acct205ip2 - Running head: UNIT 2 IP - MENTORING Unit 2 IP...

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Running head: UNIT 2 IP - MENTORING Unit 2 IP – Mentoring an Accounting Clerk <name removed to preserve anonymity> AIU Online 1
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UNIT 2 IP - MENTORING The Need for Adjusting Entries In their raw definition, adjusting entries are entries into an accounting journal that convert accounting records to the accrual basis of accounting (Averkamp, 2011). There are often scenarios where a business activity can span more than one accounting period. When this happens, diligence must exercised to be sure that we still comply with the matching principle. In order to accomplish this, adjusting entries are often required (AIU Online, 2011). An example of a scenario when an adjusting entry is required is included for reference: A new bank loan is taken out for equipment purchases at the beginning of the last month of our accounting period (December), with the first payment not coming due until April 1, 2011. In order for our income statement covering this accounting period to reflect our accurate profitability for the reported accounting period, all December expenses incurred must be included, not only expenses that were actually paid during that period. Additionally, on our balance sheet for the same period, there would need to be a liability entered for interest owed on the balance of the new loan to the date of the balance sheet being created. This is required because the interest expense for December must be included on the income statement for December to ensure the sheet balances. The actual debit and crediting entries would be: a credit for Interest Payable for interest
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This note was uploaded on 01/08/2012 for the course ACCOUNTING 205 taught by Professor Sunnyonyiri during the Summer '10 term at AIU Online.

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acct205ip2 - Running head: UNIT 2 IP - MENTORING Unit 2 IP...

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