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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                                                          U nearned Retainer Fees a/c  XXX                                          (Retainer Fees Received In Advance From Client)   Unearned retainer fees is a Current Liab ility for the firm as it is not actually earned b y it i.e., s

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                                                                     Accounts Receivab le a/c  XXX                                                         (Goods Retur ned b y Customers)   Sales Retur ns is a Contra Revenue Account w hich is deducted from total sales which if not recorded increases t he total sales i n

  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. 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                                         (T he value of supplies o n ha nd Adjusted for t he Period)   Supplies expe nse account is deb ited which is i ncreasing according to t he Rules of De b it A nd Credit . As supplies expense account is not recorded so it causes net income to increase. Supplies on

  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 cas h sales account. Cas h is a Current Asset and recorded on Balance Sheet a nd cas h 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                                                             (Goods sold for Cash)   As cash accou nt is increasing i.e., we deb it cash accou nt w he n it is increasing according to the Rules of Debit And Credit . W hile cash sales is also i ncreasing as we credit it w he n it is increasing. Since cas h is i ncreasing b ut it is not recorded in b a lance s heet, so it u nderstates t he total cash a nd ultimately total assets on assets side of b ala nce s heet are also u

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 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                                                                        Prepaid Expense a/c  XXX                                                    (Expense Expired for t h e Period)   Expenses are deb ited as these are expired a nd t he portio n of expired expense is deducted from prepaid expense in order to calculate t h e portion of unexpired expense w hich is tra

  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                                                      (Revenue Received In Advance)   Due to t his mistake, the amou n t of Liabilities is overstated i n Balance Sheet as that portio n of u nearned revenue w hich is actually ear ned b y the compa ny is not deducted from total value of unearned revenue. Also, t he releva nt revenu

  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 for the Period) If complete journal entry is not recorded, t he n it also affects Accounts Receivab le or Sundry Debtors o n b ala nce S heet. As accou nts receivab le is i ncreasing wit h every credit sales made, so accou nts receivab le Value is u nderstated and he nce as a result, total assets will also b e u nderstated.

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 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 Asset is not recor

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.   The adjusti ng entry to record depreciation expense is s how n b elow:                                  Depreciatio n Expense a/c  XXX                                                                            Accumulated Depreciation a/c  XXX                                                      (Depreciation Recorded for t he Period)   Accumulated Depreciatio n is a Contra Asset Account w hich if not deducted from Fixed Assets or N on Current Assets on b ala nce s heet, the n assets side is overstated or in ot h er words, total assets are overstated.

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                                                (Cheque Received from Customer)   The seco nd entry involves t h e debit of b a nk account instead of cas h accou nt as it is deposited i nto b a nk account and credit t he accou nts receivab le accou nt.                                                     Ba nk a/c  XXX                                                                     Accou nts Receivab le a/c  XXX                          

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. T he b ala nce carried down interacts wit h b ala nce b rought dow n w he n e nding or closing b ala nces of Permanents Accounts b ecome the ope ning b ala nces on t he next accounting period and t hese b eginning  b ala nces are s how n wit h b ala nce b rought dow n in t he specific ledger accou nts.

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                                                                          Lia b ilities a/c  XXX                                                                          Equity a/c   XXX                           (Ope ning Of b ala nces Transfe