our earlier example in
chapter 9 (Page no. 336) which represents the trial balance of Ankit is reproduced
in figure 10.1:
2020-21
Page 3


360 Accountancy
Financial Statements - II 10
I
n chapter 9, you learnt about the preparation of
simple final accounts in the format of trading and
profit and loss account and balance sheet. The
preparation of simple final accounts pre-supposes
the absence of any accounting complexities which
are normal to business operations. These
complexities arise due to the fact that the process
of determining income and financial position is
based on the accrual basis of accounting. This
emphasises that while ascertaining the profitability,
the revenues be considered on earned basis and
not on receipt basis, and the expenses be considered
on incurred basis and not on paid basis. Hence,
many items need some adjustment while preparing
the financial statements. In this chapter we shall
discuss all items which require adjustments and
the way these are brought into the books of account
and incorporated in the final accounts.
10.1 Need for Adjustments
According to accrual concept of accounting, the profit
or loss for an accounting year is not based on the
revenues realised in cash and the expenses paid in
cash during that year. There may exist some receipts
and expenses in the current year which partially
relate to the previous year or to the next year. Also,
there may exist incomes and expenses relating to the
current year that still need to be brought into books
of account. Such items duly adjusted, the final
accounts will not reflect the true and fair view of the
state of affairs of the business.
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• describe the need for
adjustments while
preparing the financial
statements;
• explain the accounting
treatment of adjust-
ments for outstanding
and prepaid expenses,
accrued and advance
receipts of incomes;
• discuss the adjust-
ments to be made
regarding deprecia-
tion, bad debts, provi-
sion for doubtful debts,
provision for discount
on debtors;
• explain the concepts
and adjustment of
manager’s commission
and interest on capital;
• prepare profit and loss
account and balance
sheet with adjust-
ments.
2020-21
361 Financial Statements - II
For example, an amount of ` 1,200 paid on July 01, 2016 towards insurance
premium. Any general insurance premium paid usually covers a period of 12
months. Suppose the accounting year ends on March 31,
 
2017, it would mean
that one fourth of the insurance premium is paid on July 01, 2016 relate to the
next accounting year 2017-18. Therefore, while preparing the financial
statements for 2016-17, the expense on insurance premium that should be
debited to the profit and loss account is ` 900 (` 1,200 – ` 300).
Let us take another example. The salaries for the month of March, 2017
were paid on April 07, 2017. This means that the salaries account of 2016-17
does not include the salaries for the month of March 2017. Such unpaid salaries
is termed as salaries outstanding which have to be brought into books of
account and is debited to profit and loss account along with the salaries already
paid for the month of April, 2016 up to Feburary, 2017.
Similarly, adjustments may also become necessary in respect of certain
incomes received in advance or those which have accrued but are still to be
received. Apart from these, there are certain items which are not recorded on
day-to-day basis such as depreciation on fixed assets, interest on capital, etc.
These are adjusted at the time of preparing financial statements. The purpose of
making various adjustments is to ensure that the final accounts reveal the true
profit or loss and the true financial position of the business. The items which
usually need adjustments are:
1. Closing stock
2. Outstanding/expenses
3. Prepaid/Unexpired expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager’s commission
11. Interest on capital
It may be noted that when we prepare the financial statements, we are
provided with the trial balance and some other additional information in respect
of the adjustments to be made. All adjustments are reflected in the final
accounts at two places to complete the double entry. Our earlier example in
chapter 9 (Page no. 336) which represents the trial balance of Ankit is reproduced
in figure 10.1:
2020-21
362 Accountancy
Trial Balance of Ankit as on March 31, 2017
Account Title Elements L.F. Debit Credit
Amount Amount
` `
Cash Assets 1,000
Bank Assets 5,000
Wages Expense 8,000
Salaries Expense 25,000
Furniture Assets 15,000
Rent of building Expense 13,000
Debtors Assets 15,500
Bad debts Expense 4,500
Purchases Expense 75,000
Capital 12,000
Equity
Sales Revenue 1,25,000
Creditors Liabilities 15,000
Long-term loan (raised on 1.4.2013) Liabilities 5,000
Commission received Revenue 5,000
Total 1,62,000 1,62,000
Additional Information : The stock on March 31, 2017 was ` 15,000.
