English for Economic

THE ADJUSTING PROCESS

Supporting Lecturer :
Aslichatul Insiyah, M.Pd
Group 5 :

Iffa Inayatus Sa’adah (G94217171)

Khoirun Nisa’ Tohhar (G94217178)
Mufid Sayyidul Murtadloh (G04217040)
Sub Bab
01 Nature of The Adjusting System

02 Recording Adjusting Entries

03 Summary of Adjusment Process

04 Adjusted Trial Balance

Nature of The Adjusting System

When preparing financial statements, the economic life of the business is divided into time periods. This
accounting period concept requires that revenues and expenses be reported in the proper period. Under the accrual
basis of accounting, revenues are reported in the income statement in the period in which they are earned. For example,
revenue is reported when the services are provided to customers. Cash may or may not be received from customers
during this period. The accounting concept supporting this reporting of revenues is called the revenue recognition
concept.
Nature of The Adjusting System
The Adjusting Process

At the end of the accounting period, many of the account balances in the ledger can
be reported in the financial statements without change. For example, the balances of the
cash and land accounts are normally the amount reported on the balance sheet.
Under the accrual basis, expenses are reported in the same period as the revenues
to which they relate. For example, utility expenses incurred in December are reported as
an expense and matched against December’s revenues even though the utility bill may
not be paid until January. The accounting concept supporting reporting revenues and
related expenses in the same period is called the matching concept, or matching
principle. By matching revenues and expenses, net income or loss for the period is
properly reported on the income statement.
 The Adjusting Process

Under the accrual basis, however, some accounts in the ledger require updating.
This updating is required for the following reasons:

a. Some expenses are not recorded daily

b. Some revenues and expenses are incurred as time passes rather than as separate
transactions
c. Some revenues and expenses may be unrecorded
Nature of The Adjusting System
Types of Accounts Requiring Adjustment

Four basic types of accounts require adjusting entries as shown below :

a. Prepaid expenses
b. Unearned revenues
c. Accrued revenues
d. Accrued expenses
Recording Adjusting Entries

Adjusting entries are journal entries recorded at the end of an accounting period to alter the ending balances
in various general ledger accounts. These adjustments are made to more closely align the reported results and
financial position of a business with the requirements of an accounting framework.
The use of adjusting journal entries is a key part of the period closing processing, as noted in the accounting
cycle, where a preliminary trial balance is converted into a final trial balance. It is usually not possible to create
financial statements that are fully in compliance with accounting standards without the use of adjusting entries.
 An adjusting entry can used for any type of accounting transaction, here are some
of the more common ones :

To record depreciation and amortization for the period

To record an allowance for doubtful accounts To record a warranty reserve

To record a reserver for absolete inventory To record any accrued revenue

To record a resever for sales returns

To record previously billed but unearned revenue as a liability

To record the impairment of an asset To record any accrued expenses

To record an asset retirement obligation To record any previously paid but unused expenditures as prepaid
expenses

To adjust cash balance for any reconciling items noted in the bank
reconciliation
 As shown in the preceding list, adjusting entries are most commonly of three types,
which are :

Accruals

Deferrals

Estimate
 Summary of Adjustment Process
We have described and illustrated the basic types of adjusting entries. A summary of these basic adjustments is
shown in picture. 1.
 Summary of Adjustment Process
The adjusting entries for NetSolutions are shown in picture. 2
 Summary of Adjustment Process
The adjusting entries are dated as
of the last day of the period.
However, because collecting the
adjustment data requires time, the
entries are usually recorded at a
later date. An explanation is
included with each adjusting entry.
NetSolutions’ adjusting entries
have been posted to the ledger
shown in picture. 3.
 Summary of Adjustment Process
The adjustments are shown in color in picture. 4 & 5 to distinguish them from other transactions.
Adjustied Trial Balance

1. Format

An adjusted trial balance is formatted exactly like an unadjusted trial balance. Three columns are
used to display the account names, debits, and credits with the debit balances listed in the left
column and the credit balances are listed on the right.

2. Praparation

We can post an account to the trial balance that is adjusted using the method the account balances are taken from
the T-accounts or ledger accounts and listed on the trial balance. Essentially, you are just repeating this process
again except now the ledger accounts include the year-end adjusting entries
Thank You
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