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Year End Adjustments

The document outlines the full accounting cycle, emphasizing the importance of year-end procedures before preparing financial statements, including adjustments and error checks. It discusses the application of GAAP principles such as the Matching, Prudence, Consistency, and Historical Cost Principles. Additionally, it details the preparation of final accounts, the significance of pre-adjustment trial balances, and various types of adjustments necessary for accurate financial reporting.

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hameshachatergune
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57 views3 pages

Year End Adjustments

The document outlines the full accounting cycle, emphasizing the importance of year-end procedures before preparing financial statements, including adjustments and error checks. It discusses the application of GAAP principles such as the Matching, Prudence, Consistency, and Historical Cost Principles. Additionally, it details the preparation of final accounts, the significance of pre-adjustment trial balances, and various types of adjustments necessary for accurate financial reporting.

Uploaded by

hameshachatergune
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

1.

Emphasis on the Accounting Cycle

• Understand the full accounting cycle, which includes:

o Source documents

o Journals

o Ledgers

o Trial balances

o Adjustments

o Final accounts

o Closing entries

• The year-end procedures are part of completing this cycle.

2. Discussion on Year-end Processes Before Financial Statements

• Before preparing financial statements, certain year-end procedures must be


followed:

o Identifying accounts that need adjustments.

o Ensuring all transactions for the year are recorded.

o Checking for errors or omissions in ledgers and journals.

o Calculating and recording adjustments.

3. Related Concepts and Application of GAAP

• Apply relevant Generally Accepted Accounting Principles (GAAP) such as:

o Matching Principle: Ensure expenses are recorded in the same period as


the revenues they help to generate.

o Prudence Principle: Do not overstate assets or income.

o Consistency Principle: Apply the same accounting methods across


periods.

o Historical Cost Principle: Record assets at their original cost.

4. Preparation of Final Accounts Including Adjustments


• After adjustments, final accounts can be prepared, including:

o Income Statement (Profit and Loss)

o Balance Sheet

• Adjustments may include:

o Depreciation

o Accrued expenses

o Prepaid income

o Provision for doubtful debts

o Inventory adjustments

5. Pre-Adjustment Trial Balance

• A trial balance prepared before adjustments are made.

• It helps identify balances in all accounts as they stand at year-end before


corrections.

6. Adjustments

• Essential for preparing accurate final accounts.

• Types of adjustments include:

o Depreciation (covered in more detail under Fixed Assets in Paper 2)

▪ Two methods:

▪ Straight-Line Method: Equal depreciation amount each


year.

▪ Diminishing Balance Method: Depreciation calculated on


a reducing balance.

o Depreciation is based on:

▪ Method selected

▪ Rate (%)

▪ Date of purchase (for prorated depreciation)

▪ Information from the asset register (which lists asset details).

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