Figure 10.1 : Showing the trial balance of Ankit
We will now study about the items of adjustments and you will observe how
these adjustments are helpful in the preparation  of financial statements in order
to reflect the true profit and loss and financial position of the firm.
10.2 Closing Stock
As per the example in chapter 9 (Page no. 336), the closing stock represents the
cost of unsold goods lying in the stores at the end of the accounting period. The
adjustment with regard to the closing stock is done by (i) by crediting it to the
trading and profit and loss account, and (ii) by showing it on the asset side of
the balance sheet. The adjustment entry to be recorded in this regard is :
Closing stock A/c Dr.
To Trading A/c
The closing stock of the year becomes the opening stock of the next year
and is reflected in the trial balance of the next year. The trading and profit and
2020-21
Page 4


360 Accountancy
Financial Statements - II 10
I
n chapter 9, you learnt about the preparation of
simple final accounts in the format of trading and
profit and loss account and balance sheet. The
preparation of simple final accounts pre-supposes
the absence of any accounting complexities which
are normal to business operations. These
complexities arise due to the fact that the process
of determining income and financial position is
based on the accrual basis of accounting. This
emphasises that while ascertaining the profitability,
the revenues be considered on earned basis and
not on receipt basis, and the expenses be considered
on incurred basis and not on paid basis. Hence,
many items need some adjustment while preparing
the financial statements. In this chapter we shall
discuss all items which require adjustments and
the way these are brought into the books of account
and incorporated in the final accounts.
10.1 Need for Adjustments
According to accrual concept of accounting, the profit
or loss for an accounting year is not based on the
revenues realised in cash and the expenses paid in
cash during that year. There may exist some receipts
and expenses in the current year which partially
relate to the previous year or to the next year. Also,
there may exist incomes and expenses relating to the
current year that still need to be brought into books
of account. Such items duly adjusted, the final
accounts will not reflect the true and fair view of the
state of affairs of the business.
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• describe the need for
adjustments while
preparing the financial
statements;
• explain the accounting
treatment of adjust-
ments for outstanding
and prepaid expenses,
accrued and advance
receipts of incomes;
• discuss the adjust-
ments to be made
regarding deprecia-
tion, bad debts, provi-
sion for doubtful debts,
provision for discount
on debtors;
• explain the concepts
and adjustment of
manager’s commission
and interest on capital;
• prepare profit and loss
account and balance
sheet with adjust-
ments.
2020-21
361 Financial Statements - II
For example, an amount of ` 1,200 paid on July 01, 2016 towards insurance
premium. Any general insurance premium paid usually covers a period of 12
months. Suppose the accounting year ends on March 31,
 
2017, it would mean
that one fourth of the insurance premium is paid on July 01, 2016 relate to the
next accounting year 2017-18. Therefore, while preparing the financial
statements for 2016-17, the expense on insurance premium that should be
debited to the profit and loss account is ` 900 (` 1,200 – ` 300).
Let us take another example. The salaries for the month of March, 2017
were paid on April 07, 2017. This means that the salaries account of 2016-17
does not include the salaries for the month of March 2017. Such unpaid salaries
is termed as salaries outstanding which have to be brought into books of
account and is debited to profit and loss account along with the salaries already
paid for the month of April, 2016 up to Feburary, 2017.
Similarly, adjustments may also become necessary in respect of certain
incomes received in advance or those which have accrued but are still to be
received. Apart from these, there are certain items which are not recorded on
day-to-day basis such as depreciation on fixed assets, interest on capital, etc.
