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Provision for Slow Moving Items.

How to treat the adjustment "slow moving increased to" in Trial Balance. Please show the answers in P&L and Balance Sheet after adjustment
Book balance is as follows as at 31-12-94
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asked Jun 6, 2016 in Trial Balance, Profit & Loss Account and Balance Sheet by Shaws (19 points) 1,178 views

1 Answer

0 votes

 If this stock is sold for some amount, say 100,000,  then we will pass the following journal entries:

1.  Cash A/c                                      Dr.  100,000

     Prov. for slow moving items      Dr.  600,000

         To Stock A/c                                                             700,000

2.  Prov. for Slow Moving Items A/c   Dr.  100,000

         To Proft & Loss A/c                                                  100,000

The first journal entry signifies stock worth 700,00 being sold for 100,000 and the resulting loss of 600,000 being debited to Provision for Slow Moving Items.

The second journal entry signifies that actual loss on account of Slow Moving Items is 100,000 less as compared to earlier estimate of 700,000.  Hence this is a kind of profit of 100,000 which is credited to Profit & Loss A/c.

answered Jun 7, 2016 by jbsclasses (3,971 points) 1 flag
1) Can you show the trial as well sir

2) in p&L it should be slow moving items instead of provision for slow moving items? isn't it sir
1. Adjusted Trial Balance cannot be prepared after this entry because it involves Profit & Loss A/c.

2.  Due to increase in the amount of Slow Moving Items, we have to increase the Provision for Slow Moving Items.  Provision can only be created by passing the following journal entry:

Profit & Loss A/c             Dr.  43907.10

    To Provision for Slow Moving Items        43907.10