TYPES OF ACCOUNTING ADJUSTMENTS

ADJUSTMENTS
Everything that happens in the business must be recorded in the accounting system, for
that the journal and the ledger contain a complete history of all operations
commercials of the period. If an operation or transaction has not been recorded, the
account balances will not show the correct figure at the end of the accounting period.

The entries used to adjust or update accounts are called adjustment entries.
adjustment. Each adjustment entry affects a balance sheet account and the income statement.
of results. If the adjustment does not affect an income or expense account, it is not
an adjustment seat.

Expense Adjustments

All adjustment entries related to pending accrued expenses

payments and expenses that were recorded as assets when paid require a charge
a debit to an expense account and a credit to an asset or liability account.

The following are three types of spending adjustments:

Accrued expenses: many businesses incur certain expenses in

period before making the corresponding payment, these expenses that are going to
accumulated are called accrued or incurred expenses.

Prepaid expenses: these are expenses that were recorded as a

asset or as an expense when paid. An expense paid by
prepaid is an asset and it occurs when expenses are paid that cover
one or more future accounting periods. When the payment is made before
that the expense has been incurred or before it has expired due to
General is charged to an asset account, as it represents
an unexpired cost that will be used in future periods, to produce
income. bonify any unused or expired part, and pass the amount
to a balance sheet account.

Distribution of the cost of a fixed asset over its useful life, through the
depreciation process. The process of canceling or decreasing the cost of a
fixed assets, with the exception of land, over their estimated useful life
It is known as depreciating the asset or simply as depreciation.
When the cost of the fixed asset is spread over its useful life
estimated, it is charged to the depreciation account and credited to the account of
accumulated depreciation.

Accumulated Interest

The interest charged on short-term loans (30, 60, or 90 days) is the expense or
cost of borrowing money. Interest accumulates over time.
But the payment of the amount taken plus the interest will not be made until the date
of loan maturity.

Income Adjustments

All pending accrued income adjustments to be collected and income that

at the time of payment they were recorded as liabilities, since they had not been

accrued, require a charge to an asset or liability account and a credit to a

income statement, this should be done on the last day of the accounting period.

There are two types of income adjustments:

Accrued income but not recorded or collected.

Customer advances that are recorded as liability and that are recognized when they are earned

they will become income.

Income can be accrued (earned) before cash is received.
of the client, or that the operation is recorded in the accounting records. These
income that has been earned but has not yet been received or recorded
they are called accrued income.

When a customer pays in advance for services rendered, it is charged to the account.
in cash and generally, a liability account called advances is credited
clients, because the service has not been performed and the income has not yet
cattle.

Normally, all advances collected from clients are recorded in an account.

from passive to the moment the payment is received.
When using an income statement to record the initial entry, it will be
the adjustment to an income account is necessary to cancel any income not
accrued and transfer the amount to a liability account.

Adjusted trial balance

After recording the adjusting entries in the journal and transferring them to the ledger, one

Prepare an adjusted trial balance to verify accuracy of the

mayor, before preparing and updating the year-end financial statements.

Adjustments for Inflation

Updating the financial statements arises from the need to know the real value
what the non-monetary items of a company have and to know to what extent
They have been affected by inflation. Non-monetary items are those
whose value varies over time.

The adjustments most often made in companies are in the following items:

Inventories
Fixed Assets
Depreciation of fixed assets
Equity
To adjust fixed assets for inflation, just like in inventories, one
requires the adjustment factor. Once the factor is obtained, it is applied to the value.
historical. The adjustment will be made by debiting the fixed asset account and crediting to the

excess or insufficient capital account.

Accumulated depreciation is the counterpart of fixed assets; therefore, it must

show a balance that is valued in pesos of the same purchasing power as the
fixed asset.
TYPES OF ADJUSTMENTS WITH EXAMPLES
It is an entry made in the journal with the purpose of correcting or
modify certain accounts that for some reason do not show a true balance at
end of the fiscal year. These adjustments must be recorded:
Upon detecting an error in the record
Periodically to keep the actual balance of the account
At the end of the accounting period
Before preparing the financial statements

TYPES OF ADJUSTMENTS

1. For errors.- On certain occasions, the entry is recorded with the amount or with
the incorrect account in these cases makes this adjustment Ex.: The company
"ABC" pays with a check an outstanding bill (without document) for $2,500.00.

--1--
Loans Payable 2,500.00
Banks 2,500.00
V/R Payment to suppliers with CH.
ADJUSTMENT
Accounts Payable 2,500.00
Loans Payable 2,500.00
Re: Adjustment for error in the entry

2. By omission.- It occurs when the accountant does not present the entry.
timely Example. The company made a service sale for $150.00 on the 4th of
January 2009 on credit. The transaction is not recorded in a timely manner and on the 8th of

In May, the accountant learns of the fact and records it.

--1--
Accounts Receivable 166.50
2% Withholding Tax 1.50
a: Services Provided 150.00
12% VAT on Sales 18:00
V/R Sale made on 01/04/2009
3. For improper use.- The personnel handling money, goods or
Goods can be subject to breaches of trust and be used for purposes
personal.
A cash count is conducted and a shortage of $25.00 is presented.
used by the cashier without authorization.

--1--
Salary Advance 25.00
box 25.00
Missing Cash

4. Due to fortuitous losses.- When the company is stripped of resources.

monetary or uninsured goods, such as in a theft or in a
fire. E.g. In a robbery, $250.00 in cash is lost that was supposed to be deposited.
in the bank.

--1--
Fortuitous Loss 250.00
Box 250.00
V/R Lost due to assault

5. Deferred.- These are those that are made to leave the actual balance in the accounts.
of payments or collections that were made in advance Ex. $1600.00 is paid with
check for the concept of advance rent, the monthly rent is $400.00.

--1--
Prepaid Rentals 1,600.00
Banks 1,600.00
Regarding the rent payment in advance

ADJUSTMENT
Rental Expense 400.00
Prepaid Rentals 400.00
V/R Adjustment for the first month's rent
6. Accumulated.- They are presented at the moment the company has stopped paying.
expenses or charge revenues that have already been accrued. E.g. services provided to
customer XYZ amounts to $500.00, an amount for which the respective
adjustment.

--1--
Accrued Revenues Receivable 750.00
Income from Services 750.00
V/R Accumulated Adjustment

7. Depreciation.- It corresponds to the wear and tear that fixed assets suffer over time.
of time, usage, technological advancement, etc. For example, the company determines that the

the depreciation value for this period of the Computer Equipment is

$1200,00

--1--
Depreciation Expense Computer Equipment 1,200.00
Depre. Now. Eq. Computing 1,200.00
V/R Adjustment for Equipment Depreciation