Accounting – Importance of Adjustment Entries

Accounting - Importance of Adjustment Entries

Accountants in Johor Bahru inevitably make some errors when caring out everyday tasks. As soon as these mistakes are discovered, they must be rectified right away to avoid processing the wrong information and compiling a deceptive financial statement. These adjustments can be made using the adjustment entries.

Always remember adjustment entries are done for various reasons. It can be used to rectify errors made during the accounting process, although it is used to ensure the financial statements are prepared in accrual basis (Also see Introduction to Prepayments and Accruals) in most cases.

A typical example would be that you might have wrongly key in the payment of staff salary in the staff welfare account. When this occurs, you will have to use the adjustment entries that entails posting the staff welfare entry to staff salary account (debit) and credit the staff welfare account. Alternatively, you can cancel the original entry and re-enter with a new entry that can debit the expenditure to the staff salary account properly.

Please always be cautious and ensure that an adjustment entry must be made by a person who understands accounting well (Also see Situations Where Having the Right Accountant Can be Handy). Alternatively, you can engage an accounting firm in Johor Bahru if you don’t have one in your company. It is obvious that if an adjustment entry is posted incorrectly, it is as good as pouring oil on the fire. It will result in a negative influence on your business financial statements. For that reason, it necessary to have a supervisor that assess the outcome and authorise or reject all suggested adjustment entry.

On top of that, it is crucial to record the rationale for all the adjustment entries. The person who posts it might not be able to recall the details after time. This again emphasises the importance of attaching to each adjustment entry with a supporting document. It meant to show the initial mistake as well as exactly how it was rectified. This practice is a plus during the audit process as the document itself explains the various adjustment entries made and why you made them.

Once you uncover an error in your financial statements, you must review it as well as make the required adjustment entry. Otherwise, you may forget or never make the adjustment entry at all, particularly if your organisation performs massive volumes of transactions each day. The mistake rectification is typically ad hoc task that is carried out as and when required. No procedure or schedule tracks whether the corrections were made or not.

Sometimes, posting adjustment entry can be taxing. First, you need to spend time to inspect every transaction and cross-check the transaction figure against the source document to verify that it is certainly a mistake (Also see Type of Common Accounting Errors). After that, you need to validate the error before making the adjustment entry to avoid making a repeating mistake.