Financial Statements – II Class 11: Chapter PDF and Adjustments

This page is about Financial Statements – II Class 11, the second chapter of the NCERT Accountancy — Financial Accounting Part II textbook. The chapter runs to about 70 printed pages starting at page 319, and the official PDF is right here — along with a plain-language walkthrough of every adjustment it teaches, from closing stock to interest on capital.

Download the Financial Statements – II Class 11 NCERT PDF

NCERT keeps the full Class 11 Accountancy Part II book as one official file, and this chapter is Chapter 2 inside it — the Financial Statements – II Class 11 NCERT chapter PDF on this page is linked straight from ncert.nic.in, so you can be sure it is the current official edition.

Reference: NCERT Class 11 Accountancy textbook, chapter 2, official edition on ncert.nic.in.

Financial Statements – II Chapter 2: What Is Inside the PDF

Before you open the file, here is the shape of the chapter. The counts table on this page lists the chapter’s exact number of sections, figures, worked examples and exercise questions; the layout below describes what those items do.

• Sections 9.1 to 9.12 — the chapter is organised as numbered sections running from 9.1 Need for Adjustments (page 319) to 9.12 Interest on Capital (page 339), each teaching one adjustment.
• One running example — the trial balance of Ankit (Fig 9.1, page 320) is reused in every section, so each adjustment is shown in isolation.
• Mid-chapter quiz — a “Test Your Understanding” set appears at page 340, followed by the chapter’s master adjustment table (Fig 9.2, page 341).
• Solved illustrations and a “Do it yourself” set — practice problems that apply the adjustments to fresh trial balances (pages 342–367).
• Reference matter — Key Terms and the Summary sit on page 368; the closing exercises (Short Answers, Long Answers, Numerical Questions) are on pages 369–370.
• One quirk: the book prints these sections under the older series numbers 9.1–9.12, even though this is Chapter 2 of Part II.

What This Chapter Covers: From Closing Stock to Interest on Capital

This chapter exists because of one idea: under the accrual basis, profit is measured on incomes earned and expenses incurred, not on cash received and paid — so the trial balance alone never gives the true profit (NCERT, p. 319).

The table below goes section by section. Each row gives the single idea the section teaches and the NCERT page where it begins.

Because NCERT reuses the same trial balance in every section, each profit and loss account differs by exactly one adjustment — so you can compare the net profit lines and literally see which adjustments cut profit (outstanding expenses, depreciation, bad debts, provisions, commission, interest on capital) and which raise it (prepaid expenses, accrued income).

Key Concepts: The Eleven Adjustments Explained

Every adjustment obeys one rule that doubles as your verification tool: it is recorded at two places in the final accounts to complete the double entry — one effect in the profit and loss account, one new or altered figure in the balance sheet (NCERT, p. 320). If your balance sheet does not balance, an adjustment is probably missing its second leg.

The nine groups below cover all eleven adjustments the chapter lists. Each group gives the idea, the entry, and where the two effects land.

Closing stock and the adjusted purchases alternative

Closing stock is the cost of unsold goods lying in the stores at year end. The trap: it can be recorded two ways, and the second way changes where it appears (NCERT, pp. 321–322).

• Adjusting entry: Closing stock A/c Dr; To Trading A/c — then show it on the credit side of the trading account and on the asset side of the balance sheet.
• Adjusted-purchases method: Closing stock A/c Dr; To Purchases A/c. Purchases falls to its “adjusted” value, and closing stock appears only as an asset — never again on the credit side.
• Why it matters: with this method the opening stock is absorbed into purchases too, so the trial balance shows neither stock item separately (p. 322).

Outstanding and prepaid expenses

These are the same idea from two directions: part of an expense belongs to this year but is unpaid (outstanding), or was paid but belongs to next year (prepaid). Both correct the expense figure (NCERT, pp. 323–325).

• Outstanding expenses: Wages A/c Dr; To Wages outstanding A/c. Add the amount to the expense; show “wages outstanding” as a liability.
• Prepaid expenses: Prepaid insurance A/c Dr; To Insurance A/c. Deduct it from the expense; show it as a current asset.
• Direction check: outstanding cuts profit, prepaid raises it — outstanding adds to the expense, prepaid removes part of it.

Accrued income and income received in advance

Mirror the expense pair for incomes: income earned this year but not yet received is accrued income; income received this year that belongs to next year is income received in advance (NCERT, pp. 326–328).

• Accrued income: Accrued commission A/c Dr; To Commission A/c. Add to the income; show as an asset.
• Income received in advance: Rent received A/c Dr; To Rent received in advance A/c. Deduct from the income; show the advance as a liability. The chapter calls this portion “unearned income”.
• Direction check: accrued income raises profit, income received in advance cuts it.

