Scenario 1: Recording Depreciation Before Financial Statement Preparation

A company identifies depreciation of ₹50,000 that must be recorded for the financial year before preparing its financial statements.

Accounting Entry

What this means

The depreciation expense reduces the period’s profit. Accumulated depreciation reduces the carrying amount of the related fixed asset in the Balance Sheet.

Scenario 2: Recording Outstanding Expenses

A company has received electricity services worth ₹20,000 before year-end, but the invoice has not yet been received or paid. The expense relates to the current financial year.

Accounting Entry

What this means

The expense is recognised in the period in which the service was consumed, even though payment or invoicing may happen later. The unpaid amount appears as a liability.

Scenario 3: Recognising Prepaid Expense Adjustment

A company originally recorded an annual insurance premium of ₹24,000 as an expense. At year-end, ₹6,000 relates to the next financial year and remains unconsumed.

Accounting Entry

What this means

The portion relating to the next financial year is removed from the current year’s expense and recognised as a prepaid asset. The current year’s profit increases by ₹6,000 compared with leaving the entire premium as an expense.

Scenario 4: Recording Revenue Earned but Not Yet Invoiced

A consulting company has completed services worth ₹75,000 before year-end. The customer invoice will be issued in the following month, and the amount meets the applicable revenue-recognition requirements.

Accounting Entry

What this means

Revenue is recognised when the applicable recognition criteria are met, not simply when an invoice is issued. Depending on the contract and accounting framework, the debit may be classified as an unbilled receivable or contract asset.

Scenario 5: Recognising Expected Credit Loss or Bad Debt Expense

A company reviews its customer balances and determines that an allowance of ₹15,000 is required for expected credit losses on trade receivables.

Accounting Entry

What this means

The expense reduces profit, while the allowance reduces the net carrying amount of receivables presented in the Balance Sheet. The allowance is not the same as writing off a specific customer balance.

Scenario 6: Recognising Closing Inventory

For a periodic inventory system, a company determines that closing inventory of ₹2,00,000 exists at year-end. The following illustrates a simplified closing-stock adjustment where the opening inventory and purchases have already been recorded through the periodic system.

Accounting Entry

What this means

Closing inventory is recognised as an asset and is included in the calculation of cost of goods sold. The precise journal entry depends on whether the company uses a periodic or perpetual inventory system and how its accounting system handles year-end closing.

Scenario 7: Recording an Additional Provision for a Present Obligation

Based on a year-end assessment, a company determines that an additional provision of ₹40,000 is required for a qualifying obligation. The recognition criteria under the applicable accounting framework are met.

Accounting Entry

What this means

A provision is recognised when the relevant recognition criteria are met, including a present obligation, a probable outflow of resources, and a reliable estimate where required by the applicable framework. A possible obligation does not automatically qualify for recognition as a provision.

Scenario 8: Closing Revenue and Expense Accounts to Profit and Loss

At year-end, a company has revenue of ₹5,00,000 and expenses of ₹3,80,000. The following entries illustrate a traditional manual closing process. Many accounting systems perform this process automatically or generate financial statements without requiring these entries in the operational ledger.

Entry A — Close Revenue

Entry B — Close Expenses

What this means

The revenue and expense balances are transferred to a Profit and Loss Summary account in a traditional manual closing process. The net profit before other adjustments and taxes is ₹1,20,000.

Scenario 9: Transferring Net Profit to Retained Earnings

After completing the traditional closing process, a company determines that its net profit for the year is ₹1,20,000. This example assumes the entity uses a retained earnings account and that no separate appropriation or distribution is being recorded in this entry.

Accounting Entry

What this means

The year’s profit is transferred to equity. In many modern accounting systems, retained earnings or accumulated profits are updated through the system’s year-end process rather than through a manual journal posted by the user.

Scenario 10: Reviewing Trial Balance Differences Before Finalising Statements

A company discovers that its trial balance has a debit-credit difference of ₹10,000 during year-end review. The accountant has not yet identified the underlying error. The difference should be investigated rather than automatically treated as an expense or income.

Recommended Accounting Treatment

First, review ledger postings, journal entries, opening balances, account mappings, and subledger-to-general-ledger reconciliations. If the accounting system requires a temporary suspense account to keep the books in balance, its use should be controlled and the underlying error investigated promptly.

Illustrative Temporary Entry — Only Where Necessary

What this means

This is not a substitute for finding and correcting the actual error. A suspense entry is appropriate only where the accounting process and controls permit it, and it must be supported, monitored, and cleared once the correct accounting treatment is established. Do not post an unsupported balancing entry merely to force the trial balance to agree.