The Accrual Basis of Accounting and The Reasons for Adjusting Entries

Abstract

Accrual basis of accounting is an accounting recording technique, which is recorded when a transaction occurs even though cash has not been received. In recording using the accrual basis of course it will be more accurate, and by using the accrual basis of assets, liabilities and equity are easy to measure.  Adjusting entries are made at the end of an accounting period after a trial balance is prepared to adjust the revenues and expenses for the period in which they occurred. Adjusting entries must involve two or more accounts and one of those accounts will be a balance sheet account and the other account will be an income statement account. You must calculate the amounts for the adjusting entries and designate which account will be debited and which will be credited. After completing the adjusting entries in all the appropriate accounts, you must enter them into your company’s general ledger.