This topic is all about adjusting of accounts in accounting.
1.) Prepaid Expenses
This are the Expenses paid in advance by the business; or expense paid in cash by the company, but expenses have either not been incurred or only part of the amount paid has been used up as expenses. Often referred to as deferred expenditures are prepaid costs.
~Asset method -whether the corporation debited an asset account at the date of payment.
~Expense method – whether the corporation debited an expense account on the day of payment.
2.) Unearned revenue
These are earned or collected in advance by the business; or they are earned by the business in cash, but the revenue is not yet earned or only a portion of the amount received is earned or is earned. Uncollected interest is also called deferred interest.
~Liability method – if at the date of collection, the business credited a liability account.
~Revenue method – if at the date of collection, the business credited a revenue account.
3.) Accrued Expenses – Expenditures incurring in a single era, but unrecorded and unpaid at the end of the period. They are often referred to as increased or unregistered liabilities.
4.) Accrued Revenue – Revenues obtained during one year but not reported or collected by the end of the year. Revenues collected it is also known as accumulated assets or income not reported.
5.) Property, plants and equipment depreciation - Physical resources owned and used by a permanent company or with a long life are known as fixed assets or plant assets. Example of this are property, houses, machinery, vans, vehicles, computers, storage equipment, or office equipment. These assets contribute to the company 's sales. It is therefore necessary and reasonable that in each accounting period a portion of the assets be reported as cost.
~Fixed assets, with the exception of land have limited useful lives and as such are subject to depreciation.
~Depreciation is the systematic allocation of the cost of the fixed asset over its useful life. Depreciation is not a process of asset valuation.
Various measuring depreciation methods exist. Only the simplest and most used method, the straight-line method, is discussed here. This will lead to the same daily depreciation charges. Note also that the Account Accumulated Depreciation is credited in the depreciation adjustment entry. It is a counter-asset account, deducted in the balance sheet from the corresponding fixed asset account. Credit is not paid directly to the account for the fixed asset to preserve the original balance sheet cost of the fixed asset.
6.) Uncollectible accounts – these are estimated amounts due to clients which can not be collected anymore and are regarded as bad debts. This method of allowance calculates the sum of the receivable in collected accounts and is reported at the end of the accounting period as an adjustment entry, accompanied by the correspondence principle.
Since the loss is only calculated, the account receivable will not be credited to the individual customer at this stage. The Doubtful Account Allowance would now be allocated to a contra-asset account. This is also called bad debt or non-collectible account expenses. Doubted account costs are also called bad account expenses. The Doubtable Account Allowance is often called Bad Debts Allowance or Bad Account Allowance.
7.) Merchandise Inventory -
also known as "The stock of products" these are fine on-the-spot and for sale in the ordinary course of business. When a company uses its annual inventory scheme, the original balance of the product stock must be replaced or withdrawn by the balance at the end of the reporting period by change entries.
The entries for adaptation and closure are ready to be included in the leaderboard at the end of the accounting period. After the data have been collected for modifications and displayed in the worksheet, the modification entries are prepared. True or temporary accounts and true or permanent accounts are listed in the chief. Money, expenses, drawdown and income summary accounts shall be included in nominal accounts. Actual or permanent accounts include assets, liabilities and the accounts of ownership (capital).
Closing entries on the general ledger are ready to nullify the nominal account balance. The balance of profits and expenditures is allocated to the Revenue Summary account. The balance of profits is then allocated to the equity or capital account of the owner. A summary credit balance shows benefit, while a debit balance shows a net loss. The account of the owner shall also be converted into the capital account of the owner.
The post-closing trial balance is a list of accounts and their balance after recording and uploading of the closing accounts. It comprises all actual accounts as the nominal balance is reduced to null. The goal is to check that all nominal accounts are closed correctly, and that the overall accounts of the accounting system are equal to the total debits and credits after the closing process.
Reverse entries are journal entries prepared on the first day of the next accounting cycle, which automatically reverses certain forms of modification entries made during the previous period. Including accrued income, prepayment expenses using the expense method, and income unrecovered by means of the income method. This move is an optional process and is helpful in simplifying record keeping for the next phase of accounting.
