NCERT Book Class 11 Accountancy Chapter 9 Financial Statements - II

318 Accountancy

Financial Statements - II 9

I n chapter 8, 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
Learning Objectives
the absence of any accounting complexities
After studying this chapter, which are normal to business operations. These
you will be able to : complexities arise due to the fact that the process of
• describe the need for determining income and financial position is based
ad ju st m e nt s w h ile
preparing the financial
on the accrual basis of accounting. This emphasises
statements; that while ascertaining the profitability, the revenues
• explain the accounting be considered on earned basis and not on receipt
treatment of adj­u st­­ basis, and the expenses be considered on incurred
ments for outstanding basis and not on paid basis. Hence, many items
and prepaid expenses, need some adjustment while preparing the financial
accrued and advance statements. In this chapter we shall discuss all items
receipts of incomes;
which require adjustments and the way these are
• discuss the adjust­-­
ments to be made re­
brought into the books of account and incorporated
garding deprecia-­tion, in the final accounts.
bad debts, provi­s ion
for doubtful debts, pro­ 9.1 Need for Adjustments
vision for discount on
debtors; According to accrual concept of accounting, the
• explain the concepts profit or loss for an accounting year is not based
and adjustment of on the revenues realised in cash and the expenses
manager’s commiss­ion paid in cash during that year. There may exist some
and interest on capital; receipts and expenses in the current year which
• prepare profit and loss partially relate to the previous year or to the next
account and balance year. Also, there may exist incomes and expenses
sheet with adjust-
relating to the current year that still need to be
m­ents.
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.

Ch-09.indd 318 9/13/2022 5:00:26 PM