Form 4 · Chapter 8

Adjustments at the Balance Date and Preparation of Sole Proprietorship Financial Statements

Pelarasan pada Tarikh Imbangan dan Penyediaan Penyata Kewangan Milikan Tunggal

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What this chapter covers

Form 4 Chapter 8 ties together almost every skill you have learned during the year. Earlier you recorded transactions in journals, posted them to the ledger, and prepared a Trial Balance. But a Trial Balance alone does not yet show the true profit of a business, because some expenses and revenues have not been adjusted at the balance date. This chapter teaches you to make those adjustments so that the resulting financial statements are accurate and follow the matching principle.

The chapter covers the cash basis and accrual basis; adjustments to nominal accounts (accrued expenses, prepaid expenses, accrued revenue and revenue received in advance); Bad Debts, Bad Debts Recovered and Provision for Doubtful Debts; calculating Depreciation and Accumulated Depreciation; the Disposal of Non-current Assets by cash; preparing the Adjusted Trial Balance; and finally a complete Income Statement and Statement of Financial Position that include every adjustment.

In terms of position in the accounting cycle, this chapter sits right at the end, after the Trial Balance but before the final financial statements are issued. It matters because SPM structured and essay questions often combine many adjustments into a single financial-statement question. Once you can handle this chapter, you have covered the full accounting cycle for a sole proprietorship.

Content Standards

8.1 Cash Basis and Accrual Basis Accounting and Types of Adjustments

Perakaunan asas tunai dan asas akruan serta jenis-jenis pelarasan

Learning Standards (official DSKP wording, in Malay)

8.1.1Menerangkan pengertian perakaunan asas tunai dan asas akruan
8.1.2Menerangkan maksud pelarasan
8.1.3Menyenaraikan jenis pelarasan pada tarikh imbangan
8.1.4Menerangkan keperluan mengambil kira pelarasan dalam penyediaan Penyata Kewangan

8.2 Adjustments to Nominal Accounts

Pelarasan akaun nominal

Learning Standards (official DSKP wording, in Malay)

8.2.1Menerangkan maksud item pelarasan: (i) Belum Terperoleh (ii) Belum Terima (iii) Prabayar (iv) Belum Bayar
8.2.2Menyenaraikan contoh-contoh item pelarasan untuk Akaun Nominal
8.2.3Merekod item pelarasan ke dalam Jurnal Am dan lejar
8.2.4Merekod hasil dan belanja yang terselaras ke dalam Akaun Untung Rugi
8.2.5Merekod item Belum Terperoleh, Belum Terima, Prabayar dan Belum Bayar ke dalam Penyata Kedudukan Kewangan
8.2.6Menerangkan kesan terhadap Penyata Kewangan sekiranya konsep akruan tidak diaplikasikan

8.3 Bad Debts, Bad Debts Recovered and Provision for Doubtful Debts

Hutang Lapuk, Hutang Lapuk Terpulih dan Peruntukan Hutang Ragu

Learning Standards (official DSKP wording, in Malay)

8.3.1Menerangkan maksud Hutang Lapuk, Hutang Lapuk Terpulih dan Peruntukan Hutang Ragu
8.3.2Menyenaraikan sebab berlakunya Hutang Lapuk dan Hutang Lapuk Terpulih
8.3.3Menerangkan keperluan mewujudkan Peruntukan Hutang Ragu
8.3.4Menghitung Peruntukan Hutang Ragu berdasarkan nilai Akaun Belum Terima bersih dalam situasi mewujudkan atau menyelaraskan Peruntukan Hutang Ragu
8.3.5Merekod Akaun Belum Terima, Hutang Lapuk, Hutang Lapuk Terpulih, Hutang Ragu dan Peruntukan Hutang Ragu, dalam Jurnal Am dan lejar
8.3.6Merekod Hutang Ragu, Hutang Lapuk dan Hutang Lapuk Terpulih dalam Akaun Untung Rugi
8.3.7Menunjukkan Peruntukan Hutang Ragu dalam Penyata Kedudukan Kewangan
8.3.8Menerangkan kesan sekiranya Peruntukan Hutang Ragu tidak diwujudkan walaupun terdapat urus niaga jualan kredit
8.3.9Menerangkan kesan ke atas Peruntukan Hutang Ragu sedia ada sekiranya tiada baki dalam Akaun Belum Terima. (v) catatan dalam Penyata Kewangan (vi) kesan terhadap Penyata Kewangan sekiranya konsep Peruntukan Hutang Ragu tidak diaplikasi • Setiap kumpulan akan berbincang untuk menyelesaikan tugasan. • Guru akan memanggil warna kumpulan berdasarkan muka kiub yang dilontarkan • Wakil dari setiap kumpulan akan mempersembahkan jawapan