Depreciation

Depreciation is the decline in an asset’s value from wear and tear or the passage of time — in effect, writing off the part of the asset’s cost already used to earn profit (NCERT, p. 329). Students remember the P&L side and forget the balance sheet side.

• Entry: Depreciation A/c Dr; To Furniture A/c.
• P&L: shown as an expense on the debit side.
• Balance sheet: the asset appears at cost minus the depreciation so far.

Bad debts and further bad debts

A bad debt is money a debtor will never pay. If the amount is already in the trial balance it is recorded; if the question adds it as extra information, it is a further bad debt (NCERT, p. 330).

• Entry for further bad debts: Bad debts A/c Dr; To Debtors A/c.
• P&L: bad debts (trial balance figure) + further bad debts, shown together.
• Balance sheet: deduct further bad debts from debtors. The chapter’s example writes off a ₹2,500 further bad debt, dropping debtors from ₹15,500 to ₹13,000.

Provision for doubtful debts, old and new

A provision for doubtful debts is a reasoned estimate of the debtors who may default next year. The exam favourite is the old provision carried forward from last year, which must be netted against this year’s charge (NCERT, pp. 331–333).

• Compute the new provision on debtors after writing off further bad debts.
• P&L charge: bad debts + further bad debts + new provision − old provision. Only this net figure is debited to the P&L.
• Balance sheet: show the new provision as a deduction from debtors.

Worked extract from the chapter: debtors ₹32,000, bad debts ₹2,000, old provision ₹3,500, further bad debts ₹1,000, new provision 5%. Debtors fall to ₹31,000; the new provision is ₹1,550; the P&L charge is \(2,000 + 1,000 + 1,550 – 3,500 = 1,050\) (p. 333).

Provision for discount on debtors

Discounts likely to be allowed to prompt-paying debtors can be estimated and provided for. The rule students miss: it is created only on good debtors (NCERT, p. 334).

• Good debtors = debtors − further bad debts − provision for doubtful debts.
• Provision = good debtors × rate% — entry: Profit and Loss A/c Dr; To Provision for discount on debtors A/c.
• Balance sheet: deducted from debtors, after the doubtful-debts provision, to show the expected realisable value.

Manager’s commission

Manager’s commission on net profit is the classic trap: the rate applies either before charging the commission or after charging it, and the formula changes (NCERT, pp. 336–337).

• Before charging: commission = profit before commission × rate/100. Fresh example: profit ₹120, 10% → \(120 \times \frac{10}{100} = 12\).
• After charging: commission = profit before commission × rate/(100 + rate). Same figures → \(120 \times \frac{10}{110} \approx 10.91\).
• Default rule: if the question is silent, assume before charging such commission (p. 336).
• Placement: entry Profit and Loss A/c Dr; To Manager’s commission A/c; expense in the P&L, “commission outstanding” as a liability.

Interest on capital

Interest on capital treats the proprietor like a lender: the business pays interest on the capital he has invested, and that interest is an expense (NCERT, p. 339).

• Entry: Interest on capital A/c Dr; To Capital A/c.
• P&L: shown as an expense, reducing net profit.
• Balance sheet: added to capital. The reduced profit and the interest addition cancel out, so the net effect on the balance sheet total is neutral.
• Timing: additional capital earns interest from the date it is brought in, not from the start of the year.

The Chapter’s Two Figures: Trial Balance and the Master Adjustment Table

The book labels two exhibits as figures, and both are printed ledger statements rather than diagrams — so keep the book open at pages 320 and 341 while you read this section.

Fig 9.1: the trial balance of Ankit (page 320)

This is the running example. It is a ledger-style table with the account title, its element (asset, expense, revenue or liability), the L.F. column, and debit and credit amounts.

The debit column holds expenses and assets — cash ₹1,000, bank ₹5,000, wages ₹8,000, salaries ₹25,000, furniture ₹15,000, rent ₹13,000, debtors ₹15,500, bad debts ₹4,500 and purchases ₹75,000 — while the credit column holds capital ₹12,000, sales ₹1,25,000, creditors ₹15,000, the long-term loan ₹5,000 and commission received ₹5,000. Both sides total ₹1,62,000.

Read the extra line beneath it — “the stock on March 31, 2017 was ₹15,000” — as the first adjustment. Every later section starts from this same trial balance and adds one adjustment, so the profit and loss accounts differ by exactly one item at a time.

