Adjusting Entries Yvenie Desire ACCT205-1203A-11 June 9, 2012 Adjusting Entries Welcome to the company and as an accounting clerk for the department you will be working a lot with the accounting department and with me. I will be mentoring you on certain aspect of accounting and what needs to be done. First we’ll get started with why adjusting entries are necessary. “Adjusting entries ensures that the correct amount of revenues and expenses are recorded in a specified time period. ” (Editorial Board, 2012).Adjusting entries are necessary because a single transaction may cause a problem and affect the revenues or expenses and the date on which this transaction may occur may not be the date required to fulfill the matching principle of accrual accounting.
You need to know that there are two major type of adjusting entries which are accruals and deferrals. Accruals entries are “revenues and expenses that are matched to dates before the transaction has been recorded. ” (NetMBA, 2010). An example of this would all salary employees in the company that are paid on the first month.The salary accrues each day of the month but the transaction does not occur until the employees receive their check. Deferrals entries are “those for which the firm has recorded the transaction as a journal entry, but has not yet realized the revenue or expense associated with that journal entry. ” (NetMBA, 2010).
Adjusting Entries Essay Example
An example of deferral would be a prepaid insurance it is postponed until a later accounting period. In this department we will mostly work with both accrual and deferral entries.Even though accrual and deferred entries are the major type of entries there are four type of adjusting entries that you need to know about. The four adjusting entries are: prepaid expenses, which include depreciation expenses; unearned revenues; accrued expense; and accrued revenues. (Editorial Board, 2012) I will provide you the meaning and example of the manufacturing industry for each of the entries that I’ve mentioned. The first adjusting entry is prepaid expenses. Prepaid expenses are expenses that have been paid ahead of time before they actually incurred.
An example of this is basically prepaying your car insurance for six-months with that you are covered for the six months of payment. Now let say that you are doing prepaid expenses for a John Catering which is a well known catering business and has several stores on the west coast of the United States. John Catering has several vehicles and each vehicle needs to be insured. The company has insurance in each vehicle and is prepaid for six months premium and the cost for the insurance is $15,000.