Question

_________ are adjusted at the time of preparing financial statements.

• A. Depreciation on fixed assets
• B. Interest on capital
• C. Closing stock
• D. All of the above

Answer 1

The correct option is D All of the above

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 the year because there may be some receipts of income and payments of expenses during the current year which may partially relate to the previous year or the next year. 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/Unprepaid 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 commisssion

11. Interest on capitral