A3 Accounting Adjustments
Accounting adjustments are items that have not been recorded in the financial records during an accounting period. They need to be added or adjusted at the end of the accounting period.
Revaluation of non-current assets is the process of estimating the present-day value of assets before recoding on financial statements. This may involve applying depreciation or appreciation or estimating the current value based on similar items currently on the market.
Bad debts are expenses that result when payments from debtors are deemed uncollectable. This may be because the creditor has become bankrupt and unable to pay or the cost of collecting the debt exceeds the value of the debt. This is a risk of offering goods on credit and businesses should have a contingency in place for bad debts. Bad debts can be written off in financial accounts by debiting the bad debt account and crediting the trade receivables account.
Accrued expenses and revenues are those where the transactions occur in one accounting period but the actual payment is made in the following accounting period.
Prepaid expenses and revenues are those where payment is made in one accounting period but goods and services are not exchanged until the following accounting period.
Provision for doubtful debts is the estimated total amount of debt that will not be paid by trade receivables. This is accounted for by a debit on the bad debt account and a credit on the provision for doubtful debts account on the balance sheet.
Loans and debentures are recorded on the balance sheet as liabilities. Loan and debenture interest is recorded as an expense on the profit and loss account.
Corporation tax is a percentage of annual profits that must be paid to the government. At the end of the financial year, profits and losses are calculated. When a company makes a profit, the corporation tax is calculated and entered on the balance sheet as a current liability until it is paid. Once it is paid, is is recorded as an overhead on the profit and loss account.
