When the accounting period ends, some of the account balances in the ledger are reported in the financial statement without change. But there are accounts that required to be updated monthly, quarterly, or yearly depending on the nature of the transaction.
There four basic accounts that are require adjustment with journal entries:
1. Prepaid Expense: are advance payment of future expenses and are recorded as assets when cash is paid. It becomes expense over time or during normal operation.
2. Unearned Revenue: are advance receipt of future revenues and are recorded as liabilities when cash is received. Unearned revenue becomes earned revenue over time or during normal operations.
3. Accrued Revenue: are unrecorded revenues that have been earned and for which cash has yet to be received.
4. Accrued Expense: are unrecorded expenses that have been incurred and for which cash has yet to be paid.
Updating the account will keep the financial reports current with revenue and expenses during statement review.
A good way to make sure that all of the adjustment are done is by using the memorizing feature in QuickBooks. This helps make the process faster for adjustment and remind you of all the journal entries that need to be completed.
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