How to Prepare Adjusting Entries

In accounting, adjusting entries are usually posted directly through the general ledger to update or correct certain accounts. Commonly adjusting entries are made to record accumulated depreciation, to record accrued expenses or receivables, to write off bad debts, to make year end adjustments and to correct prior posting errors Adjusting entries are usually posted to general ledger accounts through a company's computerized accounting system. Preparing a manual list of adjusting entries prior to posting makes posting efficient and helps eliminate errors.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Working knowledge of your accounting software
• Access to the general ledger
• Knowledge of basic double entry accounting principles
• Knowledge of proper accrual and amortization practices

Preparing Adjusting Entries in Accounting

1. Assemble all documents that pertain to the adjusting entries you plan to make. This may include depreciation schedules for figuring accumulated depreciation, amortization schedules for figuring accrued interest, documentation of noncollectable debts and documentation of prior posting errors to be corrected. No matter the type of adjusting entries you plan to make to your accounts, keeping complete supporting documentation for your records is essential.
2. Prepare a list of the adjusting entries you intend to make. Include complete account descriptions, general ledger account numbers and debit or credit amounts. You can group entries together according to account. For instance, if you have several entries to make to your Accumulated Depreciation account (this is a contra-asset account on your balance sheet) you can group them together, listing the entries to the appropriate expense accounts (these are income statement accounts) separately as follows:Example:Transaction description-Record accumulated depreciation for the month of JulyAccount Number 517-001 Shop Machinery Depreciation Expense 100.00 debitAccount Number 517-002 Office Equipment Depreciation Expense 50.00 debitAccount Number 317-003 Accumulated Depreciation 150.00 creditOn your list, debits should be listed in a column to the left and credits in a column to the right of debits. This will enable you to easily add the columns to be certain that the total debits agree with total credits.
3. Add all the numbers in the debit column of your adjusting entries list and record the total at the bottom of the column. Do likewise for the credit column. The totals should be the same. You will also compare these to your computer generated report when you check for data entry errors.
4. After keying your adjusting entries, print a report and check for errors. Remember to carefully check account number as well as debit and credit amounts. When you are certain your data is error free, post your adjusting entries to your general ledger. Be sure to print complete posting reports for your records.

Tips & Warnings

• Be sure to document all adjusting entries thoroughly. Assume that you will not be available to explain; your documentation will have to explain the adjusting entries completely.
• Store copies of your supporting documentation for your adjusting entries with your posting report or in an easy to find file.