Brilliant Adjusting Accounts For Financial Statements

Adjusting Accounts and Preparing Financial Statements Text The McGrawHill Companies 2004 Chapter 3 Adjusting Accounts and Preparing Financial Statements 95 Explain accrual accounting and how it makes financial statements more useful.

Adjusting accounts for financial statements. The adjusted trial balance lists the account balances segregated by assets and liabilities. The salaries for one week 1250 were paid on the first Fri. Post-closing trial balance classified balance sheet.

Closing journal entries and posted ledger acct. -adjustment causes an increase in an asset account and an increase in a revenue account -refer to revenues that are earned in a period but have not been received and are unrecorded. The cash basis of accounting reports revenues when cash is received while the accrual basis reports revenues when they are earned.

Types Purpose Their Link to Financial Statements Accounting is a multi-step process. Prepare Financial Statements 7. In this lesson we will discuss adjusting entries.

Account adjustments also known as adjusting entries are entries that are made in the general journal at the end of an accounting period to bring account balances up. In order for revenues and expenses to be reported in the correct period companies make adjusting entries at the end of the accounting period. Adjusting entries are necessary to update all account balances before financial statements can be prepared.

Explanation of adjustment to prepaid insurance account After adjusting and posting the 100 balance in Insurance Expense and the 2300 balance in Prepaid Insurance are ready for reporting in financial statements. The adjusted trial balance provides the primary basis for the preparation of financial statements. Adjusting entries make it possible to report correct amounts on the balance sheet and on the income statement.

To assist you in understanding adjusting journal entries double entry and debits and credits each example of an adjusting entry will be illustrated with a T-account. Not making the adjustment on or before December 31 would Understate expenses by 100 for the December income statement. If the firm is a sole proprietorship the busi ness owner will have to include the amount of the profit on his or her personal income tax 156 CHAPTER 7 Adjusting Accounts for Financial Statements return.