Question

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

Answer 1

(i) Prepaid expenses

(a) When given inside the Trial Balance: It will be posted only in the Assets side of the Balance Sheet.

Assets	Amount
Prepaid Expenses

(b) When given outside the Trial Balance:

Dr.	Profit and Loss Account		Cr.
Particulars	Amount	Particulars	Amount
Concerned Expenses Less: Prepaid Expenses

 

Balance Sheet
Liabilities	Amount	Assets	Amount
		Prepaid Expenses

(ii) Depreciation

(a) If depreciation is given inside the Trial Balance, then it can be shown in the Debit side of the Profit and Loss A/c.

It means that this depreciation amount has already been deducted from the concerned assets in the Balance Sheet.

Dr.	Profit and Loss Account		Cr.
Particulars	Amount	Particulars	Amount
Depreciation

(b) If depreciation is given outside the Trial Balance, i.e. in the adjustments, then it is shown in the debit side of the Profit and Loss Account and deducted from the concerned assets in the Assets side of Balance Sheet.

Dr.	Profit and Loss Account		Cr.
Particulars	Amount	Particulars	Amount
Depreciation on Concerned Assets

 

Balance Sheet
Liabilities	Amount	Assets	Amount
		Concerned Assets Less: Depreciation

(iii) Closing stock

(a) The closing stock is valued at cost price or realisable value, whichever of the two is lesser.

If given inside the Trial Balance, then it will be posted only in the Assets side of the Balance Sheet.

Balance Sheet
Liabilities	Amount	Assets	Amount
		Closing Stock

(b) If the closing stock is given outside the Trial Balance then, it needs to be posted at two places.

Dr.	Profit and Loss Account		Cr.
Particulars	Amount	Particulars	Amount
		Closing Stock

 

Balance Sheet
Liabilities	Amount	Assets	Amount
		Closing Stock