These are adjusted at the time of preparing financial statements. The purpose of
making various adjustments is to ensure that the final accounts reveal the true
profit or loss and the true financial position of the business. The items which
usually need adjustments are:
1. Closing stock
2. Outstanding/expenses
3. Prepaid/Unexpired expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager’s commission
11. Interest on capital
It may be noted that when we prepare the financial statements, we are
provided with the trial balance and some other additional information in respect
of the adjustments to be made. All adjustments are reflected in the final
accounts at two places to complete the double entry. Our earlier example in
chapter 9 (Page no. 336) which represents the trial balance of Ankit is reproduced
in figure 10.1:
2020-21
362 Accountancy
Trial Balance of Ankit as on March 31, 2017
Account Title Elements L.F. Debit Credit
Amount Amount
` `
Cash Assets 1,000
Bank Assets 5,000
Wages Expense 8,000
Salaries Expense 25,000
Furniture Assets 15,000
Rent of building Expense 13,000
Debtors Assets 15,500
Bad debts Expense 4,500
Purchases Expense 75,000
Capital 12,000
Equity
Sales Revenue 1,25,000
Creditors Liabilities 15,000
Long-term loan (raised on 1.4.2013) Liabilities 5,000
Commission received Revenue 5,000
Total 1,62,000 1,62,000
Additional Information : The stock on March 31, 2017 was ` 15,000.
Figure 10.1 : Showing the trial balance of Ankit
We will now study about the items of adjustments and you will observe how
these adjustments are helpful in the preparation  of financial statements in order
to reflect the true profit and loss and financial position of the firm.
10.2 Closing Stock
As per the example in chapter 9 (Page no. 336), the closing stock represents the
cost of unsold goods lying in the stores at the end of the accounting period. The
adjustment with regard to the closing stock is done by (i) by crediting it to the
trading and profit and loss account, and (ii) by showing it on the asset side of
the balance sheet. The adjustment entry to be recorded in this regard is :
Closing stock A/c Dr.
To Trading A/c
The closing stock of the year becomes the opening stock of the next year
and is reflected in the trial balance of the next year. The trading and profit and
2020-21
363 Financial Statements - II
loss account of Ankit for the year ended March 31, 2017 and his balance sheet
as on that date shall appear as follows :
Trading and Profit and Loss Account of Ankit
for the year ended March 31, 2017
Dr. Cr.
Expenses/Losses Amount Revenues/Gains Amount
` `
Purchases 75,000 Sales 1,25,000
Wages 8,000 Closing stock 15,000
Gross profit c/d 57,000
1,40,000 1,40,000
Salaries 25,000 Gross profit b/d 57,000
Rent of building 13,000 Commission received 5,000
Bad debts 4,500
Net profit (transferred to 19,500
Ankit’s capital account)
62,000 62,000
Sometimes the opening and closing stock are adjusted through purchases
account. In that case, the entry recorded is as follows :
Closing stock A/c Dr.
To Purchases A/c
This entry reduces the amount in the purchases account and is also known
as adjusted purchases which is shown on the debit side of the trading and
profit and loss account. In this context,  it may be noted, that the closing stock
will not be shown on the credit side of the trading and profit and loss as it has
been already been adjusted through the purchases account. Not only, in such a
situation, even the opening stock will not be separately reflected in the trading
and profit and loss account, as it is also adjusted in purchases by recording the
following entry:
Purchases A/c Dr.
To Opening stock A/c
Another important point to be noted in this context is that when the
opening and closing stocks are adjusted through purchases, the trial
balance does not show any opening stock. Instead, the closing stock shall
appear in the trial balance (not as additional information or as an
adjustment item) and so also the adjusted purchases. In such a situation,
the adjusted purchases shall be debited to the trading and profit and loss
account.
2020-21
Page 5


360 Accountancy
Financial Statements - II 10
I
n chapter 9, you learnt about the preparation of
simple final accounts in the format of trading and
profit and loss account and balance sheet. The
preparation of simple final accounts pre-supposes
the absence of any accounting complexities which
are normal to business operations. These
complexities arise due to the fact that the process
of determining income and financial position is
based on the accrual basis of accounting. This
emphasises that while ascertaining the profitability,
the revenues be considered on earned basis and
not on receipt basis, and the expenses be considered
on incurred basis and not on paid basis. Hence,
many items need some adjustment while preparing
the financial statements. In this chapter we shall
discuss all items which require adjustments and
the way these are brought into the books of account
and incorporated in the final accounts.
