What is past adjustment?

In such cases, instead of altering the final accounts which have already been closed, the firm rectifies the error or omission by passing an adjustment entry in the beginning of the financial year. Such adjustments are called past adjustments as they relate to past period.

Past Adjustments & Guarantee

• After closing the accounts, sometimes it is discovered that there is omission of salary, distribution of profits in the wrong ratio, omission of interest on capital or drawings, etc. Old accounts cannot be altered, so an adjustment entry is passed.
• For this, we will compute the amount already recorded and the amount that should have been recordedand finally compute difference between the two amounts.
• Debit who received excess and credit who received short. Before closing partnership accounts, certain errors/ omissions are discovered, which are to be rectified before closing t...
• These errors are discovered after closing Profit & Loss account but before preparing Profit &Loss Appropriations account.
• A partner or partners can enjoy the right to have minimum amount of profit in a year as per the terms of partnership agreement.
• Guarantee may be provided in an existing profit sharing ratio or in some other agreed ratio. This guarantee may be provided by one partner or by all the partners.
• For this we calculate the actual share of profits of all partners and record it in inner column of P & L Appropriation A/c, add the shortage amount (guaranteed amount – actual share of profit) to the guaranteed partner’s share. Finally we distribute the shortage among guaranteeing partners in their agreed ratio.