Tag: need for adjustments

Questions Related to need for adjustments

When the opening and closing stocks are adjusted through purchases, the trial balance does not show any __________. 

book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

  1. Opening stock

  2. Closing stock

  3. Purchases

  4. Stock

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Correct Option: A
Explanation:

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. The closing stock of the year becomes the opening stock of the next year and is reflected in the trial balance of the next year. Sometimes, the opening and closing stock are adjusted through purchases account. In this regard, the entry recorded is as follows: 

Closing Stock A/c Dr. 
          To Purchases A/c
This entry reduces the amount in the purchases account and is also known as adjusted purchases which is shown on the debit side of the trading and profit and loss account. Another important point is when the opening and closing stocks are adjusted through purchases, the trial balance does not show any opening stock. Instead, the closing stock appears in the trial balance and so also the adjusted purchases.

The unadjusted and unrecorded items relating to a period are recorded in the journal by passing __________.

book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

  1. transfer entry

  2. adjustment entry

  3. rectification entry

  4. opening entry

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Correct Option: B
Explanation:

The matching principle states expenses must be matched with the revenue generated during the period. The purpose of adjusting entries is to ensure that all revenue and expenses from the period are recorded. Many adjusting entries deal with balances from the balance sheet, typically assets and liabilities, which must be adjusted. In addition to ensuring that all revenue and expenses are recorded, we are also making sure that all asset and liability accounts have the proper balances. Adjusting entries are dated for the last day of the period.

From the following details calculate Opening stock.
Purchases  Rs. 1,50,000
Manufacturing expenses =  Rs. 30,000
Selling and distribution expenses = Rs. 20,000
Administrative expenses = Rs. 10,000
Financial expenses = Rs. 5000
Sales Rs. 2,40,000
Closing stock  Rs. 30,000
Gross profit 25 % on sale 

book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

  1. Rs. 65,000

  2. Rs. 30,000

  3. Rs. 85,000

  4. Rs. 95,000

Show answer
Correct Option: B
Explanation:

Calculation of Opening stock = (Sales + closing stock ) - (Purchase + manufacturing expense + Gross Profit*)

=( 240000 + 30000 ) - ( 150000 + 30000 + 60000)
= Rs 30000

Gross profit = 240000 * 25/100
                     = 60000