Chapter 6
Adjusting the Books
IN THIS CHAPTER
Making adjustments for noncash transactions
Taking your adjustments for a trial (balance) run
Adding to and deleting from the Chart of Accounts
During an accounting period, your bookkeeping duties focus on your business’s day-to-day transactions. When it comes time to report those transactions in financial statements, you must make some adjustments to your books. Your financial reports are supposed to show your company’s financial health, so your books must reflect any significant change in the value of your assets, even if that change doesn’t involve the exchange of cash.
If you use cash-basis accounting, these adjustments aren’t necessary because you record transactions only when cash changes hands. Accrual and cash-basis accounting are discussed in Book 1, Chapter 1.
This chapter reviews the types of adjustments you need to make to the books before preparing the financial statements, including calculating asset depreciation, dividing up prepaid expenses, updating inventory numbers, dealing with bad debt, and recognizing salaries and wages that haven’t yet been paid. You also find out how to add and delete accounts.
Adjusting All ...
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