‘Converting Journal entries to Accrual Based Accounting’. As Journal is the First Step for recording every Single Transaction of Business because in this step the business recording may begin in form of Entries. The entries are subcategorized into two parts- Debit and Credit.
‘The Adjusting Entries takes place by changing/Altering a journal entry of any specific transaction. Such modifications occur slightly before actual submission of Financial Statements. The Adjustments takes place in Financial Accounts of the Company including- Profit and Loss Account and Balance Sheets. Where changes may take place before evaluating the actual results of the company.
How are Revenues and Expenses Defined Under Accrual Accounting?
The overall revenues and expenditures get affected by wrong recording, though it is essential to Modify Journal Entries in the Books. Commonly the adjustments may take place in few entries- Accrued Expenses and Revenues; Deferred Revenues and Expenses. The expenses and Revenues may record wrongly like sometimes errors may occur due to Wrong Values, Wrong Entry or Transaction and omission of entries in books.
Some of the examples of Adjusting Entries which give a clear picture of transactions and their adjustments in accounting books are:
- Alex and Company recorded $20,000 of depreciation associated with Building during the month, To make the Adjustment: Debit – Depreciation by $20,000 and Credit Accumulated Depreciation by $20,000.
- Alex paid $30,000 for next month Rent, they recorded it as prepaid Expense, the entry to be take place : Debit…. Prepaid Expenses $30,000 and Credit…Rent $30,000.
All such errors are very common and necessary to be considered that Trial Balance should have same Debit and Credit Balance, thus Adjusted Trial Balance may cover both Debit and Credit sides and accurate entries are being altered in the Trial Balance. Trial balance is made before the Final accounts and so it is necessary to adjust all entries as it will create a problem for business organizations to rectify the errors in Financial Statements. The common Purpose of making Adjustment in entries is to get exact figures and results during the end of accounting Period. Moreover, the Adjustments of Entries makes a good reputation of the company in front of the outsiders to whom the accounts and statements are been represented. Rectification in wrong entries give wrong data thus business may fail to interpret their Profitability and Other Business Results.
What is the Purpose of an Adjustment in Accounting?
Adjustments in Entries are done before preparation of financial statements because they exactly show the Revenues and Expenditures which have been occurred during the accounting period. The wages which are Payable and the adjustment in same entry is shown in Debit Side of Profit and Loss Account. Thus it is been evaluated that Adjustments are necessary for every business to determine accurate accounting Results. The long-term impact of correct recording is been found with the help of such Adjusted Entries. Being a successful businessman it is necessary to take facts and figures so that business should get appropriate outcomes.
Hence the Blog represents the necessary use of Adjustments in Accounting terms and their current and long-term impact on the companies.