8.4 Depreciation and Accumulated Depreciation

Susut nilai dan Susut nilai Terkumpul

Learning Standards (official DSKP wording, in Malay)

8.4.1Menyatakan maksud Susut nilai dan Susut nilai Terkumpul
8.4.2Menerangkan sebab berlakunya Susut nilai terhadap Aset Bukan Semasa
8.4.3Menyenaraikan dan menerangkan kaedah pengiraan Susut nilai
8.4.4Menghitung Susut nilai berdasarkan kaedah garis lurus, baki berkurangan dan penilaian semula
8.4.5Merekod Susut nilai dan Susut nilai Terkumpul ke Jurnal Am dan lejar
8.4.6Merekod Susut nilai dalam Akaun Untung Rugi
8.4.7Menunjukkan Susut nilai Terkumpul dalam Penyata Kedudukan Kewangan
8.4.8Menyatakan faktor yang perlu dipertimbangkan dalam pemilihan kaedah Susut nilai
8.4.9Menerangkan kesan penggunaan kaedah penentuan Susut nilai yang berlainan terhadap Penyata Kewangan dengan menunjukkan contoh berkaitan. • Guru menyediakan satu tugasan pelarasan yang melibatkan: (i) pengiraan Susut nilai menggunakan ketigatiga kaedah Susut nilai (ii) catatan Jurnal Am (iii) catatan lejar (iv) Imbangan Duga Terselaras (v) catatan dalam Penyata Kewangan • Setiap kumpulan akan berbincang dan menyelesaikan tugasan. • Guru akan memanggil nombor kumpulan berdasarkan kad imbasan yang dipilih. • Wakil dari setiap kumpulan akan mempersembahkan jawapan

8.5 Disposal of Non-current Assets for Cash

Pelupusan Aset Bukan Semasa secara tunai

Learning Standards (official DSKP wording, in Malay)

8.5.1Menerangkan maksud pelupusan Aset Bukan Semasa
8.5.2Menerangkan sebab pelupusan Aset Bukan Semasa
8.5.3Menerangkan pelupusan aset melalui penjualan secara tunai
8.5.4Menghitung untung atau rugi atas pelupusan Aset Bukan Semasa
8.5.5Merekod pelupusan Aset Bukan Semasa dalam Jurnal Am
8.5.6Menyediakan Akaun Pelupusan Aset Bukan Semasa
8.5.7Merekod untung atau rugi atas pelupusan Aset Bukan Semasa ke Akaun Untung Rugi
8.5.8Merekod pelupusan Aset Bukan Semasa dalam akaun lejar yang berkaitan
8.5.9Menunjukkan kesan pelupusan Aset Bukan Semasa kepada Penyata Kewangan. • Murid memberikan sebab pelupusan Aset Bukan Semasa perlu dilakukan • Guru menerangkan kaedah merekod pelupusan Aset Bukan Semasa dan kesan ke atas Penyata Kewangan

8.6 Adjusted Trial Balance

Imbangan Duga Terselaras

Learning Standards (official DSKP wording, in Malay)

8.6.1Menerangkan maksud Imbangan Duga Terselaras
8.6.2Menerangkan keperluan menyediakan Imbangan Duga Terselaras
8.6.3Menyediakan Imbangan Duga Terselaras

8.7 Financial Statements with Adjustments

Penyata Kewangan dengan pelarasan

Learning Standards (official DSKP wording, in Malay)

8.7.1Menyediakan Penyata Kewangan dalam bentuk ’T’ dan format penyata berdasarkan Imbangan Duga Terselaras secara manual atau menggunakan aplikasi TMK

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 4

Key ideas in this chapter

Cash Basis versus Accrual Basis

The cash basis records revenue and expenses only when cash is received or paid. The accrual basis records revenue when it is earned and expenses when they are incurred, regardless of whether cash has changed hands. SPM uses the accrual basis because it follows the matching principle, where the revenue of a period is matched against the expenses of the same period.

