Adjustments for Financial Reporting

Read and take notes on sections 4.1-4.10 on pages 144-173.

This chapter dives deeper into the importance of making proper adjustments so that the financial statements reflect the current condition of the organization. One of the main principles of accounting is accurate and honest presentation of the financial condition of an organization. Without the proper posting of adjustments and correcting entries, the financial statements will be incorrect.

  • Section 4.2 reviews employment opportunities for someone interested in accounting. 
  • Section 4.3 teaches the difference between cash- and accrual-based accounting, which rests on the identification of revenues and expenses. Be sure to make a note of Exhibit14.
  • Section 4.4 described snapshots. Because the ultimate goal is to obtain useful information, we need to take snapshots. Accounting is typically done within a specified period so that end users can assess the performance of a business entity. This section also discusses accounting periods, fiscal years, calendar years, adjusting entries, the matching principle, and the two classes and four types of adjusting entries. Be sure to make a note of Exhibit 16. 
  • Section 4.5 reviews the classes of adjusting entries and gives an example to assist with analysis.
  • Section 4.6 focuses on how prepaid expenses and depreciation affect the accounting equation and the overall processing of these transactions. 
  • Section 4.7 discusses adjustments. In a business, there will be transactions that will not have been recorded by the end of a specified accounting cycle. These items can be identified as accrued assets or interest revenue, to name a couple. This section discusses how to process these transactions.
  • In Section 4.8, note Exhibit 18.
  • Section 4.9 introduces the concept of trend percentages and gives the formula to use when calculating trend percentages.
  • Section 4.10 summarizes and gives a self-text. The solutions to the self-test are on pages 188 and 189.