10.1 Need for Adjustments
According to accrual concept of accounting, the profit
or loss for an accounting year is not based on the
revenues realised in cash and the expenses paid in
cash during that year. There may exist some receipts
and expenses in the current year which partially
relate to the previous year or to the next year. Also,
there may exist incomes and expenses relating to the
current year that still need to be brought into books
of account. Such items duly adjusted, the final
accounts will not reflect the true and fair view of the
state of affairs of the business.
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• describe the need for
adjustments while
preparing the financial
statements;
• explain the accounting
treatment of adjust-
ments for outstanding
and prepaid expenses,
accrued and advance
receipts of incomes;
• discuss the adjust-
ments to be made
regarding deprecia-
tion, bad debts, provi-
sion for doubtful debts,
provision for discount
on debtors;
• explain the concepts
and adjustment of
manager’s commission
and interest on capital;
• prepare profit and loss
account and balance
sheet with adjust-
ments.
2020-21
361 Financial Statements - II
For example, an amount of ` 1,200 paid on July 01, 2016 towards insurance
premium. Any general insurance premium paid usually covers a period of 12
months. Suppose the accounting year ends on March 31,
 
2017, it would mean
that one fourth of the insurance premium is paid on July 01, 2016 relate to the
next accounting year 2017-18. Therefore, while preparing the financial
statements for 2016-17, the expense on insurance premium that should be
debited to the profit and loss account is ` 900 (` 1,200 – ` 300).
Let us take another example. The salaries for the month of March, 2017
were paid on April 07, 2017. This means that the salaries account of 2016-17
does not include the salaries for the month of March 2017. Such unpaid salaries
is termed as salaries outstanding which have to be brought into books of
account and is debited to profit and loss account along with the salaries already
paid for the month of April, 2016 up to Feburary, 2017.
Similarly, adjustments may also become necessary in respect of certain
incomes received in advance or those which have accrued but are still to be
received. Apart from these, there are certain items which are not recorded on
day-to-day basis such as depreciation on fixed assets, interest on capital, etc.
These are adjusted at the time of preparing financial statements. The purpose of
making various adjustments is to ensure that the final accounts reveal the true
profit or loss and the true financial position of the business. The items which
usually need adjustments are:
1. Closing stock
2. Outstanding/expenses
3. Prepaid/Unexpired expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager’s commission
11. Interest on capital
It may be noted that when we prepare the financial statements, we are
provided with the trial balance and some other additional information in respect
of the adjustments to be made. All adjustments are reflected in the final
accounts at two places to complete the double entry. Our earlier example in
chapter 9 (Page no. 336) which represents the trial balance of Ankit is reproduced
in figure 10.1:
2020-21
362 Accountancy
Trial Balance of Ankit as on March 31, 2017
Account Title Elements L.F. Debit Credit
Amount Amount
` `
Cash Assets 1,000
Bank Assets 5,000
Wages Expense 8,000
Salaries Expense 25,000
Furniture Assets 15,000
Rent of building Expense 13,000
Debtors Assets 15,500
Bad debts Expense 4,500
Purchases Expense 75,000
Capital 12,000
Equity
Sales Revenue 1,25,000
Creditors Liabilities 15,000
Long-term loan (raised on 1.4.2013) Liabilities 5,000
Commission received Revenue 5,000
Total 1,62,000 1,62,000
Additional Information : The stock on March 31, 2017 was ` 15,000.
Figure 10.1 : Showing the trial balance of Ankit
We will now study about the items of adjustments and you will observe how
these adjustments are helpful in the preparation  of financial statements in order
to reflect the true profit and loss and financial position of the firm.
