Financial Statements – II – NCERT Class 11 Accountancy Financial Accounting Part II, Chapter 9 – Adjustments in Final Accounts and Practical Examples

Comprehensive coverage of adjustments needed while preparing financial statements including outstanding and prepaid expenses, accrued and advance income, depreciation, bad debts and provisions, manager’s commission, interest on capital; preparation of profit and loss account and balance sheet with adjustments illustrated through examples.

Updated: 5 days ago

Categories: NCERT, Class XI, Accountancy, Financial Accounting, Financial Statements, Adjusted Final Accounts, Depreciation, Provisions, Chapter 9

Tags: Financial Statements-II, Adjustments, Outstanding Expenses, Prepaid Expenses, Accrued Income, Income Received in Advance, Depreciation, Bad Debts, Provision for Doubtful Debts, Manager’s Commission, Interest on Capital, Profit and Loss Account, Balance Sheet, NCERT Class 11, Accountancy, Chapter 9

Financial Statements - II: Class 11 NCERT Chapter 9 - Ultimate Study Guide, Notes, Questions, Quiz 2025

Full Chapter Summary & Detailed Notes - Financial Statements - II Class 11 NCERT

Overview & Key Concepts

Chapter Goal: Learn adjustments for true profit/position (accrual basis). Exam Focus: Adjust trial balance, prepare statements with items like closing stock, outstanding/prepaid expenses, accrued income, depreciation, bad debts. 2025 Updates: Emphasis on double-entry in adjustments, Ankit examples. Fun Fact: Adjustments fix "timing mismatches" like unpaid bills. Core Idea: Earned revenues, incurred expenses. Real-World: Annual audits. Ties: Builds on Ch 8 (simple statements). Expanded: Ankit trial analysis, adjustment entries, impact on P&L/BS tables.
Wider Scope: Accrual concept drives adjustments; 11 items listed.
Expanded Content: Need for adjustments, each item's entry/effect, Ankit reworked statements.

9.1 Need for Adjustments

Accrual basis: Revenues earned (not received), expenses incurred (not paid). Mismatches (e.g., prepaid insurance, unpaid salaries) need fixes for true view. Items: 11 adjustments (stock, expenses, incomes, depreciation, etc.). Simple Way: Like "catching up" – record what belongs to this year.

Box 1: Ankit's Trial Balance (Simple Way: Debits = Assets/Expenses, Credits = Liabilities/Revenues)

Account Title	Elements	Debit ₹	Credit ₹
Cash	Asset	1,000
Bank	Asset	5,000
Wages	Expense	8,000
Salaries	Expense	25,000
Furniture	Asset	15,000
Rent	Expense	13,000
Debtors	Asset	15,500
Bad Debts	Expense	4,500
Purchases	Expense	75,000
Capital	Equity		12,000
Sales	Revenue		1,25,000
Creditors	Liability		15,000
Long-term Loan	Liability		5,000
Commission Received	Revenue		5,000
Total		1,62,000	1,62,000

Additional: Closing stock ₹15,000. Simple Way: Trial is "raw data"; adjustments "polish" it.

9.2 Closing Stock

Unsold goods at year-end (cost). Adjustment: Credit Trading A/c, show as asset in BS. Entry: Closing Stock Dr. To Trading A/c. Simple Way: "What’s left unsold? Add back to profit, list as asset." Next year: Becomes opening stock.

Simple Example: Ankit (Step-by-Step)

Step 1: Without adjustment, purchases ₹75,000 + wages ₹8,000 vs sales ₹1,25,000 = Gross Profit ₹42,000. Step 2: Add closing stock ₹15,000 (credit Trading). Step 3: New Gross = ₹1,25,000 - ₹83,000 + ₹15,000 = ₹57,000. Impact: Profit up ₹15,000; BS asset up.

Particulars	Debit ₹	Credit ₹
To Purchases	75,000
To Wages	8,000
To Gross Profit c/d	57,000
Total	1,40,000
By Sales		1,25,000
By Closing Stock		15,000
Total		1,40,000

Alternative: Adjust via Purchases (reduce by closing, add opening) – no separate stock in Trading.

