The deficiency account-bankruptcy accounts, Financial Accounting

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The Deficiency Account

Purpose of deficiency account:

The purpose of the deficiency account is to explain the deficit shown on the statement of affairs. The deficiency account opens with the surplus of assets over liabilities of the bankrupt, one year before receiving order. This figure consists of the capital account of his business plus his net private assets at that date.

Items contributing to deficit:

The following items will be shown on the right-hand side of the deficiency account as being items contributing to the deficit:

1.    Losses during the period as per the profit and loss account;
2.    Bad debts;
3.    Drawings and household expenses;
4.    Estimated losses on the realisation of assets:

  • Stock
  • Machinery
  • Property
  • Other assets.

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