Year-end adjustments decide a great many IGCSE Accounting marks. The raw trial balance is rarely the whole story. Before you prepare accurate final accounts, you usually have to adjust for things that happened but were not yet recorded.
Under time pressure, slips creep in here: a figure on the wrong side, an adjustment applied once instead of twice, or one forgotten altogether. A calm, repeatable routine turns adjustments from a scramble into a checklist.
Every adjustment rests on the accruals concept. Profit for the year should set the income earned in that year against the expenses incurred to earn it, whenever the cash moved. Once that idea is fixed in your mind, each adjustment stops being a separate rule and becomes the same idea applied again.
So before touching a figure, ask yourself, out loud if it helps: “what did this year really use, and what did this year really earn?”
Treat the notes as a checklist
The adjustments are usually listed as short notes beneath the trial balance. Read them all first and tick them off one by one. Each note normally affects two places: an income statement figure and a statement of financial position figure.
Before you start writing the statements, glance down the list so you know how many adjustments are coming and where each will land.
A practical habit is to number the notes and pencil the same numbers beside the lines they touch. If note 3 is a rent accrual, write a small “3” next to rent in the income statement and next to current liabilities. When every number appears twice on your page, you can see that each adjustment landed in both places, and the final check becomes counting and not re-reading.
Accruals: expenses owing at the year end
An accrued expense is one the business has used but not yet paid, such as rent owing at the year end. Add the amount owing to that expense in the income statement, so the full cost for the year is charged.
Then show the amount still owed as a current liability in the statement of financial position. Write it as a small sum, expense per the trial balance plus the accrual, so both halves match and the examiner sees a method to reward.
Suppose the trial balance shows rent paid of RM11,000 but the business still owes RM1,000 for the final month. The income statement carries RM12,000 as the year’s rent, and RM1,000 sits among current liabilities as an accrual.
Watch for the reverse too. Accrued income, such as commission earned but not yet received, is added to income in the income statement and shown as a current asset. Same logic, opposite direction.
Prepayments: expenses paid in advance
A prepayment is the mirror image. The business has paid for something it has not yet used, such as insurance covering part of next year. Deduct the prepaid amount from that expense in the income statement, so only the year’s share is charged.
Show the prepayment as a current asset. For every expense, ask, “does the business owe more, or has it paid too much?” That question catches many accrual and prepayment errors.
Say insurance of RM3,600 is in the trial balance, of which RM300 relates to next year. Charge RM3,300 this year and carry RM300 as a current asset. A common mistake is treating a prepayment as though it reduces cash again.
It does not. The cash has already left the business, and the adjustment only moves that spend to the right year.
Depreciation: spreading the cost of a non-current asset
Depreciation charges part of an asset’s cost against each year that uses it. Whatever method the question names, the charge for the year goes to the income statement as an expense.
In the statement of financial position, accumulated depreciation is deducted from the asset’s cost to give its carrying amount. Show the charge calculation clearly.
Add this year’s charge to the accumulated depreciation already in the trial balance. Do not replace it.
The most frequent error our teachers see is confusing the charge for the year with accumulated depreciation. Suppose equipment cost RM20,000, accumulated depreciation brought forward is RM8,000 and the reducing-balance rate is 20%. This year’s charge is 20% of the RM12,000 carrying amount, which is RM2,400.
That goes to the income statement. Accumulated depreciation becomes RM10,400, and the carrying amount is RM9,600.
Under the straight-line method you would take a fixed percentage of cost every year. Check which basis the question states, because using the wrong one is a costly, avoidable slip.
Irrecoverable debts: writing off what cannot be collected
An irrecoverable debt is a customer who will not pay. Write it off. Record it as an expense in the income statement and reduce trade receivables by the same amount in the statement of financial position.
Order matters when a provision is also involved. Write off the irrecoverable debt first, then base any provision on the reduced receivables figure.
Provision for doubtful debts: only the change goes to the income statement
A provision for doubtful debts allows for some remaining receivables not paying, without writing off any specific debt. Students are caught by this: only the change in the provision affects the income statement.
If you create or increase the provision, the increase is an expense. If you reduce it, the reduction is income.
The full provision is deducted from trade receivables in the statement of financial position. Calculate the required provision, compare it with the existing one, and take only the difference to the income statement.
Here is the whole sequence. Receivables are RM50,000, an irrecoverable debt of RM2,000 must be written off, and the required provision is 5%.
Write off the RM2,000 first, leaving RM48,000. Then set the provision at RM2,400.
If the old provision was RM1,500, only the RM900 increase is charged as an expense. The full RM2,400 is deducted from receivables in the statement of financial position. The classic mistake is expensing the whole RM2,400.
Work each adjustment as a visible sum
Under pressure, the safest habit is to write every adjustment as a short, labelled working and not do it in your head. A two-line sum such as “insurance 3,600 less prepaid 300 = 3,300” protects you from slips and earns method marks even if a final figure is out.
Tick off, then check both sides
A frequent adjustment error is one-sided: the expense was adjusted but the asset or liability was forgotten, or the other way round.
Practise adjustments inside a full set of final accounts too, where an accrual, a depreciation charge and a provision all compete for attention while the clock runs.
If adjustments feel like a minefield with the clock running, one of our teachers can drill the whole routine with you, adjustment by adjustment, until it is automatic. Book a trial class.