Fig 9.2: the master adjustment table (page 341)

Four columns — the adjustment, the adjusting entry, its treatment in the trading and profit and loss account, and its treatment in the balance sheet — with a row for each adjustment the chapter teaches, from closing stock to further bad debts.

Follow any row and you see the double entry in action.

The profit and loss account shows the corrected amount of an item that already exists; the balance sheet receives exactly one new account: an asset for closing stock, prepaid expenses and accrued income; a liability for outstanding expenses, income received in advance and commission outstanding; a deduction from an asset for depreciation, bad debts and the two provisions; an addition to capital for interest on capital.

Revision tip: keep page 341 open while solving problems — every numerical question in the chapter is Fig 9.2 applied to a fresh trial balance.

Key Terms Defined in This Chapter

These are the exact terms the chapter names in its Key Terms list (NCERT, p. 368) — each one is a potential one-mark definition question.

Common Mistakes in Adjustments (and the Fix for Each)

Most marks are lost not on the arithmetic but on where an adjustment is placed. The table below names each characteristic error and the check that catches it.

Worked Example: Nine Adjustments on One Trial Balance

This complete worked example applies a full set of adjustments to one trial balance with entirely fresh numbers — journal entries first, then the trading and profit and loss account, then the balance sheet, the full path the chapter’s own illustrations follow (NCERT, p. 320).

If you need to revise the double-entry rules behind these entries, see Recording of Transactions – I.

Trial balance of Meera Traders for the year ended March 31, 2024:

Adjustments: (1) closing stock ₹28,000; (2) wages outstanding ₹2,000; (3) insurance prepaid ₹1,200; (4) rent received in advance ₹1,500; (5) depreciate furniture 10%; (6) further bad debts ₹1,000; (7) provision for doubtful debts 5% on debtors; (8) provision for discount on debtors 2% on good debtors; (9) manager’s commission 5% on net profit after charging such commission.

Step 1: journal entries.

Step 2: trading and profit and loss account.

The working behind the three computed figures:

• Provision for doubtful debts: debtors 90,000 − further bad debts 1,000 = 89,000; 89,000 × 5% = 4,450.
• Provision for discount on debtors: good debtors = 89,000 − 4,450 = 84,550; 84,550 × 2% = 1,691.
• Manager’s commission after charging: \(1,07,859 \times \frac{5}{105} = 5,136.14\), rounded to ₹5,136.

Step 3: balance sheet as at March 31, 2024.

Final answer: Gross profit ₹1,63,000; profit before commission ₹1,07,859; manager’s commission ₹5,136; net profit ₹1,02,723; balance sheet total ₹3,33,359.

Verification with the two-place rule: every adjustment appears twice — wages outstanding is added to wages in the P&L and stands as a liability; the discount provision is an expense and a deduction from debtors; depreciation is an expense and a reduction in furniture. That is why the sheet balances.

Formulas: The Numbers Behind the Adjustments

This chapter has only a handful of real formulas — the rest of the work is placement. The table collects them with their page references.

Fresh example for the after-charging formula: profit before commission ₹21,000, commission 5% after charging → \(21,000 \times \frac{5}{105} = 1,000\). Provisions and commission are taken to the nearest rupee, as the chapter’s own figures are.

Exam Notes: What the Chapter’s Exercises Demand

The chapter’s exercises are not theory questions — they ask you to produce complete final accounts. Practise the full layout, not isolated pieces.

• Numerical Questions (p. 370): each gives a full trial balance plus adjustments and demands a trading and profit and loss account and a balance sheet. A complete answer shows the adjusting entries or the working for each provision, every adjustment visible as an add/less line, and the balance sheet totalling — with net profit transferred to capital and drawings deducted.
• Short Answers (p. 369): definitions of closing stock, outstanding and prepaid expenses, accrued income and income received in advance — plus journal entries. Questions 6 and 8 ask you to write the entries for depreciation, discount on debtors, interest on capital and manager’s commission, among others.
• Long Answer 3 (p. 370): asks for the treatment of prepaid expenses, depreciation and closing stock when items are given inside the trial balance versus outside it — see the comparison below.
• “Do it yourself” problems (pp. 363–367): ask which accounting concept lies behind each adjustment — see the mapping below.

Inside the trial balance versus outside it

If an item is already inside the trial balance, it has been recorded and appears once at its given figure — no adjustment entry is needed. If it is given outside, as additional information, it needs the two-place treatment.

Which accounting concept lies behind each adjustment

The “Do it yourself” problems ask this directly. NCERT’s own text supports this mapping — use it as reasoning, not as a fixed board answer.

If the concepts themselves are still unclear, revise them in Introduction to Accounting before attempting the chapter’s problems.

