How may times have we entered all the checks, put in all of the deposits, entered all of the receivables and payables, done the bank recs, said, “done at last!” only to realize that we still had to make those final adjustments to make the financial statements just right? It happens to you all the time!

It helps, though, if you plan them in advance. What do you need to consider?

When it comes down to those final adjustments, you have to use the General Journal unless it involves something like a check that was coded to the wrong place. If the software allows it, you then bring up the original transaction and code it to the right account. Adjusting entries take care of those problems that can’t be handled with just recoding transactions.

Here are some typical adjusting journal entries (or AJE’s for short).

· Depreciation. The amounts come from a schedule. In the General Journal, you enter a debit to Depreciation Expense and a credit to Accumulated Depreciation.

· Amortized Intangible Assets are treated as depreciation as AJE’s.

· Inventory. The amount of the adjustment is the difference between the ending inventory amount and the booked amount. Debit or credit Inventory as needed and balance your entry by debiting or crediting the Cost of Goods Sold.

· Payroll Tax Liabilities. These affect the appropriate liability accounts and payroll tax expense accounts.

· Loan Balances. At least once a year you like to compare the balances on your books to what the bank says are the balances. You adjust the differences to Interest Expense.

· Accurals. These can be a whole lot of different things. Asset and liabilities are adjusted to Revenues and Expenses.

A Working Trial Balance (WTB) is a useful tool to help spot and make AJE’s. You useitin conjunction with the GL Report. On the WTB you write the amount that an item should be next to the amount on the report. Next to that you write the difference. Then you spot where the offset entry should be made. You write the difference next to that amount on the WTB. You identify the two (or more) amounts with a number. This is the ID number you use when you make the entry into the General Journal.

AJE’s serve these functions:

They adjust balances. This means that they change the amounts that go to the financial statements.

Reclassifications. These AJE’s move balances from one account to another.

Proposed AJE’s. This one is for those important adjustmentsthat need approval before they are actually entered into the accounting system. If the software doesn’t allow for Proposed AJE’s then you may use an outside program like Excel to show them. Once the manager responsible for signing off on them does so, then they are entered into the accounting package. (Neither Peachtree or Quickbooks allows for Proposed AJE’s).

Accountants put some AJE’s to special uses.

Recurring entries. These entries are the same each month. They always have the same amounts and go to the same accounts. Software can be coded to do these automatically.

Reversing Entries. AJE’s may not be permanent. You may wish to reverse them at the beginning of the next period. These are called “reversing entries”. Okay, so you’ve figured out all of your AJE’s and entered them into the system. The financials have been printed and the month closed. Done? Forget anything?

You did if you didn’t save the papers that explain how you came up with your figures. You should always keep a Journal Detail File either in the Workbook or in a special file folder in a file cabinet. Nothing’s worse than trying to explain later how you came up with your entries and you have no idea! The more AJE’s you can do the more you are doing accounting instead of just bookkeeping.

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