NIOS Class 10 Accountancy Chapter 15 Financial Statements (With Adjustments)

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NIOS Class 10 Accountancy Chapter 15 Financial Statements (With Adjustments)

Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 10 Accountancy Chapter 15 Financial Statements (With Adjustments), NIOS Secondary Course Accountancy Solutions for All Chapters, You can practice these here.

Financial Statements (With Adjustments)

Chapter: 15

Intext Questions 15.1

Give the exact term for your answer: 

(i) Stock remains unsold at the end of year. 

Ans: Closing stock

(ii) Amount not paid for the goods or services whose benefits were already availed. 

Ans: Outstanding expenses.

(iii) Value of unsold goods shown outside the trial balance as additional information. 

Ans: Closing stock.

(iv) Transaction shown outside the trial balance to be incorporated before the preparation of final accounts.

Ans: Adjustments.

Intext Questions 15.2

Match column ‘A’ with column ‘B’

A	B
(i)  Closing Stock	(a) Deducted from the value of assets
(ii)  Outstanding Expenses	(b) Those expenses which have not became due but have been paid during the accounting year in question.
(iii) Depreciation	(c) Those expenses which have became due but have not been paid in the concerned accounting year.
(iv) Prepaid expenses	(d) Shown an the credit side of Trading A/c.

Ans: 

A	B
(i)  Closing Stock	(d) Shown an the credit side of Trading A/c.
(ii)  Outstanding Expenses	(c) Those expenses which have became due but have not been paid in the concerned accounting year.
(iii) Depreciation	(a) Deducted from the value of assets
(iv) Prepaid expenses	(b) Those expenses which have not became due but have been paid during the accounting year in question.

Intext Questions 15.3

I. Mention whether the following statements are True or False 

(i) Financial statements prepared without considering adjustments do not reflect the correct financial positions of the business. 

Ans: True.

(ii) The accounting treatment of adjustments is done only in Balance Sheet. 

Ans: False.

(iii) The Accounting treatment of adjustment entry is done only in Trading Account or Profit & Loss Account. 

Ans: False.

(iv) Adjustments are always related to future. 

Ans: False.

II. Fill in the blanks: 

(i) Closing stock is shown on the ……………. side of Balance sheet. 

Ans: Asset.

(ii) Outstanding Expenses are shown on the ………….. side of Balance Sheet. 

Ans: Liability.

(iii) Prepaid expenses are shown on the ……………. side of Balance sheet. 

Ans: Asset.

(iv) Depreciation is shown on the…………….. side of profit and loss A/c. 

Ans: Debit.

(v) Closing stock is shown on the asset side of…………… 

Ans: Balance sheet.

(vi) The decrease in the value of fixed asset due to their use is called…………… 

Ans: Depreciation.

(vii) Adjustments are made to know the correct……………..of a business. 

Ans: Financial position.

(viii) Outstanding wages shown on the…………….. of the …………… 

Ans: Liability side and Balance sheet. 

(ix) Outstanding office Rent will be shown on the…………….side of………..and ……………. side of Balance sheet. 

Ans: Debit side trading A/c, Liability.

(x) Profit and Loss A/c is prepared to know ………………of an accounting year. 

Ans: Profit or losses.

III. 

Multiple Choice Questions

(i) When no adjustment is made for outstanding wages. Gross profit ascertained will be 

(a) More than the actual. 

(b) Less than the actual. 

(c) Equal to the actual. 

(d) Will not be affected.

Ans: (a) More than the actual.

(ii) Prepaid expenses are expenses 

(a) Paid in advance. 

(b) Outstanding expenses. 

(c) Expenses incurred for the current year. 

(d) Expenses paid for the previous year. 

Ans: (a) Paid in advance.

(iii) Depreciation is debited to 

(a) Trading account. 

(b) Profit and loss account. 

(c) Concerned asset account. 

(d) None of the above.

Ans: (a) Trading account.

(iv) An item of adjustment is shown 

(a) Only in trading account. 

(b) Only in profit and loss account. 

(c) Only in balance sheet. 

(d) In a trading account or P&L A/c and also in Balance Sheet.

Ans: (d) In a trading account or P & L A/c and also in the Balance Sheet.

Terminal Exercise

1. What is meant by an adjustment entry?

Ans: An adjustment entry, also known as an adjusting entry, is a type of accounting entry made to update account balances and ensure that financial statements reflect the most accurate and up-to-date information at the end of an accounting period. These entries are necessary to align the accounting records with the economic reality of business transactions that have occurred but may not have been recorded yet or may need to be adjusted for timing or accuracy.

2. Why is it necessary to pass adjusting entries in financial statements?

Ans: Adjusting entries are necessary in financial statements for several reasons:

(i) Accrual Basis Accounting: Adjusting entries ensure that financial statements are prepared under the accrual basis of accounting, where revenues are recognized when earned and expenses are recognized when incurred, regardless of when cash is exchanged. Adjusting entries help align reported revenues and expenses with the period in which they were earned or incurred, providing a more accurate depiction of the company’s financial performance.

(ii) Timing Differences: Timing differences are items which are taxed or allowed as a deduction in the tax computation in a different period from that in which they are reflected in the accounting profit.

(iii) Matching principle: The matching principle is an accounting concept that dictates that companies report expenses at the same time as the revenues they are related to. Revenues and expenses are matched on the income statement for a period of time.

(iv) Accruals and Deferrals: Accruals occur when the exchange of cash follows the delivery of goods or services (accrued expense & accounts receivable). Deferrals occur when the exchange of cash precedes the delivery of goods and services.

(v) Compliance and transparency: Financial transparency helps companies comply with regulatory requirements and accounting standards, reducing the risk of legal and regulatory issues. 

Employee Morale: Employees benefit from understanding the financial health of the company.

3. Write short notes on: 

(a) Outstanding Expenses.

Ans: An expense which relates to the current year but has not been paid till the end of the accounting year is known as outstanding expenses such as Factory rent, Wages, Salaries, Office rent, Telephone charges etc. for current year may not have been paid till the end of the accounting year, for example the books of accounts of Mr. X showed that, Wages paid during the year 2011-2012 Rs. 45,000. Wages outstanding for the year 2011-2012 Rs. 5,000.

(b) Prepaid Expenses.

Ans: Sometimes, a part of the expenses given in the trial balance may relate to future year(s). Such part of expenses is known as ‘Prepaid Expenses’ or ‘Expense paid in Advance’ such as, out of the salaries paid during the current year, a part may relate to next accounting year. Similarly factory rent, wages, office rent, insurance premium, taxes, etc.