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Chapter 6: BALANCE DAY ADJUSTMENTS AND PREPARATIONS OF FINAL ACCOUNTS -…
Chapter 6: BALANCE DAY ADJUSTMENTS AND PREPARATIONS OF FINAL ACCOUNTS
Adjustment for Financial Statements
Allowance for doubtful debts
Depreciation
Bad debts written off
Capital expenditure & Revenue expenditure
Accruals and Prepayments
Accruals & Prepayment
Some expenses has been incurred (services have been used) but not paid - eg: Electricity
Some revenues has been earned but payments not received yet - eg: Commission received
Some expenses has been paid in advance.- eg: insurance
Some revenue has been received but not yet earned - eg: Rent received
Bad Debts
Amounts of debtors who are not able to settle their debt
Allowance or Provision for Doubtful Debts
A
Decrease
in AFDD treated as a
Revenue
in SOPL
An
Increase
in AFDD treated as and
Expense
in SOPL
Depreciation
Causes
Economic factors
Time
Physical deterioration
Depletion
Straight line method
Reducing balance method
Accounting Treatment
Capital Expenditure
vs Revenue Expenditure
Capital expenditure incurred when business spends money to buy non-current assets or add to the value of an existing non-current assets
Revenue expenditure incurred for a day to day operation