ACC 502 Week 2 Discussion 1
The term “adjusting entries” refers to a very important step in the accounting cycle. Explain when, why,
and how the adjusting process is used. Provide an example to clarify your statements.
Adjusted entries are performed at the end of an accounting period (month, quarter, or year) in order to
update the accounts of the actual net income losses and revenues, as well as the company’s assets and
liabilities that occurred within that time period. In accrual-based accounting trial balances may not
reflect actual balances due to expenses and revenues not yet being journalized and posted, especially
when dealing with accruals (accrued expenses and accrued revenues) and deferrals (prepaid expenses
and unearned revenues). Adjusted entries are recorded in an adjusted trial balance. It is helpful to start
with a worksheet that identifies which accounts need adjustments (those with accruals and deferrals)
and summarizes that data in order to prepare the financial statements.
An unadjusted trial balance can affect the company’s ledger accounts because they could report
inaccurate balances, which can be overstated or understated. An example of this is the salary expense
account. Bank loans with interest rates are an accrued expense because companies do not paying the
entire loan amount in full and will instead make periodic payment on it, which will incur interest. In
order for the liabilities and expenses to show correctly, the interest must be recorded when it is actually
paid. For that period, the balance on the Interest Payable account must reflect the balance on the
Interest Expense account. In other words, a credit will appear under liabilities (Interest Payable), and a
debit will appear under expenses (Interest Expense).
Nobles, T., Mattison, B., & Matsumara, E. (2014). Horngren’s accounting, the financial chapters (10
edition). Retrieved from https://viewer.gcu.edu/FXW8XB
The term “adjusting entries” refers to a very important step in the accounting cycle. Explain when, why,
and how the adjusting process is used. Provide an example to clarify your statements.
Adjusted entries are performed at the end of an accounting period (month, quarter, or year) in order to
update the accounts of the actual net income losses and revenues, as well as the company’s assets and
liabilities that occurred within that time period. In accrual-based accounting trial balances may not
reflect actual balances due to expenses and revenues not yet being journalized and posted, especially
when dealing with accruals (accrued expenses and accrued revenues) and deferrals (prepaid expenses
and unearned revenues). Adjusted entries are recorded in an adjusted trial balance. It is helpful to start
with a worksheet that identifies which accounts need adjustments (those with accruals and deferrals)
and summarizes that data in order to prepare the financial statements.
An unadjusted trial balance can affect the company’s ledger accounts because they could report
inaccurate balances, which can be overstated or understated. An example of this is the salary expense
account. Bank loans with interest rates are an accrued expense because companies do not paying the
entire loan amount in full and will instead make periodic payment on it, which will incur interest. In
order for the liabilities and expenses to show correctly, the interest must be recorded when it is actually
paid. For that period, the balance on the Interest Payable account must reflect the balance on the
Interest Expense account. In other words, a credit will appear under liabilities (Interest Payable), and a
debit will appear under expenses (Interest Expense).
Nobles, T., Mattison, B., & Matsumara, E. (2014). Horngren’s accounting, the financial chapters (10
edition). Retrieved from https://viewer.gcu.edu/FXW8XB
