2. MEANING  Final accounts prepared at the year consist of trading, profit & loss account and balance sheet. In order to decided as to which item will be taken to which place the following accounting principle is applied….  All revenue expenditure and receipts are taken to trading & profit and loss a/c.  All capital expenditure and receipts are taken to balance sheet.

3.  Closing stock (a) Trading a/c credit side (b) balance sheet asset side  Outstanding expenses (a) Add in Trading or P&L a/c debit side (b) balance sheet liabilities side

4.  Prepaid expenses (a) Less in Trading or P&L a/c debit side (b) Balance sheet assets side  Outstanding income/accrued income (a) Add in credit side P&L a/c (b) Balance sheet assets side

5.  Income received in advance (a) Less from credit side P&L a/c (b) Balance sheet liabilities side  Depreciation (a) P&L a/c debit side (b) balance sheet less from fixed assets

6.  Bad debts (a) Debit side P&L a/c (b) deducted from debtors asset side Note: if bad debts is given in the trial balance it will be shown only on the debit side of P&L a/c  Provision for bad & doubtful debts: doubtful debts are those whose recovery is doubtful. It is known at present whether they would be recovered or not

7.  It should not be written off from the book of a/c like bad debt, It is only an anticipated loss, for meeting in emergency where the doubtful debts become bad debts later on. (a) Debit in P&L a/c ( probable loss) (b) less from debtors assets side

8.  Interest on capital (a) P&L a/c debit side (b) add to the capital on liabilities side  Interest on drawing (a) Credit side P&L a/c (b) less from capital on liabilities side

9.  Both old & new provision for bad debts are given in questions bad debts(T/B) +new provision for bad debts(adjustment)-old provision for (T/B) (a) Debit side in P&L a/c (b) deducted from debtors on balance sheet