How to Adjust Entries in Basic Accounting
The financial activity of a business is posted to the accounting system through journal entries. Because accounting is a dual-entry system, for every increase or decrease to a balance sheet general account, you have a corresponding increase or decrease to an income statement general ledger accounts. The dual-entry system method helps improve the accuracy of the financial statements by providing a built-in checks and balances. When mistakes are made during posting journal entries, they are often caught during month-end reconciliation of the general ledger accounts. In order to reflect the correct balance in the general ledger accounts, you must adjust the original entries in your accounting software.
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Instructions
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Locate the journal entry that was posted with the incorrect amount.
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Determine which general ledger accounts were affected by the journal entry posting.
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Create a new journal entry that reverses the portion of the original journal entry that was incorrect. For example, if you posted a journal entry for a cash deposit for sales income in the amount of $100 but the actual amount deposited in the bank was $90 of sales income, then you need an adjusting journal entry for the $10 difference. In that case, you would decrease the checking account balance (a balance sheet account) by $10 and decrease the sales income account (an income statement account) balance by $10.
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Post the adjusting journal entry and print a copy for your records.
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Make a copy of the original journal entry and staple it to the copy of the adjusting journal entry.
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Write an explanation on the adjusting journal entry, explaining why the adjustment was made. You may need to refer to the journal entry later on for audit or tax purposes.
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File the adjusting journal entry along with the rest of the accounting month's backup.
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Tips & Warnings
If you are not sure how to post an adjusting journal entry, consider hiring an accounting professional to assist you with the process.