9.3 Outstanding Expenses

Unpaid expenses (e.g., wages) at year-end. Entry: Expense Dr. To Outstanding A/c (liability). Add to expense in P&L. Simple Way: "Owe money for this year? Charge it now, owe as liability." Reduces profit.

Simple Example: Ankit Wages Outstanding ₹500

Step 1: Wages paid ₹8,000. Step 2: Add outstanding ₹500 → Total wages ₹8,500 (debit Trading). Step 3: Entry: Wages Dr. 500 To Outstanding Wages 500. Impact: Profit down ₹500; BS liability up ₹500.

Particulars	Debit ₹	Credit ₹
To Wages 8,000	8,000
Add: Outstanding	500
Total Wages	8,500

9.4 Prepaid Expenses

Paid in advance (e.g., salary). Entry: Prepaid Dr. To Expense A/c (asset). Deduct from expense in P&L. Simple Way: "Paid extra for next year? Save it as asset, reduce this year's cost." Increases profit.

Simple Example: Ankit Prepaid Salary ₹5,000

Step 1: Salaries paid ₹25,000. Step 2: Less prepaid ₹5,000 → Total ₹20,000 (debit P&L). Step 3: Entry: Prepaid Salary Dr. 5,000 To Salary 5,000. Impact: Profit up ₹5,000; BS asset up ₹5,000.

Particulars	Debit ₹	Credit ₹
To Salaries 25,000	25,000
Less: Prepaid	(5,000)
Total Salaries	20,000

9.5 Accrued Income

Earned but not received (e.g., commission). Entry: Accrued Income Dr. To Income A/c. Add to income in P&L. Simple Way: "Earned but not cashed? Count as income now, asset to collect." Increases profit.

Simple Example: Ankit Accrued Commission ₹1,500

Step 1: Commission received ₹5,000. Step 2: Add accrued ₹1,500 → Total ₹6,500 (credit P&L). Step 3: Entry: Accrued Commission Dr. 1,500 To Commission 1,500. Impact: Profit up ₹1,500; BS asset up ₹1,500.

Summary

Adjustments ensure accrual: True profit (P&L), position (BS). Ankit: Base profit ₹19,500; adjustments tweak (e.g., stock up, outstanding down).
Double-entry: Each adjustment hits P&L/BS twice.
Full Ankit P&L/BS: See tables in examples.

Why This Guide Stands Out

Adjustment-focused: Entries, impacts, Ankit reworked. Free 2025 with step-by-step.

Key Themes & Tips

Aspects: Timing fixes, double-entry.
Tip: "Earned/incurred? Adjust now." Practice Ankit full adjustments.

Exam Case Studies

Ankit adjustments, classify prepaid vs outstanding, impact on profit table.

Project & Group Ideas

Adjust mock trial balance.
Discuss accrual in real firms.

Key Definitions & Terms - Complete Glossary

All terms from chapter; detailed with examples, relevance. Expanded: 20+ terms with depth.

Accrual Concept

Earned revenues, incurred expenses (not cash). Relevance: Basis for adjustments. Ex: Unpaid salary charged. Depth: True profit.

Closing Stock

Unsold goods at year-end. Relevance: Credit Trading, asset BS. Ex: Ankit ₹15,000. Depth: Becomes next opening.

Outstanding Expenses

Unpaid current year expenses. Relevance: Debit P&L, liability BS. Ex: Wages ₹500. Depth: Reduces profit.

Prepaid Expenses

Advance payments for future. Relevance: Debit asset, reduce P&L expense. Ex: Salary ₹5,000. Depth: Increases profit.

Accrued Income

Earned but unreceived income. Relevance: Add to P&L, asset BS. Ex: Commission ₹1,500. Depth: Boosts profit.

Income Received in Advance

Advance for future periods. Relevance: Liability BS, reduce P&L income. Ex: Rent received early. Depth: Defers revenue.

Depreciation

Asset value reduction over time. Relevance: Debit P&L expense, reduce BS asset. Ex: Furniture 10%. Depth: Allocation.

Bad Debts

Irrecoverable receivables. Relevance: Debit P&L expense, reduce debtors BS. Ex: Ankit ₹4,500. Depth: Write-off.

