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Business Accounting

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BUSINESS ACCOUNTING

The changes in equity of the company have been analyzed by the company as shown in the above table.

6.0 Providing explanation of:

(a)    Explaining trial balance and why trial balance is created

According to Collis et al. (2017, p.25), the trial balance is a worksheet of keeping books which consists of balances of accounting ledgers. Trial Balance has complied with credit and debit columns. An organisation makes a trial balance at reporting period end and it is prepared periodically. The common objective for preparing trial balance is ensuring that the journal entries in the system of bookkeeping of the company are correct or accurate mathematically.

According to Harris et al. (2015, p.23), the trial balance is prepared by an organisation for detecting the errors that are of mathematical nature and that have taken place in the system of accounting of double entry. If the net credit or the total credit equal to the net debit or the total debit, then it is considered that the trial balance is equal or balanced. When the total credit equals total debt it is considered that there is no error related to mathematics in the ledger. However, this consideration does not state that the system of organisation accounting is free of error. For instance, if the organisational transactions are improperly classified can still have material errors of accounting. On the other hand, if the transaction missing from the system of accounting, there can also be material errors of accounting. 

The reasons for preparing a trial balance are:

Helps in finding transposition error: Sometimes the company suffers from transposition mistakes. Preparing the trial balance could help the company in finding the inaccuracy to the error. Finding the distinction between the total credit and total debit balances should be done in order to find the error.

Helps in finding the duplicate error: When the balances in the ledger are written two times, the balances of the debit and the credit in the trial balance will mismatch. Thus, rectification of this error is necessary which is done by preparing the trial balance.

Helps in finding the error of wrong side: When the credit balance is wrongly posted as debit balance or the debit balance is wrongly posted as a credit balance in the ledger, this error occurs. The trial balance is prepared for rectifying such error.

Helps in finding Omission Error: When the individual who is preparing the trial balance forgets to include any item from the ledger, the balances of the trial balance will mismatch. Thus, checking all the balances of the ledger is necessary.

(b)   Explaining adjusted journal entries, why adjusted journal entries are recorded

According to Rezaee et al. (2018, p.169), journal entry that is adjusted is considered as an entry in the reporting of finance which occurs at the reporting period end. This is done for recording any income that is unrecognized or any expenses that are unrecognized for that period of time. When the transaction of a journal entry that is adjusted is begun at one period of accounting and is finished in next period of accounting, journal entry that is adjusted is needed. This is required for accounting the transactions properly. Journal entry that is adjusted may also refer to reporting of finance which makes the correction of mistake which was made earlier in the period of accounting. Journal entry that is adjusted is also referred to as adjustment of balance day.

According to Weygandt et al. (2015, p.20), the purpose for the journal entries adjustments is for showing when organisational cash changed hand and for converting entries of real-time which reflects in the system of accounting accuracy. A Journal entry that is adjusted includes a statement of income account (expenses or revenue) and also includes the statement of finance account (liability and assets). The journal entry that is adjusted is made according to principles of matching to match expenses and revenue for the period of time in which it has occurred. The journal entry that is adjusted is over carried to ledger accounts and worksheet accounting in the cycle step of accounting which will arrive next. A journal entry that is adjusted has the feature which includes one statement of income and one statement of balance accounts. The statement of income account requires to get adjusted which includes expense of interest, expense of insurance and expense of depreciation and also revenue services.

(c)  The purpose of recording an Trial balance that is adjusted

Trial balance that is adjusted is listing of balances and titles of account included in the ledger after entries being adjusted for period of accounting which are posted in the accounts. Trial balance that is adjusted is prepared as a document that is internal and is not statement of finance. The purpose for preparing trial balance that is adjusted is required to be specific that the amount which is total of debit balances equals the amount which is total of credit in the ledger that is general.

(d)   Difference between journal entries that are adjusted and the journal entries that are closing

According to Warren et al. (2018, p.10), journal entries that are adjusted are prepared at end of period of accounting but is prepared earlier of preparing the statement of finance. It is prepared in order for organisation’s records of accounting and statement of finance to be updated on the basis of accrual accounting. On the other hand, the journal entries that are closing are presented at the last date of the period of accounting and are entered into accounts of the organisation after the preparation of the statement of finance. According to Bánociová et al. (2014, p.312), the journal entries that are closing includes the account of statement of income. The journal entries that are closing set all the balances of the account of revenue and account of expenses to zero. This states that expenses and revenue accounts begin without anything in the accounts. This allows the organisation to simply report the expenses and revenue of next year.

References

Bánociová, A. and Pavliková, Ľ., 2014. Accounting plan–information base for management. Procedia Economics and Finance, 15, pp.312-317.

Beams, F.A., Brozovsky, J.A. and Shoulders, C.D., 2017. Advanced accounting. UK: Pearson.

Cannon, N.H. and Bedard, J.C., 2016. Auditing challenging fair value measurements: Evidence from the field. The Accounting Review, 92(4), pp.81-114.

Collis, J., Holt, A. and Hussey, R., 2017. Business accounting. UK: Palgrave.

Harris, P., 2015. Push-down Accounting: A Comprehensive Case Study. Journal of Business Case Studies (Online), 11(1), p.23.

Reid, W. and Myddelton, D.R., 2017. The meaning of company accounts. Abingdon:  Routledge.

Rezaee, Z., Sharbatoghlie, A., Elam, R. and McMickle, P.L., 2018. Continuous auditing: Building automated auditing capability. In Continuous Auditing: Theory and Application (pp. 169-190). Emerald Publishing Limited.

Tracy, J.A., 2016. Accounting for dummies. Hoboken: John Wiley & Sons.

Warren, C.S. and Jones, J., 2018. Corporate financial accounting. UK: Cengage Learning.

 

 

 

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