POST HIGHLIGHTS
- Preparing adjusting journal entries
- Completing the worksheet
- Two part tutorial videos
- Bonus tutorial video – recording adjusting entries
We are continuing along the accounting cycle with adjusting entries. We previously analyzed business transactions, recorded our journal entries, and posted those entries to the ledger. From each account’s ledger, we created our trial balance.
Now we are ready to record some adjusting entries. Adjusting entries are used to bring our accounts up-to-date and recognize revenues and expenses in the proper accounting period. We will use adjusting entries to convert a company’s records to the accrual basis of accounting. Accrual basis is the accounting method where revenues are recognized when they are earned, and expenses are recognized when they expire.
To start the adjusting entries, a process we will prepare and analyze each of the accounts on the worksheet. Then we will be able to identify specific accounts that must be adjusted to bring them up to date.
After we complete our adjusting entries, we will prepare another trial balance, the adjusted trial balance. From that trial balance, we can create and issue our financial statements, the Income Statement, Statement of Stockholders Equity*, and Balance Sheet.
* Some courses use the Statement of Retained Earnings and College accounting uses the Statement of Owner’s Equity.
Helpful Tip!
- Adjusting entries almost always involves one balance sheet account and one income statement account.
To keep the concept simple, we will review in the videos only four common items that need to be adjusted: Office Supplies, Prepaid Insurance, Equipment (depreciation), and Salaries.
