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Misc Adjustments

  • Taking goods for personal use

It’s inevitable that proprietors take items of business stock for their own consumption. Goods taken out of own business for personal use without paying should be recorded so that adjusting entries can be made. The entries are:

Debit drawings account
Credit purchases account

There are times when private bills such as telephone, electricity, insurance, etc are accidentally charged to the business accounts. Adjustments are needed to correct them. The adjustment is:

Debit drawings account
telephone/electricity/insurance/etc account

Partners’ contributions of capital to a business may be unequal and it’s only fair and sensible to allow interest on their capitals. The interest should be equivalent to the return they would have got had they invested their capital some where else and should be mutually agreed. The double entry would be:

Debit interest on capital account
capital account

The interest on capital is an expense item and is transferred to the profit and loss account.

To discourage too much drawing of cash from the business, a reasonable interest rate is imposed on each withdrawal. The interest rate is calculated from the date of withdrawal to the end of the financial year. The interest charged is a loss to the partners and is recorded by the following entry.

Debit capital account
interest on drawings account

The interest on drawings is a gain to the business and will be credited to the profit and loss account.

  • Donation and free sample

Goods may be donated to charity or given away free as sample.

Debit expense (charity/advertisement/promotion etc) account
purchases account

Last Updated (Thursday, 07 October 2010 16:43)