10.2 Closing Stock
As per the example in chapter 9 (Page no. 336), the closing stock represents the
cost of unsold goods lying in the stores at the end of the accounting period. The
adjustment with regard to the closing stock is done by (i) by crediting it to the
trading and profit and loss account, and (ii) by showing it on the asset side of
the balance sheet. The adjustment entry to be recorded in this regard is :
Closing stock A/c Dr.
To Trading A/c
The closing stock of the year becomes the opening stock of the next year
and is reflected in the trial balance of the next year. The trading and profit and
2020-21
363 Financial Statements - II
loss account of Ankit for the year ended March 31, 2017 and his balance sheet
as on that date shall appear as follows :
Trading and Profit and Loss Account of Ankit
for the year ended March 31, 2017
Dr. Cr.
Expenses/Losses Amount Revenues/Gains Amount
` `
Purchases 75,000 Sales 1,25,000
Wages 8,000 Closing stock 15,000
Gross profit c/d 57,000
1,40,000 1,40,000
Salaries 25,000 Gross profit b/d 57,000
Rent of building 13,000 Commission received 5,000
Bad debts 4,500
Net profit (transferred to 19,500
Ankit’s capital account)
62,000 62,000
Sometimes the opening and closing stock are adjusted through purchases
account. In that case, the entry recorded is as follows :
Closing stock A/c Dr.
To Purchases A/c
This entry reduces the amount in the purchases account and is also known
as adjusted purchases which is shown on the debit side of the trading and
profit and loss account. In this context,  it may be noted, that the closing stock
will not be shown on the credit side of the trading and profit and loss as it has
been already been adjusted through the purchases account. Not only, in such a
situation, even the opening stock will not be separately reflected in the trading
and profit and loss account, as it is also adjusted in purchases by recording the
following entry:
Purchases A/c Dr.
To Opening stock A/c
Another important point to be noted in this context is that when the
opening and closing stocks are adjusted through purchases, the trial
balance does not show any opening stock. Instead, the closing stock shall
appear in the trial balance (not as additional information or as an
adjustment item) and so also the adjusted purchases. In such a situation,
the adjusted purchases shall be debited to the trading and profit and loss
account.
2020-21
364 Accountancy
The closing stock shall be shown on the assets side of the balance sheet as
shown below:
Balance Sheet of Ankit as at March 31, 2017
Liabilities Amount Assets Amount
` `
Owners funds Non-Current Assets
Capital 12,000 Furniture 15,000
Add  Net profit 19,500 31,500 Current Assets
Non-Current Liabilities Debtors 15,500
Long-term loan 5,000 Bank 5,000
Current Liabilities Cash 1,000
Creditors 15,000 Closing stock 15,000
51,500 51,500
10.3 Outstanding Expenses
It is quite common for a business enterprise to have some unpaid expenses in
the normal course of business operations at the end of an accounting year.
Such items usually are wages, salaries, interest on loan, etc.
When expenses of an accounting period remain unpaid at the end of an
accounting period, they are termed as outstanding expenses. As they relate to
the earning of revenue during the current accounting year, it is logical that they
should be duly charged against revenue for computation of the correct amount
of profit or loss. The entry to bring such expenses into account is :
Concerned expense A/c Dr.
To Outstanding expense A/c
The above entry opens a new account called Outstanding Expenses which
is shown on the liabilities side of the balance sheet. The amount of outstanding
expenses is added to the total of expenses under a particular head for the
purpose of preparing trading and profit and loss account.
For example, refer to Ankit’s trial balance (refer figure 10.1). You will notice
that wages are shown at ` 8,000. Let us assume that Ankit owes `500 as wages
relating to the year 2016-17 to one of his employees. In that case, the correct
expense on wages amounts to ` 8,500 instead of ` 8,000. Ankit must show `
8,500 as expense on account of wages in the trading and profit and loss account
and recognise a current liability of ` 500 towards the sum owed to his staff. It
will be referred to as wages outstanding and it  will be adjusted to wages account
by recording the following journal entry:
Wages A/c Dr. 500
To Wages outstanding A/c 500
2020-21
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