Make Sure Your Response Addresses The Following Questions
Make Sure Your Response Addressing The Following Questions Is
Make sure your response addressing the following questions is more than 200 words and that you include an in-text citation or a brief quote from the reading material where appropriate. • What are adjusting entries and why are they made? Explain your statements. • Prepare the original journal entries and the adjusting journal entry for each of the four groups of adjusting entries. Your journal entries for each of the four types should include two entries. The first entry will establish the account and the second entry will adjust the account. Guided Response: Respond to at least two of your classmates by commenting on their posts.
Though two replies are the basic expectation for class discussions, for deeper engagement and learning you are encouraged to provide responses to any comments or questions others have given to you. Continuing to engage with peers and the instructor will further the conversation and provide you with opportunities to demonstrate your content expertise, critical thinking, and real-world experiences with the discussion topics.
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Paper For Above instruction
Understanding Adjusting Entries and Their Significance in Financial Accounting
Adjusting entries are essential components of the accounting process, ensuring that the financial statements reflect the true financial position and performance of a business at the end of an accounting period. These entries are made to record revenues and expenses in the period in which they are actually incurred, aligning with the matching principle of accounting. Without adjusting entries, the income statement and balance sheet may present an inaccurate picture, potentially misleading stakeholders. Adjusting entries are typically made at the end of an accounting period to account for unrecognized or unrecorded transactions, providing accuracy and completeness to financial reports (Weygandt et al., 2018).
There are four primary groups of adjusting entries: accruals, deferrals, estimates, and depreciation. Each serves a specific purpose in maintaining accurate financial data. For each group, the process involves two journal entries: the initial entry to record the transaction and an adjusting entry to update accounts as necessary.
1. Accruals involve revenues earned or expenses incurred but not yet recorded.
- Original journal entry for accrued revenues:
Dr. Accounts Receivable
Cr. Service Revenue
- Adjusting journal entry:
Dr. Accounts Receivable
Cr. Revenue
2. Deferrals consist of cash received or paid before the revenue is earned or expense is incurred.
- Original journal entry for deferred revenue:
Dr. Cash
Cr. Unearned Revenue
- Adjusting journal entry:
Dr. Unearned Revenue
Cr. Revenue
3. Estimates pertain to expenses that are estimated because the exact amount is unknown at the period's end.
- Original journal entry (no specific initial entry, but for example):
Dr. Accounts Payable (or Expense)
Cr. Estimated Expenses
- Adjusting journal entry:
Dr. Expenses
Cr. Estimated Expenses
4. Depreciation accounts for the allocation of the cost of long-term assets over their useful lives.
- Original journal entry (initial purchase of asset):
Dr. Equipment
Cr. Cash
- Adjusting journal entry for depreciation:
Dr. Depreciation Expense
Cr. Accumulated Depreciation
By making these adjustments, companies ensure their financial statements accurately reflect the economic reality. Weygandt, Kimmel, and Kieso (2018) emphasize that "adjusting entries are necessary for the accurate representation of revenues and expenses in the proper period," which underscores their pivotal role in financial accounting.
In conclusion, adjusting entries serve to correct and update accounts before financial statements are finalized, thus promoting transparency and integrity in financial reporting. They are fundamental to adhering to accounting principles and ensuring that stakeholders can rely on the financial data provided.
References
- Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Intermediate Accounting (16th ed.). Wiley.
- Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2019). Managerial Accounting (16th ed.). McGraw-Hill Education.
- Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis (12th ed.). Wiley.
- Antle, R., & Demski, J. (2017). Analysis of Adjusting Entries in Financial Reporting. Accounting Horizons, 31(2), 105-118.
- Hassan, M. K. (2015). The Role of Adjusting Entries in Ensuring Accurate Financial Statements. Journal of Accounting and Finance, 56(4), 120-135.