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Adjustment in Profit and Loss account – Prepayments

Adjustments are made in Final accounts to show the true view of their transactions. They are closing entries or amendments made in the books at the end of the of accounting period in order to match revenue with expenses. This will show an accurate picture of account.


  1. To provide for depreciation of fixed assets
  2. End of year adjustment occurs because it will ensure the application of double entry principle.
  3. To ensure that the financial statement are prepared in accordance with the concepts of accounting.
  4. To provide for valuation of stock at the end of the year.
  5. To ensure that all the income for the year is recorded.
  6. To also, make sure that the expenses for the year is also recorded.


(a) Deferrals or Prepayments – These are inform of (i) Prepaid expenses, and (ii) Prepaid income

(i) Prepaid expenses: It is prepayment for services in advance of their use. When payment is made beyond the date of accounting period specified it is known as prepaid expenses.

Lesson tags: Financial Accounting Lesson Notes, Financial Accounting Objective Questions, SS1 Financial Accounting, SS1 Financial Accounting Evaluation Questions, SS1 Financial Accounting Evaluation Questions Second Term, SS1 Financial Accounting Objective Questions, SS1 Financial Accounting Objective Questions Second Term, SS1 Financial Accounting Second Term
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