Explain the following adjustment and their treatment in Final Accounts:
(i) Loss of stock by fire
(ii) Goods given away as charity and samples.
(iii) Goods were taken by the proprietor for personal use.
Explain the following adjustment and their treatment in Final Accounts:
(i) Loss of stock by fire
(ii) Goods given away as charity and samples.
(iii) Goods were taken by the proprietor for personal use.
The explanation of the adjustments and their treatment :
(i) Loss of goods due to fire, the theft or accident is known as an abnormal loss of goods. If such goods were insured by the firm, then an insurance claim may be received in full or part from the insurance company. Effect of this adjustment on final accounts will be as follows :
(a) Cost of goods lost/destroyed is either deducted from purchases or shown on the credit side of Trading A/c.
(b) Net loss, i.e., gross loss less insurance claim accepted, if any, shall be shown on the debit side of profit and loss A/c.
(c) Insurance claim accepted will be shown on the assets side of the Balance Sheet.
(ii) Some time goods are distributed as the free sample for the purpose of trial and advertisement. It should be treated in final accounts as follows :
(a) On the one hand, it deducted from purchases in the trading account.
(b) On the other hand, it is shown on the debit side of profit and loss account as an advertisement.
(iii) Goods taken for personal use will be shown as a deduction from the purchase account in the trading account and an item of deduction from the capital in the balance sheet.
The explanation of the adjustments and their treatment :
(i) Loss of goods due to fire, the theft or accident is known as an abnormal loss of goods. If such goods were insured by the firm, then an insurance claim may be received in full or part from the insurance company. Effect of this adjustment on final accounts will be as follows :
(a) Cost of goods lost/destroyed is either deducted from purchases or shown on the credit side of Trading A/c.
(b) Net loss, i.e., gross loss less insurance claim accepted, if any, shall be shown on the debit side of profit and loss A/c.
(c) Insurance claim accepted will be shown on the assets side of the Balance Sheet.
(ii) Some time goods are distributed as the free sample for the purpose of trial and advertisement. It should be treated in final accounts as follows :
(a) On the one hand, it deducted from purchases in the trading account.
(b) On the other hand, it is shown on the debit side of profit and loss account as an advertisement.
(iii) Goods taken for personal use will be shown as a deduction from the purchase account in the trading account and an item of deduction from the capital in the balance sheet.
