If you run a small business, you have the option of using either the cash or accrual basis of accounting. Larger businesses can’t choose -- they generally must use the accrual basis. At some point, no matter which method of accounting you use, you’ll have to enter adjusted entries into the records due to necessary internal adjustments, or sometimes even errors. With cash-basis accounting, you only record transactions when money actually changes hands. Double entry bookkeeping offers a safeguard to help verify the accuracy of a balance sheet.
Read the previous entries in the accounting ledger or computer program carefully. Identify the debit and credit lines that need adjustment.
Make a note of where those entries are in the ledger. Some ledgers have line numbers, and many accounting and spreadsheet programs have some system of line numbering as well. Write down the date of the entry to be adjusted as well.
Write a new entry in the ledger, accounting program or spreadsheet. Note that it is an adjustment to the earlier entry, and use a line number and/or date to identify the entry you’re adjusting.
Enter a credit and debit for the adjusted amount in that entry, then check that the balance amount comes out correctly. If the balance is off, recheck your figures and adjust accordingly.
- Mistakes happen. This is especially true if you’re not a trained accountant. That’s one way in which adjusting entries can help you. For example, assume you purchased a new printer and spent $150, but got a $50 mail-in rebate on the printer. You wrote down the $150 spent on the printer, but didn’t write down the $50 rebate because you hadn’t yet received it when you purchased the printer. When you finally receive it, you neglected to write the entry right away -- but you did deposit the rebate check in the bank. When you’re tallying your books for the month, you should realize that you need to make an adjusting entry to account for that $50.
- For best results, have a professional accountant look over the books to make sure you’ve been recording things correctly. If you’re new to keeping track of your own accounts, you might even want to consider having an accountant help you do the initial setup of the books. Getting started and recording things correctly from the beginning can help you avoid having to write a lot of adjusting entries later on.
Items you will need
- Receipts or applicable documentation
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