Provision for Doubtful Debts

Estimate for possible bad debts. Relevance: Debit P&L, contra-asset BS. Ex: 5% of debtors. Depth: Prudence.

Provision for Discount on Debtors

Expected cash discounts. Relevance: Debit P&L, reduce debtors BS. Ex: 2% on debtors. Depth: Incentive estimate.

Manager’s Commission

Manager's share of profit. Relevance: Debit P&L (after profit calc), add to salary BS. Ex: 10% net profit. Depth: Circular calc.

Interest on Capital

Owner's capital reward. Relevance: Debit P&L, credit capital BS. Ex: 6% on ₹12,000. Depth: Before/after commission.

True and Fair View

Accurate statements post-adjustments. Relevance: Compliance. Ex: Ankit adjusted P&L. Depth: Accrual ensures.

Adjustment Entry

Double-entry for mismatches. Relevance: Hits P&L/BS. Ex: Outstanding Dr. To Liability. Depth: Completes books.

Trading and P&L Account

Adjusted for items (stock, expenses). Relevance: Profit calc. Ex: Ankit gross ₹57,000. Depth: Direct/indirect.

Balance Sheet

Position with adjustments (assets/liab). Relevance: Snapshot. Ex: Ankit ₹51,500. Depth: Grouping.

Double Entry in Adjustments

Each adjustment two-sided. Relevance: Balance. Ex: Debit expense, credit liability. Depth: Trial equality.

Prudence Concept

Anticipate losses, not profits. Relevance: Provisions. Ex: Doubtful debts. Depth: Conservative.

Circular Calculation

Interdependent (e.g., commission on profit incl. itself). Relevance: Manager's pay. Ex: Solve equation. Depth: Iterative.

Tip: Link to P&L/BS impact; classify by timing. Depth: Entries double-sided. Errors: Forget liability? Unbalanced. Historical: Accrual evolution. Interlinks: Ch 8 trial. Advanced: Provisions calc. Real-Life: Audit adjustments. Graphs: Tables in PDF. Coherent: Need → items → Ankit.

Additional: 11 items list. Pitfalls: Ignore stock? Understate profit. Common: Prepaid as expense full.

60+ Questions & Answers - NCERT Based (Class 11)

20 Part A (1 mark short), 20 B (4 marks medium), 20 C (8 marks long). Based on NCERT, exercises. Answers point-wise; numerical stepwise for easy learning.

Part A: 1 Mark Questions (20 Qs)

1. What is accrual concept?

1 Mark Answer:

Earned revenues, incurred expenses.

2. Closing stock shown where?

1 Mark Answer:

Credit Trading, asset BS.

3. Outstanding expenses effect?

1 Mark Answer:

Reduce profit.

4. Prepaid expenses example.

1 Mark Answer:

Advance salary.

5. Accrued income entry.

1 Mark Answer:

Dr. To Income A/c.

6. Depreciation is?

1 Mark Answer:

Asset wear allocation.

7. Bad debts treatment.

1 Mark Answer:

P&L expense.

8. Provision for doubtful debts.

1 Mark Answer:

Estimate bad debts.

9. Manager’s commission on?

1 Mark Answer:

Net profit.

10. Interest on capital shown where?

1 Mark Answer:

P&L debit.

11. Income received in advance.

1 Mark Answer:

Liability.

12. Adjustments purpose.

1 Mark Answer:

True view.

13. Closing stock entry.

1 Mark Answer:

Dr. To Trading.

14. Outstanding wages effect on BS.

1 Mark Answer:

Current liability.

15. Prepaid as what?

1 Mark Answer:

Current asset.

16. Accrued commission.

1 Mark Answer:

Current asset.

17. Provision for discount on debtors.

1 Mark Answer:

P&L expense.

18. Double-entry in adjustments.

1 Mark Answer:

P&L and BS.

19. Ankit closing stock.

1 Mark Answer:

₹15,000.

20. Prudence in provisions.

1 Mark Answer:

Anticipate losses.

Part B: 4 Marks Questions (20 Qs)

1. Explain need for adjustments.

4 Marks Answer:

Accrual: Earned not received, incurred not paid.
Mismatches: Prepaid/unpaid items distort profit.
11 items: Stock, expenses, incomes, etc.
Ensures true P&L/BS view.

