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  A retainer fees is an advance payment paid to professionals such as lawyers, freela ncers, consultants, accountants, etc b y clie nts in order to secure t he service or to cover upfro nt costs or initial costs of starting a project. Any excess amount is refunded to t he clie nts upon completion of t he specified work performed or project completed b y the professio nals. W hile a ny deficit amount is requested from clients for t he project do ne. T he jour nal entry recorded for t he professio nal firm, w ho received the payme nt from clients in advance against t he services which are still to b e re ndered , is show n b elow:                                             Cash a/c  XXX                                                 ...

If a compa ny fails or forget to record goods returned b y customers due to some reasons such as defective or damaged goods, which is also called Sales Returns , t he n t he amou nt of Sales in Income Statement or Profit And Loss Account overstated w hich also causes N et Income or N et Profit to increase. If complete entry is not recorded t he n the value of Accou nts Receivab le / Su ndry Deb tor, which is a Curre nt Asset, on b ala nce s heet also overstates which i ncreases t he total assets.   The e ntry to record for t he goods retur ned b y customer is show n b elow:                                           Sales Retur ns a/c  XXX                                                               ...

W h at h appe ns if a compa ny fails to adjust Supplies Expen se Account for t he period is a nswered in t his post. Actually, whe n supplies used in t he period is not adjusted wit h the supplies o n ha nd, t he n supplies expense is understated and he nce as a result N et Income in Income would b e overstated / increased. Moreover, the supplies o n ha nd, as a Current Asset , will b e overstated o n assets side of b ala nce s heet. The adjusti ng entry to record supplies expense account is s how n b elow:                                        Supplies Expe nse a/c  XXX                                                                          Supplies On Ha nd a/c  XXX   ...

If a compa ny or a b usi ness forgets to record a Cas h Sales , t he n it affects cas h accou nt and sales account. Cas h is a Current Asset and recorded on Balance Sheet a nd  sales is a direct reve nue and recorded on Income Statement or Profit And Loss Account . The jour nal entry to record is s how n b elow:                                                                 Cash a/c  XXX                                                                               Sales a/c  XXX                                       ...

W hat happe ns if a company failed to adjust a Prepaid Expense is answered in t his b log post. Actually, whe n a company forgets to make an Adjustment of a prepaid expense, t he n assets are overstated / increased on b ala nce s heet / statement of financial position, which increased total assets in balance sheet, a nd expenses in Income Statement or Profit And Loss Account are understated w hich overstates the N et Income or N et Profit .   T he adjusti ng entry to record a prepaid expense is s how n b elow:                                                    Expe nse a/c  XXX                                                                        Prep...

  What happe ns if a company or b usi ness forgets to adjust Unearned Revenue or Revenue Received In Advance ?   T he a nswer to t his questio n is t hat whe n t he compa ny records unearned revenue b ased o n Accrual Basis of Accounting , t he n it deb it cash accou nt and credit unearned revenue. At t he time of adjustme nts, t he adjusti ng entry is not recorded and h ence t he value of u nearned revenue is not adjusted.   T he adjusti ng entry is s how n b elow:                                                         Cash a/c  XXX                                                                      U nearned Revenue a/c  XXX   ...

  If a compa ny fails to record a Credit Sales or Sales On Account , t he n due to non recording of credit sales on Income Statement or Trading Account , Gross Income or Gross Profit will b e decreased a nd as a result, net Income or net Profit will also b e u nderstated.   T he jour nal entry to record credit sales or sales on account is s how n b elow:                                Accou nts Receivab le a/c  XXX                                                                           Sales a/c  XXX                                                (Credit Sales Recorded f...

If a compa ny fails to record a Sale of Fixed Asset / N on Current Asset , t he n it affects b oth Income Statement and b ala nce s heet. I n order to understand t he effects made o n t h ese Financial Statements due to t h e lack of recording of Sale or Disposal of Fixed Asset , we firstly u nderstand t he possi b le jour nal entries related to t he sale of fixed asset a nd t h en see t he effects o f relevant accounts on financial statements. Possib le Effects of not recording Sale or Disposal of Fixed Assets T here  are three possi b ilities o n t he sale of non current assets  w hich ca n b e expressed  as show n b elow: Gain / Loss Or N o Gain N o Loss On Sale of Fixed Asset (i) Depreciation for t he period is charged to expe nse is not recorded so it increases /  overstates N et income in Income Statement. (ii) Gai n or Loss is not recorded in Income Statement w hich affects net Income i.e. increases or decreases it. (iii) Cas h as a Current As...

I f a compa ny or b usi ness fails to record Depreciation Expense Account , t h en N et Income in Income Statem ent  is overstated as no depreciation expense is recorded in Income Statement or Profit And Loss Account . If complete journal entry of depreciation expense is omitted or not recorded, t he n it also affects assets side on b ala nce s heet. As, depreciation for the period is not added to the Accumulated Depreciation so the total fixed assets on balance sheet are overstated as less accumulated depreciation is deducted from relevant fixed asset / non current asset on balance sheet.   The adjusti ng entry to record depreciation expense is s how n b elow:                                  Depreciatio n Expense a/c  XXX                                             ...

Cheque / Check received a nd deposited into b a nk involves two types of journal entries. (i )  Jou r nal Entr y For Cheques Received But N ot Deposited Into Ba nk (ii) Jour nal Ent ry For Cheques Received And Deposited Into Ba nk In the first type of entry we deb it Cash Accou nt and credit Accounts Receivab le / De b tor Accou nt from whom the cheque is received.                                                Cash a/c  XXX                                                                Accou nts Receivab le a/c  XXX                                               ...

Bala nce Carried Down, w h ic h  is written in short form as “ Bala nce c/d” in  Ledger’s Accounts , is closing or ending b ala nce of  Different Types of Accounts  for t he curre nt accounting period w hile Bala nce  Brought Dow n, w h ic h  is written as “ Bala nce b /d” i n   Ledger’s Accounts , is your  b usi ness’s opening b ala nce of different types of accounts transferred from previous accounting period. It is actually t he closi ng b ala nce of t he last closi n g accou nting period. Bala nce Brought Dow n (Bala nce b /d) shows ope ning b ala nces of Assets , Liab ilities a nd Equity accounts transferred from previous accounting period w hile Bala nce Carried Down ( B alance c/d) is t he closi ng b ala nces of Assets, Liab ilities a nd Equity at t he e nd of t he curre nt accounting period. Bala nce Carried Down of different types of accounts is s how n in t he  Financial Statements  (Income Statement,...

T he Bala nce Brought Dow n also written as “ Bala nce b/d” in t he Ledger Account is actually s hows the Bala nce Carried Down ( Bala nce c/d) of Permanent Accounts i.e., Assets , Liab ilities A nd Equity transferred from previous accounting period to next or new accounting period. Balance Brought Down (Balance b/d) Journal Entry T he b ala nce b rought dow n journal entry s hows the ope ning entries of assets, liab ilities a nd equity w hich are just tra nsferred to new accounting period wit h previous accounts’ b ala nces. T he com b i ne jour nal entry for t h ese accounts is s how n b elow:                                                        Assets a/c  XXX                                ...