adjustment

(noun)

a small change; a minor correction; a modification

Related Terms

Examples of adjustment in the following topics:

  • Reversing Entries

    • Adjusting entries often disrupts routine transactions, so they are simply reversed on the first day of the new period.
    • In the example of Highland Yoga, adjusting entries are made at the end of July and August.
    • Reversing entries are most often used with accrual-type adjusting entries.
    • To get the expense correct in the general ledger, an adjusting entry is made at the end of the month A for half of the interest expense.
    • This adjusting entry records months A's portion of the interest expense with a journal entry that debits interest expense and credits interest payable.

  • Adjustments

    • Some of our previously recognized transactions need to be adjusted in later periods:Julya.
    • This is why adjusting entries need to be made under an accrual based accounting system.
    • There are several different types of adjusting entries.
    • Some of our previously recognized transactions need to be adjusted in later periods:
    • Identify the types of adjusting entries and when and why they are made

  • Preparing Financial Statements

    • Preparing financial statements requires preparing an adjusted trial balance, translating it into financial reports, and auditing them.
    • The process of preparing the financial statements begins with the adjusted trial balance.
    • Preparing the adjusted trial balance requires "closing" the book and making the necessary adjusting entries to align the financial records with the true financial activity of the business.
    • Adjusting entries are generally made in relation to prepaid expenses, prepayments, accruals, estimates and inventory.
    • Adjusting entries allow the company to go back and adjust those balances to reflect the actual financial activity during the accounting period.

  • An Expanded Equation

    • Preparing financial statements requires preparing an adjusted trial balance, translating that into financial reports, and having those reports audited.
    • The process of preparing the financial statements begins with the adjusted trial balance.
    • Preparing the adjusted trial balance requires "closing" the book and making the necessary adjusting entries to align the financial records with the true financial activity of the business.
    • Adjusting entries are generally made in relation to prepaid expenses, prepayments, accruals, estimates and inventory.
    • Adjusting entries allow the company to go back and adjust those balances to reflect the actual financial activity during the accounting period.

  • Preparation of the Statement of Cash Flows: Indirect Method

    • The indirect method starts with net-income while adjusting for non-cash transactions and from all cash-based transactions.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement) for:
    • The indirect method uses net income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts for all cash-based transactions.
    • The adjustments for cash flow would then be made to this amount of net income. $36,000 would be subtracted due to the increase in accounts receivable, and $5,000 would be added due to the increase in accounts payable.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement).

  • Loss Restoration

    • Under International Financial Reporting Standards, once a fixed asset has been revalued its book value can be adjusted periodically to market value using the cost model or the revaluation model.
    • If an asset becomes impaired and an impairment loss results, the asset can fall under the revaluation model that allows periodic adjustments to the asset's book value.
    • The asset's new book value can be divided by its remaining useful life to adjust the amount of depreciation expense reported on the income statement after the revaluation.
    • Only assets accounted for under the revaluation model can have their book value adjusted to market value.

  • Adjusting for LIFO Reserve

  • Comparability

    • The valuer may adjust the subject company's financial statements to facilitate a comparison between the subject company and other businesses in the same industry or geographic location.
    • These adjustments are intended to eliminate differences between the way that published industry data is presented and the way that the subject company's data is presented in its financial statements.
    • These non-recurring items are adjusted so that the financial statements will better reflect the management's expectations of future performance.
    • In order to determine fair market value, the owner's compensation, benefits, perquisites and distributions must be adjusted to industry standards.

  • Overview of Statement Changes and Errors

    • Make an offsetting adjustment to the opening balance of retained earnings for that period; and
    • Adjust the financial statements for each prior period presented, to reflect the error correction.
    • If the financial statements are only presented for a single period, then reflect the adjustment in the opening balance of retained earnings.
    • If the books are not closed for the current year, the company is in the second year, and the error hasn't already counterbalanced then it is necessary to correct the current period and adjusted beginning retained earnings.
    • If the error has not counterbalanced, an entry is necessary to adjusted beginning retained earnings and correct the current period.

  • Valuing Accounts Receivable

    • Under the allowance method, an adjustment is made at the end of each accounting period to estimate bad debts based on the business activity from that accounting period.
    • The adjusting entry to estimate the expected value of bad debts does not reduce accounts receivable directly.
    • Since the specific customer accounts that will become uncollectible are not yet known when the adjusting entry is made, a contra-asset account named allowance for bad debts, which is sometimes called allowance for doubtful accounts, is subtracted from accounts receivable to show the net realizable value of accounts receivable on the balance sheet.