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uttara (student) (97 Points)

14 March 2014

can anyone tell me the logic behind:- adding previous year's outstanding expenses to current year's profit nd subtracting previous year's accrued income to current year's profit,in case of adjusting profits?

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CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 15 March 2014

The reason is so simple is that

If u have to arive at the Correct profit of current year

Then Outstanding expenses related to previous which is paid in current should be added to the current year profit bcs outstanding expenses are of previous year and it should be paid in previous year but it has not done so and paid in current year bcz of that current year profit get reduced hence to arrive at correct profit of current period first add those expenses which are related to previous year and paid in current year. Similarly for accrued income.