An eight-step working order

Work the adjustments in a fixed order so nothing gets missed, then compute net profit and balance the sheet.

1. Closing stock
2. Depreciation
3. Expense adjustments (outstanding, prepaid)
4. Income adjustments (accrued, received in advance)
5. Bad debts and further bad debts
6. Provisions (doubtful debts, then discount on good debtors)
7. Manager’s commission
8. Interest on capital

Check your work with the two-place rule: if the balance sheet does not balance, an adjustment is missing its second leg.

One final note: textbook contents and the examinable syllabus are not always identical — check the current official CBSE syllabus for what is examinable this session.

Adjustments in One Line Each

This mirrors the chapter’s own Summary (NCERT, p. 368), so you can check your revision against the book.

• Why adjustments exist: profit is computed on the accrual basis — incomes earned and expenses incurred in the year must be brought in even where cash has not moved (p. 319).
• Outstanding expenses: add to the expense in the P&L; show as a liability (p. 323).
• Prepaid expenses: deduct from the expense; show as an asset (p. 324).
• Accrued income: add to the income; show as an asset (p. 326).
• Income received in advance: deduct from the income; show as a liability (p. 328).
• Depreciation: expense in the P&L; deduct from the asset (p. 329).
• Bad debts and further bad debts: expense; reduce debtors (p. 330).
• Provision for doubtful debts: estimated loss; deducted from debtors (p. 331).
• Provision for discount on debtors: on good debtors; deducted from debtors (p. 334).
• Manager’s commission: expense; shown as an outstanding liability (p. 336).
• Interest on capital: expense; added to capital (p. 339).

The quadrant below maps the four income- and expense-timing adjustments at a glance. It is a derivation of the chapter’s Fig 9.2 (p. 341), not a copy.

Related Chapters and Study Resources

This listing is maintained for the 2026-27 academic session using the NCERT textbook information available to us. NCERT remains the authority for confirming the latest edition.

Financial Statements – II builds directly on Financial Statements – I, the preceding chapter, which prepared simple final accounts without adjustments — the trial balance of Ankit is reproduced from there (p. 319). The chapter that follows is Accounts from Incomplete Records.

• NCERT Class 11 Accountancy book page — open every chapter of this book, including Financial Statements – I and Accounts from Incomplete Records, from one place.
• Class 11 NCERT books — the book pages for every Class 11 subject.
• Class 11 Accountancy notes — chapter-by-chapter notes built from the same textbook.
• Class 11 notes — all subjects.
• CBSE notes home — the full notes library.

Sources and data verification

• The figures, page references and exercise descriptions on this page describe the NCERT Class 11 Accountancy — Financial Accounting Part II textbook, chapter 2 (Financial Statements – II), as published on ncert.nic.in.
• This page covers that one chapter. It does not cover other chapters of Accountancy Part II, other Accountancy books, or other subjects.
• The page is maintained for the current academic session using the NCERT information available to us.
• NCERT settles textbooks, editions and official PDFs; CBSE settles the curriculum, syllabus and examinations. Textbook contents and the examinable syllabus are not always identical, so check the current official CBSE syllabus for what is examinable.

Frequently Asked Questions

What is the difference between bad debts and provision for doubtful debts?

Bad debts are actual losses already identified — a specific debtor who will not pay — written off by debiting Bad debts and crediting Debtors (NCERT, p. 330). A provision for doubtful debts is an estimate of the probable loss from debtors who may default next year, created by debiting the P&L each year (p. 331).

How do you calculate manager’s commission after charging such commission?

Commission = profit before commission × rate/(100 + rate). Example: profit ₹21,000, commission 5% after charging → \(21,000 \times \frac{5}{105} = 1,000\) (NCERT, pp. 336–337).

Where is closing stock shown in the final accounts?

On the credit side of the trading account and the asset side of the balance sheet. Under the adjusted-purchases method it appears only as an asset, because it has already been credited through the purchases account (NCERT, pp. 321–322).

Why is provision for discount on debtors calculated only on good debtors?

Doubtful debts may never be realised, so no discount can be expected on them. Compute the provision on good debtors = debtors − further bad debts − provision for doubtful debts (NCERT, p. 334).

How is the old provision for doubtful debts adjusted in the profit and loss account?

The P&L charge is bad debts + further bad debts + new provision − old provision. In the chapter’s extract: \(2,000 + 1,000 + 1,550 – 3,500 = 1,050\) → ₹1,050. If the old provision is larger than the total, credit the excess to the P&L (NCERT, pp. 332–333).

Reference: NCERT Class 11 Accountancy textbook, chapter 2, official edition on ncert.nic.in.