Proprietor’s Salary
If the proprietor works in the firm, the firm has to a pay salary to the proprietor. The proprietor’s salary is an expense to the firm.
Adjustment:
A. If Proprietor’s Salary is given outside the trial balance:
In such case, two effects will take place:
- Proprietor’s salary will be shown in the Dr. side of the Profit & Loss A/c, being an expense for the business.
- It will be added to the Capital A/c in the Liabilities side of the Balance Sheet.
B. If Proprietor’s Salary is given Inside the trial balance:
In such a case, Proprietor’s salary will only be shown in the Dr. side of the Profit & Loss A/c, being an item of expense.
Financial Statement with Adjustment with Examples-II
Through adjustments in the financial statement, we consider all the accounting items which are relevant to the current financial year, but not recorded in the books due to any reason or wrongly recorded. This helps us in getting the actual profit or loss for the year and the accurate financial position of the company. Five adjustments such as Interest on Capital, Interest on Drawings, Interest on Deposits, Interest on Loans, and Proprietor’s Salary are discussed below: