A business can maintain either cash or accrual basis of accounting system. The difference between cash and accrual system is necessary to understand so that you can choose the right accounting system for your business. In the cash system, the entries are made in books only when either the money is received or spent. Whereas, in the accrual system, revenues are recorded even if cash has not been received or if expenses have been incurred but no cash payment has been made. Adjusting entries are used in accrual system of bookkeeping. These entries are used to convert a company's accounting records to the accrual basis of accounting. Here are few points that will help you answer the question, what are adjusting entries?
The Need for Adjusting Entries
What are adjusting entries? When do you need them? Well, accountants in Edmonton will say that you need adjusting entries in two situations. The two situations are:
Types of Adjusting Entries
Accountants in Edmonton will mention five types of adjusting entries. The types of adjusting entries are as follows:
As your business grows, cash based accounting won’t be the best option for you. Therefore, you would require accrual based accounting for which adjusting entries are important. For more information, make sure you get in touch with a professional bookkeeping firm in Edmonton. If you are unsure about adjusting entries, then accountants in Edmonton will assist you in analyzing your financial statements and prepare adjusting entries for you accordingly.