In accounting there is many different things that you need to know, the one that we are going to go over today is adjusting entries.
Adjusting entries are to ensure that revenue and expenses are properly recorded under accrual basis. Adjusting journal entries are made in the general ledger to record revenues that have not been earned or recorded and expenses that have been made but not yet recorded. This process is fourth step in the accounting cycle, which happens at the end of the accounting period after the trial balance is done. After the adjusting entries are journalized and posted and adjusted trial balance is done, from there the financial statements are prepared. Adjusting entries can vary significantly across companies, they happen because the exchange of cash does not always match with the earnings of revenue or an expense. This could be like ...view middle of the document...
Deferred revenue is a liability to the entity until it is earned. This is like a customer paid a deposit on a new machine but has yet to receive it. You would record the deposit as unearned revenue.
Deferred revenue 5,000
Deferred expenses are when expenses paid in cash and recorded as assets before being used. This is like the company paying the Insurance for the full year. You would still need to list it in cash and prepaid insurance
Cash Prepaid insurance
One thing you need to remember is when you pay cash before it incurs an expense the company should always increase an asset account for the amount paid.
Accrued liabilities are expenses already incurred but not paid or recorded. These types of adjusting entries would be payroll that has been earned by your employees on the last day of the accounting period but not paid until next pay date. These types of entries are usually reversed by the next month.
Salaries payable 23,000
In a computerized accounting system these entries are usually done at the end of the closing period, monthly a thorough analysis is performed on the trial balance. This performance is done month to month to ensure that all accounts are correct. When an adjusting entry identified, a journal entry input form is prepared. This form needs to be supported with all documents that justify the entry and received by the accounting management. Once this is done the journal entry is entered into the general ledger system as a standard or self-reversing entry. Then the journal entry is posted to the general ledger.
Adjusting journal entries are a good way for management to manipulate financial results by accruing more revenue or expenses than there is. When making an Adjusting entry always make sure you have all documentation to support your entry and that it is approved by accounting management. This will assure that you are not committing a crime or fraud.
Financial ACCT Edition: 2010 Author: Godwin et al Publisher: Cengage