Why Are Adjusting Entries Necessary - Essay Example

By Location Adjusting entries consist of record of transaction. The adjusting entries have to be a debit or credit depending on the nature of transaction. They require a systematic approach and always are done for each transaction. The accounting entries are steps and accounting principles generally accepted by accounting bodily internationally and are not a waste of time as other may claim. They have been around for many years and they follow a certain guideline for success. Though adjusting entries may take time when being prepared their support is immense and should always be prepared (Almonte,2009,p.25). Businesses do incur a lot from the cost of raw materials also to the waiting capital. This is experienced in certain different types of business. One necessary for adjusting entries For the business to understand the closing stock and also the net profit it has to understand or always account from the opening stock to the cost incurred through in the business. It is impossible to account for all these costs without having adjusting entries periodically. Adjusting entries makes it possible for the business to be able to understand its financial liquidation. Adjusting entries makes one to understand the cost of depreciation for the business asset. It is hard for a business to understand the cost of its asset if this is not done. Also having understood the cost of its asset this might bring other benefit like the lowering of financial cost that is done annually. The entries are also able to show the amount of payable or amount received in stages this helps reduce errors that may occur. The business world or the accounting world faces challenges in the accounts payable and receivable. This may happen when the entries are not kept properly and this may also result to different calculations. This can be sorted out by adjusting entries that record a day to day transaction of the business. In accounting there are different types of assets that is current asset and fixed asset. The current asset changes within day to day activities and it is thus proper to keep it focused by engaging in the journal entries as this brings more of accountable calculation as to what and when anything happened(Egan,2011,pg71). Adjusting entries makes it able to record accrual and other cost this cost are important so as to understand after recording journals one is able to understand the cost that the business or the organization are doing. This has been the sense and it is thus good to note is that having an updated journal entries brings out a clear way for the business. Matching concept this is an accounting concept that always illustrates that every transaction that has occurred has a matching effect in the transaction of a business. It stipulates that for one of the cash received or paid there has also being another effect in the business. This is vital as it ensures that there is an accountable way of ensuring that there is accountability and some follow up for an organization. For an organization to account properly in the long run there has to be steps to arrive to this point. The issue with this is the journal entries that take to account in a daily activity trying to understand what needs to be done and what to avoid. This makes it easier for any organization to be able to understand the direction the company is heading(Green,2012,p,67). The challenges of adjusting entries are less compared to the benefit they bring to a business. Adjusting entries also benefit when recording accruals in business as the employees’ salaries cannot be recorded in the profit and loss but are well accounted in the journal entries. The other factor relies on the cost benefit principle. If the benefit of setting up and recording transactions the results or benefits should outweigh this and in the event of achieving the transaction should be approved by organization. The cost benefit principle is necessary to achieve the great benefit of the importance of journal entries. There is the need to achieve the historical princinciple this is where it states that for every activity in the receivables there is a change in the payable. This helps in understanding which account has been received and which one has paid. In the event of clear records it is easy to realize any fraudulent transaction that does not match the said business (Goodall,2009,p,34). Every business should be categorically assumed it is a going concern entity that will go on and is always continuous. In this aspect the records are done so as to realize the aspect of which quarter the business lies. There is the need to ensure safe record as they ensure accountability for the business and also efficiency. The challenge of preparing profit and loss accounts without any feedback from the entries is very difficult. For example there is the aspect of understanding that in accounting there are different periods. There is four quarters in a year and it would be difficult to separate all this period without having journal entries. Adjusting entries also create a systematic schedule of ensuring that there is a clear way in handling this task. The benefits of adjusting entries are immense but there is need to note a few pointers about this. First that the recording has to be very accurate as which accounts are being affected. This is important because if the debit and credit is wrongly then the damage is more than its benefits (Loewy, D., 2010). The second one is there are situations whereby there are suspense accounts and understanding and correcting transactions accounts accurately are also very vital. The long process of accounting takes a long cause and though sometime it may seem that journal entries do not add value. They can use software that cans be able to ease the work and help in delivering the transaction efficiently. There is the need to have professionals who understand the generally accepted accounting principles so as to ensure that the finances are well prepared. CONCLUSION There may be a lot of critics about the adjusting entries and the time taken to record and account as they claim they do not affect in the long run and also that times are changing it will be prudent to admit that the advantages outweigh the disadvantages. REFERENCES 1)Al Monte, R,2009. Essentials of Accounting In Business 6th ed. Newyork, Cengage Learning 2) Egan, J., 2011. Marketing Communications. 1st ed. Bradford: Cengage Learning EMEA. 3) Goodall, S., 2009. Business and Professional Communication in the Global Workplace. 3rd ed. Cathedral: Cengage Learning. 4) Green, G. P., 2012. Introduction to Accounting: Foundations and Pratice 2nd ed. Birmingham: SAGE. 5) Loewy, D., 2010.Management Accounting. 7th ed. California: Cengage Learning. Read More