Accounting Essay

Decent Essays

As we progress in our study about accounting every new chapter introduces relevant information while consequently building on the data introduced in the previous chapters. This lesson expands further on the accounting cycle by explaining how to adjust and update accounts at the end of the period. Therefore, we learn a new concept which is also referred to as adjusting the books. I am quite convinced that there are numerous people who are familiar with that term, nevertheless, in accounting when we talk about adjusting the books, we mean special journal entries, called “adjusting entries”. Before explaining further about adjusting entries I would like to mention that in accounting we distinguish two ways of recording transactions and …show more content…

And here it is when accrual basis accounting becomes quite useful, as this type of accounting requires the business to review its records and make sure that if there were additional revenues or expenses during the period, those are accurately recorded. A great example our textbook brings up is the recording of the office supplies used and currently on hand. Although we recorded office supplies when those were purchased, but said supplies surely will be used and maybe even depleted by the end of the period. For that reason, these changes need to be reflected in our accounting and adjusted to reflect the correct balance. We distinguish between two types of adjusting entries and those are prepaid and accruals. I would like to utilize Horngren’s accounting in explaining in detail about each adjusting entry because the book explains that “In a prepaid adjustment, the cash payment occurs before an expense is incurred or the cash receipt occurs before the revenue is earned.” (Nobles, Mattison, & Matsumura, 2014, p.139)” While the textbook also elaborates that “An accrual records an expense before the cash is paid or it records the revenue before cash is received.” (Nobles, Mattison, & Matsumura, 2014, p.139) The first adjusting entry mentioned above, prepaid can be further broken down to prepaid expenses and unearned revenues, while accruals can be broken down to accrued expenses and accrued revenues. When we talk about

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