You make the adjustments as the end of the month to try and create the most accurate view of the businesses financial position.

Bad Debts

You always have to be prudent in your view of the company’s finances.

Depreciation

An estimate of the loss in value of the fixed assets during the month.

depreciation is presented as a running cost for the business.

Correctly incorrectly assigned amounts

TASK ciii

There is an adjustments between purchases and drawings because the owner is buying things from the businesses accounts, in which he should have taken out of the business as drawings. These small adjustments make the accounts more accurate at the end of the month.

Bad debts are debts that you cant get back (people aren’t going to pay back) (taken from debtors current assets) so you reduce the value and it turns out as an expense.

Total of the fixed assets… then depreciation is taken off. Drops value of fixed assets, and drops the value of the net assets. It drops the value of net assets… the worth of the business.

Net assets is supposed to be Closing capital… wont balance because you have not added depreciation as an expense. Net profit should change and it will balance.

It reduces the value of fixed assets which in turn decreases the value of the net assets. It also decreases the value of the net profit as it is an expense.

By putting in bad debts, it reduces the value of current assets which in turn reduces the value of working capital… which then reduces the value of net assets.

This is now out of balance again… this is because you again haven’t entered in the double entry.

The problem of the business buying things from the company in which is for personal use. Purchases should be reduced… drawings should increase. The affect is that the net profit goes up… the balance sheet stays the same.

Depreciation will ultimately cause the value of business to go down, it will also reduce the net assets

Bad debts reduce net assets and have affect of reducing net profit.

THE DISTINCTION.

What are the most important things in a profit and loss and balance sheet

Explain why a company will look at;

its sales… Because it wants to see how many sales they have made and if they have made enough to at least survive.

Net profit… to see to see if they are making any money after expenses. This is because the net profit is the owners return. It is the equivalent of being at work and receiving a pay package.

Net assets… to see the overall value of their business on a rough bases. Shows the difference between what you own and owe.

Working capital… the money available to the business for any unexpected payments or bills or buying new machinery if any faults occur etc.

AND

Write about (write about why the business will be interested in looking at these) any of the other things which are highlighted in bold.. one from the balance sheet and one from the profit and loss…

AND