Question

Show the treatment of prepaid expenses, depreciation, closing stock at the time of preparation of final accounts
(a) When given inside the trial balance.
(b) When given outside the trial balance.

Answer 1

Treatment of prepaid expenses, depreciation and closing stock at the time of preparing the final account :

(a) When Given Inside the Trial Balance

• Prepaid Expenses When prepaid expenses are given in the trial balance itself it will be treated as current assets only and will be posted in the Assets Side of the balance sheet. No further adjustment will be required in this case
• Depreciation When depreciation is given in the trial balance it will be treated as an expenditure and will be shown in the debit side of the Profit and Loss Account. No further adjustment will be required in this case.
• Closing Stock When closing stock is given in the trial balance it will purely be treated as assets and will be shown only in the Assets Side of the Balance sheet. No further adjustment will be required in this case.

(b) When Given Outside the Trial Balance

• Prepaid Expenses When prepaid expenses are given outside the trial balance it will be treated as an Adjustment and will be posted at two places first of all it will be deducted from the concerned expenses in the debit side of Profit and Loss Account and after that it will be treated as current assets and will be posted in the Assets side of the Balance Sheet.
• Depreciation When depreciation is given outside the trial balance it will be treated as an adjustment and will be posted at two places to comply with the rules of double entry book keeping system. First of all the amount of depreciation will be shown in the debit side of Profit and Loss account as an expenditure and the amount of depreciation will be deducted from the concerned assets in the assets side of Balance Sheet.
• Closing Stock When closing stock is given outside the trial balance It will purely be treated as an adjustment and will be posted at two places first of all the amount of closing stock will be shown at the credit side of Trading Account and after that it will be shown as an assets in the Assets side of the Balance Sheet.