Lagi Naman Akong Nag A-adjust.
Our most recent lesson in bookkeeping is adjusting entries. I remember this topic being taught to us last year and I would say, it could be a piece of cake for some but for me it is a big chunk of cake at that time. But then, time has passed and things have changed. Right now I could say that I am more familiar with adjusting entries that I find it a bit easier compared to last year.
So starting with the first question we would need to answer in adjusting entries. What are adjusting entries? According to Accounting Coach (n.d.), Adjusting entries are usually made on the last day of an accounting period (year, quarter, month) so that the financial statements reflect the revenues that have been earned and the expenses that were incurred during the accounting period.
Sometimes an adjusting entry is needed because:
revenue has been earned, but it has not yet been recorded.
an expense may have been incurred, but it hasn't yet been recorded.
a company may have paid for six-months of insurance coverage, but the accounting period is only one month. (This means that five months of insurance expense is prepaid and should not be reported as an expense on the current income statement.)
a customer paid a company in advance of receiving goods or services. Until the goods or services are delivered, the amount is reported as a liability. After the goods or services are delivered, an entry is needed to reduce the liability and to report the revenues.
A common characteristic of an adjusting entry is that it will involve one income statement account and one balance sheet account. (The purpose of each adjusting entry is to get both the income statement and the balance sheet to be accurate.) Also, according to CliffNotes (n.d.), adjustments fall into one of five categories: accrued revenues, accrued expenses, unearned revenues, prepaid expenses, and depreciation.
To start getting to know adjusting entries, aside from the lesson Sr. Randy gave us, I also visited sites like Accounting Coach which greatly helped me to understand the topic. In Accounting Coach, this lesson may be viewed like this:
I reviewed the contents of this site and it greatly helped me to review and have a better understanding about adjusting entries.
References
Adjusting Entries. (2017). Cliffsnotes.com. Retrieved 30 April 2017, from https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-i/adjustments-and-financial-statements/adjusting-entries
What are adjusting entries? | AccountingCoach. AccountingCoach.com. Retrieved 30 April 2017, from https://www.accountingcoach.com/blog/appreciating-adjusting-entries
