9. Provision for discount on debtors : Generally, the business to allow cash discount to those debtors whom the payment is received within a fixed period. Since a provision for such discount is made in the current year for that debtors who will make early payment in the next accounting period.
Note : This provision is made only for good debtors at the end of year.
Good Debtor = total debtor - further bad debts-new provision for doubtful debts.
Adjustment entry : Profit and Loss A/c Dr.
To Provision for discount on debtors A/c
(Being provision made for discount on debtors)
Accounting Treatment : (i) The amount of provision of discount on debtor will be debited to profit and loss account.
(ii) The amount of sundry debtor will be reduced by the amount of provision for discount on debtor in the Assets side of Balance Sheet.
10.Manager’s Commission : Generally, to motivate managers the busi-
ness may allow a commission to managers in addition to salary. Such commis-
sion is calculated at the end of accounting period, so it is treated as outstanding
expenses.
Commission rate is generally related to net profit.
Adjustment entry :
(i) Manager’s Commission A/c Dr.
To Outstanding manager’s Commission A/c (Being commission due to the managers)
(ii) Profit and Loss A/c Dr.
To Manager’s Commission A/c
(Being manager’s commission transferred to profit and loss A/c).
Accounting Treatment : (i) The amount of manager’s commission is to be debited to profit and loss account.
(ii) The amount of outstanding manager’s commission will be shown as
current liabilities in the liabilities side of Balance sheet.
There are two methods for calculation of commission :
(i) Commission allowed on the net profit before charging such commission :
Net profit before charging such commission XX% of commission / 100. e.g. if Net profit before charging such commission is 99,000 and rate of commission is 10% then, manager commission will be = 99,000×10/100 = 9,900
(ii) Commission allowed on the net profit after charging such commission:
Net profit before charging such commission XX% of commission/100+ rate of commission.
e.g. if Net profit before charging such commission is 99,000 and rate of commission is 10% then, manager commission will be = 99,000×10/110 = 9000.
11. Abnormal loss : Sometimes losses occur due to some abnormal circumstances such as accident, fire, flood, earthquakes etc. such loss are called abnormal losses.
(A) Loss of goods/ stock :
(i) Loss by Accident A/c Dr.
To Trading A/c
(Being the accidental loss of goods tansferred to Cr. Side of trading a/c)(ii) Insurance Co. A/c Dr. (Amount of claim accepted by the Insurance co.)
Profit and Loss A/c Dr. (Value of irrecoverable loss)
To Loss by Accident A/c (Total loss)
(Being the loss transferred to profit and loss A/c and claim admitted by Insuraance Co.)Accounting Treatment : 1. Amount of loss of goods will be transferred to the credit side of trading account or it may be deducted from the purchases.
2. The claim admitted by the Insurance Co. will be shown in the assets side of balance sheet.
3. Amount irrecoverable or uninsured will be debited to profit and loss Account.
(B) Abnormal Loss of Fixed Assets :
Profit and Loss A/c Dr.
To fixed assets A/c
(Abnormal loss of fixed assets recorded)
12. Goods taken for personal use : it is treated as drawing.
Drawing A/c Dr.
To Purchases A/c
(Being goods taken for personal use)
Accounting treatment : (1) cost of goods taken will be deducted from the purchase in debit side of trading account.
(ii) Amount of drawing will be deducted from the capital on the liabilities side of balance sheet.
CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari )
Email Id : [email protected]