Example: annual rent is RM12,000 but only RM11,000 has been paid by the balance date. Under the accrual basis, the rent expense in the Income Statement remains RM12,000, and the RM1,000 shortfall is recorded as an accrued expense (a current liability). This is why adjustments are needed.

Accrued Expenses and Prepaid Expenses

An accrued expense is an expense already incurred but not yet paid at the balance date. It is added to the expense in the Income Statement and shown as a current liability in the Statement of Financial Position. Example: accrued salaries RM800. Adjustment: Debit Salaries RM800, Credit Accrued Salaries RM800.

A prepaid expense is an expense already paid but not yet used, such as insurance paid for a period after the balance date. It is deducted from the expense and shown as a current asset. Example: prepaid insurance RM300. Adjustment: Debit Prepaid Insurance RM300, Credit Insurance RM300.

Accrued Revenue and Revenue Received in Advance

Accrued revenue is revenue already earned but not yet received, such as commission that is due but not yet collected. It is added to revenue in the Income Statement and becomes a current asset. Example: accrued commission RM200. Adjustment: Debit Accrued Commission RM200, Credit Commission Received RM200.

Revenue received in advance is revenue already received but not yet earned, such as rent received for next month. It is deducted from revenue and becomes a current liability. Example: rent received in advance RM500. Adjustment: Debit Rent Received RM500, Credit Rent Received in Advance RM500.

Bad Debts and Bad Debts Recovered

A bad debt is a debtor balance confirmed as uncollectible. It is written off as an expense. Adjustment: Debit Bad Debts RM400, Credit Accounts Receivable RM400. The Bad Debts expense is then transferred to the Income Statement as an expense.

Bad debts recovered are debts previously written off but later repaid by the debtor. They become revenue. Adjustment: Debit Bank RM400, Credit Bad Debts Recovered RM400. Bad Debts Recovered is transferred to the Income Statement as other income.

Provision for Doubtful Debts

The provision for doubtful debts is an estimate of debts that may not be collected in the future, usually a fixed percentage of the Accounts Receivable balance after deducting bad debts. It follows the prudence principle. Example: with net Accounts Receivable of RM20,000, a 5 percent provision is RM1,000.

When the provision is created or increased, the entry is Debit Provision for Doubtful Debts Expense, Credit Provision for Doubtful Debts. If this year's provision is smaller than last year's, the difference is credited to the Income Statement as income. In the Statement of Financial Position, the provision is deducted from Accounts Receivable.

Depreciation and Accumulated Depreciation

Depreciation is the allocation of the cost of a non-current asset over its useful life. The two main methods are the straight-line method, where the yearly amount is the same, and the reducing-balance method, where a percentage is applied to the net book value. Straight-line example: machine cost RM10,000, residual value RM1,000, life 9 years, annual depreciation RM1,000.

Adjusting entry: Debit Depreciation Expense RM1,000, Credit Accumulated Depreciation RM1,000. The Depreciation Expense goes to the Income Statement, while Accumulated Depreciation keeps growing each year and is deducted from the asset cost in the Statement of Financial Position to give the net book value.

Disposal of Non-current Assets by Cash

When an asset is sold, a Disposal of Asset account is opened. The steps are: transfer the asset cost to the disposal account (Debit Disposal, Credit Asset), transfer that asset's accumulated depreciation (Debit Accumulated Depreciation, Credit Disposal), and record the sale proceeds (Debit Bank, Credit Disposal).

