Delivery in day(s): 3
ACCY801 Business Accounting Report Assignments Solution
Step 2 – Journalising adjustment transactions
Step 3 – Completion of worksheet
Step 4 – Income statement
Step 5 – Journalising closing entries
Step 6 – Changes in equity and Balance sheet
Trial balance and its purposes
Trial balance is the accounting or bookkeeping report that lists each balance from the general ledger of the entity. Amount of debit balance are recorded under the debit balance and the amount of credit balances are recorded under credit balance. Total amount of the 2 columns shall be identical. Generally the trial balance is prepared by bookkeeper for discovering the mathematical modelling or posting errors, if any. Trial balance is crucial for the accountants and auditors who prefer to state the (i) account balances from the general ledger prior to the adjustments (ii) proposed adjustments (iii) all account balances after adjustments. Final balance sheet after the adjustments is known as the adjusted trial balance and the adjusted amounts are used for preparing the financial reports (Weygandt, Kimmel and Kieso 2015).
The main purpose of creating the trial balance is assuring that the entries recorded into the general ledger of the entity are balanced properly. As the trial balance records all the closing balances in each of the general ledger, total debit amount and credit amount shall be matched. Hence, if the debit balance does not match with the credit balance it will indicate that one or more accounts from the general ledger were unbalanced. From the practical aspect, the accounting software does not allow the users to the unbalanced entries in the ledger accounts (Needles, Powers and Crosson 2013). Hence, trial balance is not so important under computerized system. However, under manual system trial balance is used for creating financial statements. Account balances under the trial balance are aggregated manually in to the financial statement line items.
Adjustment journal entries and its purposes
Adjusting entries or the adjusting journal entries are recorded for updating the accounts and record them at the correct balances. Recording the adjusting entries is the application of accrual concept and matching principle of the accounting. Accrued concept determines that the income is recorded when it is earned and time of collection does not matter. On the other hand, the expenses are recorded when it is incurred and time of payment does not matter. As per matching principle expenses are aligned with the revenues. Expenses are recognized under the period when revenues are generated through recognizing the expenses. Further, the errors in accounting are common occurrence on entity’s part as the accountant is required to deal with large numbers of data associated with financial transactions (Weil, Schipper and Francis 2013). Hence, the errors in accounts can only be rectified through recording the adjusting entries.
The main purpose of recording the adjustment entries are updating the accounts for complying with accrual concept. At the accounting closing period some of the expenses and incomes may not have been recognized or updated or considered. Therefore, the accounts shall be updated. If the adjusting entries are not recorded some of the liabilities, assets, expenses and revenues may not be recorded at their true values while they are recorded under the financial statement. Adjusting journal entries further assist in tracking the cash inflows and outflows of the business during the period under concern. Moreover, it helps in identifying the events where the money actually expensed or from where the money generated (Ijiri 2014). Adjusting entries further helps in converting the real time entries of accounting into accrual system of accounting. Precisely, there are 3 types of adjusting entries, those are – accrual basis, deferral basis and estimate basis.
Adjusted trial balance
Before stating the purposes of preparing the adjusted trial balance it is required to understand the concept or meaning of the trial balance. Trial balance is the financial statement prepared before preparing various financial reports like income statement, balance sheet and changes in equity. Preparing adjusted trial balance is recording all the accounting titles and balances included in general ledger after posting the adjusting entries for the accounting period to related accounts. It is the internal document and is not the financial statement. It is prepared for assuring that total debit balances matches with the total credit balance in the total credit balance in general ledger (Adejare 2014). Hence, if the debit balance does not match with the credit balance it will indicate that one or more accounts from the general ledger were unbalanced.
Main purpose of preparing the adjusted trial balance is to ensure that all the ledgers are entered correctly as per the accounting equation which in turn will make the financial report mathematically correct. Further, it is prepared to identify and detect the errors, if any in the general ledger. Trial balance is also used as working papers for the auditors and accountants while drafting the financial statements. Another main objective behind preparing the adjusted trial balance is to prepare the correct financial statements (Edmonds et al. 2013). Primary objective of preparing the financial statement is helping the users with decision making procedure. Hence, if the financial reports are not prepared correctly it will mislead the users in decision making process.
The difference among the adjusted journal entries and closing journal entries
Adjusting entries are recorded in the accounting journals at the closing of the accounting period after preparing the trial balance. Main purpose of adjusting entries is adjusting the expenses and revenue under the accounting period in which they took place. Conversely, the closing entries are the journal entries recorded at the closing of the accounting period for transferring the temporary accounts to the permanent account (Warren, Reeve and Duchac 2013). For instance, the income summary account can be used for stating the balance among expenses and revenues or the items can be closed directly against the retained earnings where the payment of dividend will be subtracted from. This procedure is applied for resetting the temporary account balance to zero for next accounting period which in turn helps in reconciliation of accounts. Like other journal entries closing entries are recorded in general ledger. After finishing all the closing entries, only the income statement items and permanent balance sheet items will have some balance that is, they will not have zero balance (Apostolou et al. 2013). Major difference among adjusted journal entries and closing journal entries are –
Adjusting entries are recorded at the closing of accounting period but before preparing financial reports for recording the company’s accounts and making the financial statements updated based on accrual accounting method. For instance, every day the entity incurs various expenses like wage expense. However, the payroll expenses that involve the employee’s wages for last day of month are not entered in accounting records till the end of accounting period (Miller and Power 2013). On the other hand, closing entries are dated on the last day of accounting period. However, they are entered after preparation of financial statement. Closing entries bring all the balances related to expenses account and revenue account to zero. Hence, the expenses account and revenue account stats with zero balance in New Year that allows the entity to report New Year expenses and revenues easily (Chiang, Nouri and Samanta 2014). However, the net accounting balances from the revenues and expenses at the closing of the accounting year end up with retained earnings.
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