Adjusting Entries in Tally Prime

What Are Adjusting Entries?

Adjusting entries are journal entries passed at the end of an accounting period to update account balances before preparing financial statements.

These entries follow the accrual concept of accounting, which means income is recorded when earned and expenses are recorded when incurred, even if the actual payment has not been received or made.

For example, if a business has an outstanding salary of ₹15,000 at the end of March, the accountant must record it as an expense for that financial year.

Adjusting entries help businesses calculate accurate profits, maintain correct account balances, and prepare reliable Profit and Loss Accounts and Balance Sheets.

Salary Outstanding at Year-End

Salary outstanding is the salary expense incurred but not yet paid to employees.

It is treated as an expense for the current financial year and a liability for the business because the payment is still due.

Practical Example: A company has an outstanding salary of ₹15,000 for March 2026, which will be paid in April 2026.

Journal Entry:

(Being salary payable but remaining unpaid at the end of the financial year)

How to Record Salary Outstanding in Tally Prime:

1. Open your company in Tally Prime.

2. Go to Vouchers.

3. Select Journal Voucher (F7).

4. Debit the Salary Account with ₹15,000.

5. Credit the Outstanding Salary Account with ₹15,000.

6. Enter a suitable narration for the adjustment.

7. Press Ctrl+A to save the voucher.

Accounting Impact: The outstanding salary will appear as a liability in the Balance Sheet, while the salary expense will be reflected in the Profit and Loss Account.

Rent Paid in Advance

Rent paid in advance refers to rent that a business has already paid but which relates to the next accounting period.

Since the business has not yet received the benefit of the entire payment during the current financial year, the future portion is treated as a prepaid expense and shown as an asset.

Practical Example: A business pays ₹24,000 as rent for one year. Out of this amount, ₹6,000 relates to the next financial year.

Journal Entry:

(Being prepaid rent adjusted at the end of the accounting year.)

How to Record Prepaid Rent in Tally Prime:

1. Open your company in Tally Prime.

2. Go to Vouchers.

3. Select Journal Voucher (F7).

4. Debit the Prepaid Rent Account with ₹6,000.

5. Credit the Rent Expense Account with ₹6,000.

6. Add a suitable narration.

7. Press Ctrl+A to save the voucher.

Accounting Impact: Prepaid rent will appear under assets in the Balance Sheet, and the current year's rent expense will be reduced accordingly.

Depreciation on Machinery

Depreciation refers to the reduction in the value of a fixed asset over its useful life due to usage, wear and tear, or the passage of time.

Businesses charge depreciation every year to calculate the actual carrying value of their assets and determine the correct profit or loss.

Practical Example: A company owns machinery worth ₹2,00,000 and charges depreciation at 5% per year using the straight-line method.

Calculation:

Depreciation = ₹2,00,000 × 5% = ₹10,000

Journal Entry:

(Being depreciation charged on machinery for the financial year)

How to Record Depreciation in Tally Prime:

1. Open your company in Tally Prime.

2. Go to Vouchers.

3. Select Journal Voucher (F7).

4. Debit the Depreciation Account with ₹10,000.

5. Credit the Accumulated Depreciation Account with ₹10,000.

6. Enter a suitable narration.

7. Press Ctrl+A to save the voucher.

Accounting Impact: Depreciation will appear as an expense in the Profit and Loss Account, while accumulated depreciation will reduce the carrying value of machinery in the Balance Sheet.

Interest Accrued but Not Received

Interest accrued but not received refers to interest income that a business has already earned but has not yet received in cash or through its bank account.

According to the accrual concept, income must be recorded in the accounting period in which it is earned, even if the payment is received later.

Practical Example: A business has earned ₹8,000 as interest income on a fixed deposit, but the amount has not yet been credited to its bank account.

Journal Entry:

(Being interest income accrued but not received)

How to Record Accrued Interest in Tally Prime:

1. Open your company in Tally Prime.

2. Go to Vouchers.

3. Select Journal Voucher (F7).

4. Debit the Accrued Interest Account with ₹8,000.

5. Credit the Interest Income Account with ₹8,000.

6. Add a suitable narration.

7. Press Ctrl+A to save the voucher.

Accounting Impact: Accrued interest will appear as an asset in the Balance Sheet, and the interest income will be included in the Profit and Loss Account.

Closing Stock Adjustment

Closing stock refers to the value of unsold goods remaining in a business at the end of an accounting year.

It is an important year-end adjustment because it helps determine the actual cost of goods sold and the gross profit of the business.

Closing stock is generally valued at cost or net realisable value, whichever is lower, subject to applicable accounting principles.

Practical Example: A business has closing stock worth ₹50,000 at the end of the financial year.

Journal Entry:

(Being closing stock recorded at the end of the financial year)

How to Record Closing Stock in Tally Prime:

1. Open your company in Tally Prime.

2. Go to Vouchers.

3. Select Journal Voucher (F7), if recording a manual closing stock adjustment.

4. Debit the Closing Stock Account with ₹50,000.

5. Credit the relevant Trading Account with ₹50,000.

6. Enter a suitable narration.

7. Press Ctrl+A to save the voucher.

Important Note: In Tally Prime, closing stock is generally maintained through stock items, stock groups, and inventory records. When inventory is properly maintained, Tally Prime can calculate closing stock automatically based on recorded stock quantities and valuation methods. A manual journal adjustment should be used only when appropriate to the company's accounting setup to avoid duplicating the closing stock value.

How to Record Adjusting Entries in Tally Prime

Tally Prime allows accountants to record adjusting entries through Journal Vouchers. These vouchers help update account balances and prepare accurate financial statements.

Follow these simple steps:

1. Open your company in Tally Prime.

2. Go to the Vouchers section.

3. Select Journal Voucher (F7).

4. Choose the relevant debit and credit ledger accounts.

5. Enter the adjustment amount.

6. Provide a suitable narration explaining the transaction.

7. Press Ctrl+A to accept and save the voucher.

After recording the adjustments, check the Trial Balance, Profit and Loss Account, and Balance Sheet to verify the updated balances.

Adjustment Entries in Final Accounts

Adjusting entries directly affect the preparation of final accounts. They ensure that income and expenses are reported in the correct accounting period.

Here is how the five adjustments affect financial statements:

• Outstanding Salary: Added to salary expenses and shown as a liability.

• Prepaid Rent: Deducted from rent expenses and shown as an asset.

• Depreciation: Charged as an expense and reduces the carrying value of machinery.

• Accrued Interest: Added to income and shown as an asset.

• Closing Stock: Considered while calculating gross profit and shown as an asset.

Accountants must verify these adjustments before preparing the Trading Account, Profit and Loss Account, and Balance Sheet.

Conclusion

Adjusting entries are an essential part of year-end accounting. From outstanding salaries and prepaid rent to depreciation, accrued interest, and closing stock, these adjustments help businesses maintain accurate financial records and prepare reliable financial statements.

However, knowing the theory is only the first step. Practical knowledge of Tally Prime, GST accounting, journal vouchers, and financial statement preparation is equally valuable for building a successful accounting career.

At Ready Accountant Institute, students can develop industry-relevant accounting skills through practical professional training in:

• Certified Corporate Accounting (CCA)

• SAP FICO (Finance & Controlling)

• Taxation (Income Tax & GST)