Essay Sample on Adjusting and Closing Process

Introduction

Adjusting entries which are also recognized as adjusting journal entries journal entries that are made at the end of a specific period so as to correct accounts before preparing the financial statements. Adjusting entries is the fourth step in the accounting cycle with the entries commonly used in relation to the matching principle so as to match expenses and revenue in the period in which they take place.

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Types of Adjusting Entries

There exist various types of adjusting journal entries which include accruals, prepayments and non-cash expenses. Each of these entries adjusts expenses or income so as to match the current period usage. This concept forms part and parcel of the time period principle which demonstrates that accounting activities and records can be divided into separate time periods.

Reporting on the financial condition of any business make use of various reports of accounts in reflecting the general health of the business, with trial balance providing a snapshot on the company status in every periodic interval. The differences that exist between adjusted trial balance and unadjusted trial balance are the amounts that are recorded as part of the adjusting entries. Basically, the adjusting entries form part of the accrual of revenues that the company earned though they were not yet recorded down, with the accrual of expenses forming part of the expenses that were incurred though not yet recorded. Adjusted trial balance is adopted after all the adjustments have been made to the journal while an unadjusted trial balance is put into use when entries are not considered as final in a period of time. On the other hand, unadjusted trial balance provides an additional account in regards to the loss/net of income.finally, an unadjusted trial balance is technically used before making all the adjustment, with the adjusted kind is used in adjusting the two sides of the ledger that is the credit and the debit.

The major objective of the closing process involves updating the retained earnings in that closing mechanism update the retained earnings account in the ledge to be equal to the end of the period balance. The second objective involves resetting of temporary accounts in that expenses, dividends and revenues present amounts for a specific period of time.

The step required to complete the corporation include

• Transactions recorded in the journal as the first step.
• Journal entries then posted to specific ledger accounts
• The trial balance is then constructed
• Adjusted entries are prepared and posted.
• An adjusted trial balance is prepared
• With the last step involves the production of formal financial statements.

Conclusion

Considering the similarities and differences in the post-closing and the adjusted trial balance, it is important to note that at the end of a financial period, the accounting department of a firm records closing and adjusting entries so as to make the preparation of various trail balances. in both post-closing and trial balance, both the closing entries reduce the income account to zero and transfer the balance to income summary account. closing entries do not have a greater impact on trial balance they are significant in creating income statement which does away with expenses and income for the period in the post-closing trial balance.