What are adjusting entries? Why are they necessary for preparing final accounts?
What are adjusting entries? Why are they necessary for preparing final accounts?
Entries which are given outside the trial balance are called adjustment entries, to record those entries a proper treatment is required according to the double entry system. Here it is to be remembered that all the adjustments given outside the 'Trial Balance' are posted at two places. Adjustment is generally done for those items which are omitted or entered with the wrong amount and/or recorded under wrong heads. The following are reasons for recording or incorporating these adjustment entries in preparation of final account.
(i) Through these adjustment entries we come to know the actual figure of profit or loss.
(ii) Because of these adjusting entries, we can assess the true financial position of an organisation based on the accrual basis of accounting.
(iii) These adjustment entries enable us to records the omitted entries and help in rectifying all those errors.
(iv) These adjusting entries help in providing depreciation and making different provisions, such as Bad Debts and Depreciation.
Entries which are given outside the trial balance are called adjustment entries, to record those entries a proper treatment is required according to the double entry system. Here it is to be remembered that all the adjustments given outside the 'Trial Balance' are posted at two places. Adjustment is generally done for those items which are omitted or entered with the wrong amount and/or recorded under wrong heads. The following are reasons for recording or incorporating these adjustment entries in preparation of final account.
(i) Through these adjustment entries we come to know the actual figure of profit or loss.
(ii) Because of these adjusting entries, we can assess the true financial position of an organisation based on the accrual basis of accounting.
(iii) These adjustment entries enable us to records the omitted entries and help in rectifying all those errors.
(iv) These adjusting entries help in providing depreciation and making different provisions, such as Bad Debts and Depreciation.
