There are a number of facets that needs to be taken into consideration when dealing with tabulation details of a particular business. If on the one side there is capital that acts as base for further productive activities, there is investment which also acts as asset for a particular firm.
There are multiple areas where funds of a particular firm can be invested. After investing in shares and debentures of other companies, a particular firm receives dividends against shares, while interest is received against debentures, loans or any other type of investment that is made.
Since this amount that has been received as an interest, it is added on to credit side of profit and loss account. When that particular investment has been received in cash during a particular year, it is added on to the credit side of profit and loss account.
However, in case that amount drawn from interest is due for a certain time period, in such a scenario it will appear in two places during adjustment. Outstanding interest on investment is equal to revenue of the current year that is to be credited in the Balance Sheet.
Since with increase in accrued interest, value of investment also increases hence investment is debited. In case of Trial Balance, interest on investment only if adjustments are to be considered, is placed at 2 places.
- The asset side of Balance Sheet.
- Credit side of profit and loss account.
In case of no adjustment, it will specifically be shown only credit side of profit and loss account.
Links of Previous Main Topic:-
- Adjustments additional information in preparation of final accounts
- Depreciation in the value of assets
- Appreciation in the value of assets
- Outstanding expenses
- Prepaid expenses
- Accrued or outstanding expenses
- Unearned income
- Interest on capital
- Interest on drawings
Links of Next Accounting Topics:-
- Interest on loan
- Bad debts not in adjustment
- Provision for bad and doubtful debt adjustment
- Further bad debts adjustment
- Provision for bad and doubtful debts given in the trial balance
- Provision for discount on debtors
- Closing stock
- Summarized presentation of adjustments
- Theoretical questions final account