U2 L14 Introduction to Adjustments

U2 L14 Introduction to Adjustments - Introduction to...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Introduction to Adjustments At the end of a period, when a business is ready to prepare its financial statements, it is important to ensure that all of the accounts in the business' ledger have updated balances, and that all transactions pertaining to that period have been recorded. Often, at the end of the period, it is necessary to make adjustments to some of the accounts to bring them up- to-date, since certain accounts become inaccurate between the beginning and the end of the period. Adjustments also serve to determine the amount of revenue or expense that pertains to that particular accounting period. There are three types of common adjustments that we will learn about in this lesson: i) adjusting for supplies used in a period ii) adjusting for prepaid expenses used in a period iii) adjusting for late-arriving invoices Adjusting for Supplies Throughout a period, a business purchases supplies for its use within the business. Every time new supplies are purchased, the supplies account in the ledger receives a debit (increase) entry. However, it is not feasible to credit (decrease) the supplies account each and every time an employee uses a supply. This would be too time consuming. Therefore, over the period, the supplies account is left to show an inaccurate balance. So, at the end of an accounting period, it is necessary to decrease the value of the supplies account by credit ing it for the amount of supplies used, and also recording an expense for the amount of supplies used. Here is an example. Let's say, throughout its fiscal year, a business makes purchases of supplies on the following dates: January 3 $ 450 March 25 $ 300 August 16 $ 710 November 5 $ 295
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
If, throughout the year, there have been no entries to decrease the supplies account for the amount of supplies used, the account in the ledger would look like this: At the end of the year, the business must make an
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

U2 L14 Introduction to Adjustments - Introduction to...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online