of the proprietor paid) Presentation in final accounts Trading / Profit and loss account Not shown. In Balance Sheet Shown as deduction from capital on the liabilities side. Shown as a deduction from bank balance on the assets side. Example Trial balance of Sibi as on 31st December, shows the capital as ` , , and cash at bank as ` , .
Adjustment: Income tax paid ` , . The adjusting entry is: Adjusting entry L.F. Debit ` Credit ` Dec. Drawings A/c To Bank A/c (Income tax paid) , , Accountancy In final accounts, it is presented as follows: Balance Sheet as on 31st December, Liabilities Assets Capital Less: Drawings (income tax) , , , , Cash at bank Less: Income tax , , , (xv) Manager’s commission Sometimes the manager is given commission as a percentage on profit of the business.
It may be given at a certain percentage on the net profit before charging such commission or after charging such commission. Calculation procedure is explained below:x a) Commission on net profit before charging such commission: Rate of commission Commission = Net profit before charging commission × b) Commission on net profit after charging such commission: Rate of commission Commission = Net profit before charging commission × ( + Rate of commission) The purpose of giving such commission may be to motivate the managers to work with their full potential, to reward the managers for their efficiency and to retain the efficient managers by rewarding them sufficiently. Such commission can be calculated only at the end of the accounting period after calculating net profit. Hence, it remains outstanding at the end of the accounting period.
Student activity Think: Do you think only money can motivate managers? What other factors can effect motivation? Adjusting entry L.F. Debit ` Credit ` Manager’s Commission A/c To Outstanding Manager’s commission A/c (Manager’s commission on profit provided) Transfer entry L.F.
Debit ` Credit ` Profit and loss A/c To Manager’s commission A/c (Commission on profit transferred) Presentation in final accounts In Profit and loss account Commission being