2. Distinguish outstanding vs prepaid expenses.

4 Marks Answer:

Outstanding: Unpaid, add to P&L (reduce profit), liability BS.
Prepaid: Overpaid, deduct from P&L (increase profit), asset BS.
Ex: Wages outstanding ₹500; Salary prepaid ₹5,000.
Both timing fixes.

3. What is closing stock? Treatment.

4 Marks Answer:

Unsold goods cost at end.
Entry: Dr. To Trading; credit Trading, asset BS.
Ex: Ankit ₹15,000 boosts gross ₹15,000.
Next: Opening stock.

4. Explain accrued income with entry.

4 Marks Answer:

Earned unreceived (e.g., commission).
Entry: Accrued Dr. To Income; add P&L, asset BS.
Ex: Ankit ₹1,500 increases profit.
Accrual principle.

5. Importance of adjustments.

4 Marks Answer:

True profit/position (accrual).
Avoids distortion (e.g., ignore outstanding? Overstate profit).
Double-entry completeness.
User decisions (e.g., bank liquidity).

6. Depreciation adjustment.

4 Marks Answer:

Asset value fall; debit P&L, credit asset BS.
Ex: Straight-line 10% on furniture.
Not day-to-day recorded.
Matching principle.

7. Bad debts vs provision for doubtful.

4 Marks Answer:

Bad: Actual irrecoverable; write-off debtors/P&L.
Provision: Estimate; P&L expense, contra-asset.
Ex: Bad ₹4,500; Provision 5% debtors.
Prudence.

8. Manager’s commission treatment.

4 Marks Answer:

% of net profit; debit P&L after calc.
Circular: Solve incl. itself.
Ex: 10% on profit before comm.
Add to drawings or salary.

9. Interest on capital adjustment.

4 Marks Answer:

% on capital; debit P&L, credit capital BS.
Before/after commission specified.
Ex: 6% on ₹12,000 = ₹720.
Reward owner.

10. Income received in advance.

4 Marks Answer:

Future income prepaid; liability BS.
Deduct from P&L income.
Ex: Rent ₹2,000 advance.
Defer revenue.

11. Provision for discount on debtors.

4 Marks Answer:

Expected discounts; P&L expense.
Reduce debtors BS.
Ex: 2% on ₹15,500 = ₹310.
Cash incentive.

12. Ankit trial adjustments needed.

4 Marks Answer:

Closing stock ₹15,000.
Others: Assume outstanding/prepaid as examples.
Debits expenses/assets; credits revenues/liab.
Basis for reworked statements.

13. Double-entry in closing stock.

4 Marks Answer:

Dr. Stock A/c To Trading (asset up).
Credit Trading (profit up).
BS: Asset side.
Two places: P&L/BS.

14. Outstanding expenses entry.

4 Marks Answer:

Expense Dr. To Outstanding (liability).
Add to P&L expense.
Ex: Wages ₹500.
Current liability BS.

15. Prepaid expenses effect.

4 Marks Answer:

Reduce current expense P&L.
Asset BS (prepaid).
Entry: Prepaid Dr. To Expense.
Profit increases.

16. Accrued income impact.

4 Marks Answer:

Add to P&L income.
Asset BS (accrued).
Entry: Accrued Dr. To Income.
Profit increases.

17. Depreciation methods.

4 Marks Answer:

Straight-line: Equal annual.
Written-down: Higher early.
Debit P&L, credit asset.
Ex: 10% SLM.

18. Bad debts recovery.

4 Marks Answer:

If later received: Cash Dr. Bad Debts Recovered Cr.
P&L income (other).
Ex: Prior ₹4,500 recovered ₹200.
Boosts profit.

19. Provision for doubtful calc.

4 Marks Answer:

% of debtors (e.g., 5% ₹15,500=₹775).
New provision: Adjust old.
P&L: Difference expense.
Contra-asset BS.

20. Circular calc for commission.

4 Marks Answer:

Profit before comm P; Comm=10%P.
Net= P - 10%P=0.9P.
Solve: Comm=10/90 of before.
Ex: Before ₹20,000; Comm ₹2,222.

Part C: 8 Marks Questions (20 Qs)