Accounting Adjustments
What are Accounting Adjustments?
Accounting adjustments are the business transactions that are recorded after the reporting period. Adjusting entries are made after the accounting period to make sure all the pieces of information are correctly included and to show the proper view of the business.
Accounting adjustments are needed before financial statements are made. And the balance of these accounts are subject to the statement of financial position, statement of comprehensive income, and the statement of cash flows.
Examples of Accounting Adjustments
Deferrals and accruals are the most common type of adjustments for example prepaid expenses and accrual expenses. Also, an example of adjustments is to recognize the used supplies in the income statement.
Types of Accounting Adjustments:
- Accruals
- Deferrals
Accruals
Accruals are not maintained by the small companies because the transactions will be posted automatically in the course of your accrual basis accounting. An example of accrual entry is: if you pay your employee salary on the 15th day of the month and the closing date of accounts is 31st December. You need to show half of the payment as accrual, which will be reversed on 15th January.
Deferrals
Deferrals are the most common transactions that we see in small businesses. Let's think about the rent that you have paid for 12 months. But you haven't used the place for 12 months. So the extra payments will be noted as a prepaid expenses.
Tags:
Bookkeeping