Example: a vehicle costing RM30,000 with accumulated depreciation RM22,000 is sold for RM5,000 cash. The net book value is RM8,000, so there is a loss on disposal of RM3,000. This loss is transferred to the Income Statement as an expense. If the sale price exceeds the net book value, there is a gain on disposal, which is recorded as income.

The Adjusted Trial Balance

After all adjustments are recorded, the Adjusted Trial Balance is prepared to confirm that total debits still equal total credits. It contains the original balances plus the effect of every adjustment, including new accounts such as Accrued Expenses, Accumulated Depreciation and Provision for Doubtful Debts.

The Adjusted Trial Balance is useful as a bridge before the financial statements. Simple example: an original salaries expense balance of RM11,000 plus accrued salaries RM800 gives RM11,800 in the adjusted debit column, while Accrued Salaries RM800 appears in the credit column as a liability.

Complete Financial Statements with Adjustments

The final step is to prepare the Income Statement and the Statement of Financial Position. In the Income Statement, all expenses are adjusted (add accruals, deduct prepayments), and bad debts expense, depreciation, the change in the provision for doubtful debts, and any gain or loss on disposal are included before net profit is calculated.

In the Statement of Financial Position, non-current assets are shown at cost less accumulated depreciation, Accounts Receivable is shown after deducting the provision for doubtful debts. Prepaid expenses and accrued revenue become current assets, while accrued expenses and revenue received in advance become current liabilities. Owner's equity is updated with net profit and drawings.

Common mistakes

Study plan for this chapter

First understand the difference between the cash basis and accrual basis and the matching principle, because this underpins every adjustment.
Practise the four types of nominal account adjustments (accrued expenses, prepaid expenses, accrued revenue, revenue received in advance) until you can tell whether each is an asset or a liability.
Memorise and understand the double entries for bad debts, bad debts recovered and provision for doubtful debts, including how to calculate the change in the provision.
Practise both depreciation methods (straight line and reducing balance) and make sure you understand that accumulated depreciation grows each year.
Complete at least five full Disposal of Asset accounts until transferring cost, accumulated depreciation and sale proceeds becomes automatic.
Practise preparing a balanced Adjusted Trial Balance before moving on to the financial statements.
Work through complete financial-statement questions that combine all adjustments at once, because that is the exam format.

FAQ

Why make adjustments if the Trial Balance already balances?

A balanced Trial Balance only means debits equal credits, not that profit is correct. Adjustments ensure the revenue and expenses of the period are matched under the accrual basis so that net profit is accurate.

What is the difference between depreciation and accumulated depreciation?

Depreciation is the current year's expense that goes into the Income Statement. Accumulated depreciation is the total depreciation from the first year until now, and it is deducted from the asset cost in the Statement of Financial Position.

How does the provision for doubtful debts differ from bad debts?

A bad debt is an actual, confirmed loss that has been written off. The provision for doubtful debts is an estimate of future loss based on a percentage of Accounts Receivable, following the prudence principle.

When does a gain or loss on disposal occur?

Compare the sale proceeds with the net book value (cost less accumulated depreciation). If the proceeds are higher, there is a gain on disposal; if lower, there is a loss. Both go into the Income Statement.

What is the purpose of the Adjusted Trial Balance?

It confirms the books still balance after all adjustments and links the ledger balances to the final financial statements, making the Income Statement and Statement of Financial Position easier to prepare.

What if I am still confused when combining many adjustments?

Practise mixed questions that combine several adjustments. For more focused help, our experienced teachers give online 1-to-1 lessons. The one-hour trial class is paid at the teacher's rate (from RM50 an hour); WhatsApp.

Learning materials for this chapter

Other chapters

Introduction to Accounting

Chapter 1

Classification of Accounts and the Accounting Equation

Chapter 2

Business Documents as a Source of Information

Chapter 3

Books of Prime Entry

Chapter 4

Ledger

Chapter 5

Trial Balance

Chapter 6

Financial Statements of a Sole Proprietorship without Adjustments

Chapter 7

Correction of Errors

Chapter 9

All chapters →

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