Adjustments and Closing the Books
Accounting Fundamentals Series
Dr Hercules Bantas
Published by the Reluctant Geek
Copyright Hercules Bantas 2011
There are several reasons why an account may need adjustment - to correct an error, for example, or to update a balance before preparing financial reports. However, the nature of accounting means that every adjustment must be transparent, verifiable, and justifiable. In other words, anyone looking through the accounts should be able to easily identify an adjustment to an account and understand why it was necessary. Types of adjusting entries include the purchase and use of prepaid services and supplies, unearned revenue, and error corrections. The following guide explains the assumptions and techniques used to adjust accounts and to 'close the books' at the end of an accounting period.