Topic 4: Adjusting Entries
What are the 4 different Adjusting Entries?: Adjusting entries are classified as either deferrals or accruals. Each class has two subcategories: Prepaid Expenses, Unearned Revenues, Accrued Revenues and Accrued Expenses.
What accounting assumptions necessitate the use of adjusting entries?: Some events are not recorded daily because it is not efficient to do so. Some costs are not recorded during the accounting period because they expire with the passage of time rather than as a result of daily transactions and some items may be unrecorded all of these are under the constraint of the time period assumption.
What accounts are subject to adjusting journal entries?: Almost all accounts are subject to adjusted journal entries. Some examples are Accounts receivable, Unearned Revenue, Salary Expense, Prepaid Insurance and depreciation expense. The question in most cases is whether the account should be adjusted.
What are the advantages and disadvantages of using automated accounting systems to do adjusting entries?: Some of the advantages are speed, Encryption for security, Posting to the general ledger can be automated. Some of the disadvantages are data can be lost due to hardware issues, computer related crime is on the increase and information can be stolen, computer information can get corrupted due to informational errors.
What are your thoughts on making adjusting entries; are they really needed or is this just extra work by accountants?: Adjusting entries are absolutely necessary. If we did not use adjusted entries we would have to wait till a business ceased to determine if it was actually profitable or not.