Accounting All-in-One For Dummies, with Online Practice, 2nd Edition

Chapter 6

Adjusting the Books

IN THIS CHAPTER

Going over types of accounting adjustments

Making adjustments for noncash transactions

Taking your adjustments for a trial (balance) run

During an accounting period, your bookkeeping duties focus on your business’s day-to-day transactions. When the time comes to report transactions in financial statements, you must make some adjustments to your books. Your financial reports are supposed to report your company’s financial condition, so your books must reflect any significant change in the value of your assets, even if that change doesn’t involve the exchange of cash. Those changes are adjustments.

If you use cash-basis accounting, many adjustments aren’t necessary because you record transactions only when cash changes hands. (See Book 1, Chapter 4 to find out more about the two accounting methods: accrual and cash basis.) The accrual basis of accounting, on the other hand, requires you to make adjustments to match revenue with the expenses incurred to generate revenue. Because the accrual method isn’t directly connected to cash transactions, you must post adjustments.

This chapter reviews the types of adjustments you need to make to the ...