Example of adjusting entries, Accounting Basics

Q. Example of adjusting entries?

Regulate entries bring the amounts in the general ledger accounts to their proper balances before the company prepares its financial statements. That is adjusting entries change the amounts that are actually in the general ledger accounts to the amounts that should be in the general ledger accounts for proper financial reporting. To make this renovation the accountants analyze the accounts to determine which need adjustment. For instance assume a company purchased a three-year insurance policy costing USD 600 at the beginning of the year and debited USD 600 to Prepaid Insurance. At year-end the company must remove USD 200 of the cost from the asset and record it as an expense. Letdown to do so misstates assets and net income on the financial statements.

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Companies endlessly receive benefits from many assets such as prepaid expenses (example prepaid insurance and prepaid rent). Therefore an entry could be made daily to record the expense incurred. Usually firms do not make the entry until financial statements are to be prepared. Consequently if monthly financial statements are prepared monthly adjusting entries are required. By norm and in some instances by law businesses reports to their owners at least annually. Therefore adjusting entries are required at least once a year. keep in mind but that the entry transferring an amount from an asset account to an expense account should transfer only the asset cost that has expired.

Posted Date: 7/2/2013 1:57:15 AM | Location : United States

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