For Junior Cycle Business Studies, you are required to be able to make just two adjustments: • Adjustment for closing stock • Adjustment for depreciation
Business Careers Accountants prepare annual reports and financial statements for planning and decision making, and advise on tax laws and investment opportunities.
LO 2.13
2. How are adjustments made to final accounts? All adjustments need to be entered twice – once in the income statement and
once in the statement of financial position.
Adjustments for closing stock The closing stock figure is given with the trial balance. • Subtract closing stock from cost of sales in the trading account part of the income statement.
• Enter closing stock as a current asset in the statement of financial position.
Adjustments for depreciation Depreciation is the gradual loss in value of a fixed asset over time due to age, wear and tear or obsolescence. This is an expense to the business and needs to appear as an expense in the profit and loss account. It will also be reflected in the value of assets in the statement of financial position. The residual value of an asset is its value after depreciation has been deducted.
Did you know?
The main causes of asset depreciation include: • Age: A three-year-old delivery van will usually be worth less than a one-year-old version of the same van.
• Usage: The more an asset, such as a machine, is used, the less it will be worth if you try to sell it. • Obsolescence: Assets such as computers can quickly become obsolete (outdated) as new and more powerful models become available.
