Info of Adjusting Entries
Adjusting
entries of the journal entries made at the end of the accounting period to
allocate revenues and expenditures related to the period where they are
actually applicable. Adjusting entries are necessary because normal log entries
are based on actual transactions, as well as the date on which these
transactions take place not the date should respect the principle of the
attachment of the accounting.
The two main types of adjusting entries are:
•
Accruals and deferred income: for income and expenses which correspond to the
dates before the transaction was recorded.
•
Reports: for revenues and expenditures which correspond to the dates after the
transaction has been registered.
Accrued liabilities
Accumulated points are those for which the company has been achieving revenues or expenses without even observing a real transaction that would result in a log entry. For example, consider the case of employees who are paid on the first day of the month for the salary they received during the previous month. Each day of the month, the enterprise recognises additional liabilities in the form of salaries to be paid the first day of the following month, but the transaction is not actually until the pay card is issued on the first day of the month. In order to make expenditures in the period where it was committed, an adjusting entry is made at the end of the month. For example, in the case of a small company who run $ 80 000 in monthly salaries, the log entry might look like the following:
Date
Account
titles & explanation
Flow
Credit
9/30
Salary
expenses
80
000
Wages
payable
80
000
Accrued
wages in September,
payable
on 1st Oct.
In
theory, salary charges payable could be recorded every day, but daily updates
of these large scale regularisation accounts would be costly and would serve
little - adjustment is necessary at the end of the period for which to prepare
financial statements.
Some of the items for which adjustment entries can be made include:
• Salaries• Late fees• Income taxes• Interest income• Unbilled revenue
Reports
Items
deferred are those for which the company recorded the transaction as a journal
entry, but has not yet realized the revenue or expenses associated with this
log entry. In other words, the recognition of the deferred elements is deferred
to a subsequent financial year. An example of a deferred element would be
insurance prepaid. Suppose that the company pays in advance insurance for 12
months on Sep 1. The insurance being a prepaid expense, the journal on 1 Sep
entry would look like the following:
Date
Account titles & explanation
Flow
Credit
9/1
Prepaid
expenses
12
000
Cash
12
000
12
months of insurance prepaid.
The
result of this entry, is that insurance becomes an asset on behalf of prepaid
expenses. At the end of September, this asset will be adjusted to take into
account the "intake" during the month. The adjusting entry would be:
Date
Account
titles & explanation
Flow
Credit
9/30
Insurance
costs
1
000
Prepaid
expenses
1
000
Insurance
for seven.
This
adjusting entry transfers $1000 of the balance sheet prepaid expenses on behalf
of expenses of insurance charges properly register the cost of insurance for
the month of September. In this example, an entry of similar adjustment would
be made for each subsequent month until the expiry of the insurance policy 11
months later.
Some
deferred to which the adjustment entries would be carried out include:
• Prepaid insurance• Prepaid rent• office supplies• Amortization• Unearned Revenue
In
the case of unearned revenue a liability account is credited when the receipts.
An adjusting entry is made when the service was rendered or the product has
been shipped, thus creating income.
Supplementing
the Scriptures
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