Bookkeeping Impact On Nature Of Accounting -Myassignmenthelp.Com

Question: Discuss About The Bookkeeping Impact On Nature Of Accounting? Answer: Introduction Trial balance is generally prepared at closing of the accounting period and assists in drafting the financial statements. It assures that every recorded debit entry has a corresponding credit entry and is recorded in the account as per double entry accounting concept. A journal entry refers to the financial transactions that have been incurred by the business unit during a particular financial year (Warren and Jones 2018). On the other hand, the adjusting journal entry refers to those particular journal entries that have been included in the financial report at the end of a particular financial year as because the revenue or expenses associated with those journal entries have not been recognized at the time of generation. Trial balance and the purpose of creation Trial balance is the list for the closing ledger balances on a specific date and it is the 1st step towards preparation of the financial statements. Generally, it is prepared at closing of the accounting period and assists in drafting the financial statements. The ledger balances are segregated into the credit balance and debit balance. Expenses and assets are recorded under the debit side and liabilities, incomes and capital accounts are recorded in the credit side (Edwards 2013). When all the entries from the accounting transactions are correctly recorded and all ledger balances are extracted accurately then the total debit balances will be equal to the credit balances. Purpose of creating the trial balance Trial balance is the internal report that runs at the closing of each accounting period and lists the closing balance of each account. Primarily, the report is used for assuring that total debit is equal to total credit balance. It is the 1st step in preparation of the financial statement. It is the working paper that is used by the accountant as the basis at the time of preparing the financial statement (Henderson et al. 2015). It assures that every recorded debit entry has a corresponding credit entry and is recorded in the account as per double entry accounting concept. If total of trial balance does not match then the difference shall be investigated and errors shall be resolved before preparing the financial statement. Rectifying the errors related to basic accounting can be lengthy procedure after preparation of the financial statements as the required changes will demand rectification of the financial statements. Further, the trial balance assists in rectification and identifi cation of the errors involved (Needles, Powers and Crosson 2013). Adjusting journal entries and its purpose of recording A journal is a fundamental step in the preparation of the accounting statements for any business concern. A journal entry refers to the financial transactions that have been incurred by the business unit during a particular financial year. The issue that has been presented in the question is in regards to the adjusting journal entries. An adjusting journal entry refers to those particular journal entries that have been included in the financial report at the end of a particular financial year as because the revenue or expenses associated with those journal entries have not been recognized at the time of generation (Weygandt, Kimmel and Kieso 2015). An adjusting journal entry might also be passed when a particular financial transaction that had been started in the previous accounting period ends in the current accounting period. Accounting errors are a common occurrence on the part of the company accountant as he or she has to deal with a huge volume of financial transactions. Therefo re, such accounting errors can also be rectified with the help of adjusting journal entries (Ijiri 2014). The adjusting journal entries are recorded in order to ensure the fact that the accounting statements that are further prepared on the basis of these journal entries reflect a genuine and fair image of the concerned organization. The recording of the adjusting journal entries also help in tracing the cash that flows in and out of business during a particular financial year. To be more precise, the adjusting journal entry helps in the identification of the exact instances as to when the money goes out of business and the instances when it flows into business. Moreover, they also facilitate the conversion of the real time accounting entries into entries that can be suited into the accrual accounting system. There are precisely three common types of adjusting journal entries, which are accruals, estimates and deferrals (Dennis 2014). Purpose of writing the adjusted trial balance The issue that has been presented in the question is in regards to the purpose for writing an adjusted trial balance. However, before understanding the purpose of an adjusted trial balance, the meaning of a trial balance must be understood. A trial balance refers to the financial statement that is prepared prior to the preparation of the significant accounting statements like the income statement and the balance sheet. A trial balance is essentially prepared in order to check whether the net balance in the credit, accounts match with the net balance in the debit accounts (Warren and Jones 2018). The current balance in each of the credit or the debit accounts is recorded and then the total amount of each credit and debit column is matched so that they represent the same balance. However, in case the corresponding balances do not match, it represents the fact that there has been a mistake, either in the account balances or in the computation of the total credit or debit balance. The ne ed for an adjusted trial balance arises at this point. An adjusted trial balance incorporates the adjusting entries and then attempts to match the total debit and credit columns. The sole purpose of preparing the adjusted journal entries revolves around the fact that the accuracy of the accounting statements that are further deduced from the trial balance depends on the correctness of the adjusted trial balance. The primary motive behind the preparation of the financial statements of a particular organization is that the users of these statements like the investors and other stakeholders of business get a clarified view into the financial performance of the firm in order to make proper financial decisions. Thus, in case of any accounting error in the trial balance will result in the generation of faulty accounting statements. Hence, the role of adjusted trial balance is very important for an accountant (Adejare 2014). Adjustment journal entries as against the closing journal entries At first glance the closing entries and adjustment entries are not easy to grasp. The reason behind this is that the kind of transactions that requires adjustments that may not be familiar. The main feature of this kind of transaction is the time of involvement. The adjusting entries in other way are recorded through initial transaction (Apostolou et al. 2013). However, for the subsequent events further entries required to be passed. Apart from this, the adjustments are forced upon accountant as accounting cycle comes closure to end and financial statements are required to be prepared. The adjustment entries are recorded at closing of each accounting period and before the preparation of the financial statements. Adjusting entries are the major part of the closing procedures as per the notes in accounting cycle where the preliminary trial balances are transformed into the final trial balance. Generally it is not possible to generate the financial statements that are fully complied wit h the accounting standards without using the adjusting entries (Edmonds et al. 2013). On the contrary, closing entries are the journal entries that are made at closing of the accounting period for transferring the temporary to the permanent accounts. Permanent accounts under which the balances get transferred depend on the business type. For example, in case of sole proprietorship the balance is transferred to owners capital account and in case of company the balance is transferred to retained earnings. The income summary account can be used for showing balances among the expenses and revenues or they can be closed directly against the retained earnings from where the payments for dividend will be deducted. This procedure is used for resetting the temporary account balance to zero for the next period of accounting. Conclusion From the above discussion it is concluded that the trial balance and the journal entries along with the adjusting journal entries play major role while preparing the financial statements of the company. The trial balance assures that every recorded debit entry has a corresponding credit entry and is recorded in the account as per double entry accounting concept. On the other hand, the adjusted journal entries revolves around the fact that the accuracy of the accounting statements that are further deduced from the trial balance depends on the correctness of the adjusted trial balance. References Adejare, A.T., 2014. The analysis of the impact of accounting records keeping on the performance of the small scale enterprises. International Journal of Academic Research in Business and Social Sciences, 4(1), p.1. Apostolou, B., Dorminey, J.W., Hassell, J.M. and Watson, S.F., 2013. Accounting education literature review (20102012).Journal of Accounting Education,31(2), pp.107-161. Dennis, S., 2014. Systems and methods for providing computer-automated adjusting entries. U.S. Patent Application 14/046,921. Edmonds, T.P., McNair, F.M., Olds, P.R. and Milam, E.E., 2013.Fundamental financial accounting concepts. New York, NY: McGraw-Hill Irwin. Edwards, J.R., 2013.A history of financial accounting (RLE Accounting)(Vol. 29). Routledge. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015.Issues in financial accounting. Pearson Higher Education AU. Ijiri, Y., 2014. The beauty of double-entry bookkeeping and its impact on the nature of accounting information. Economie Notes by Monte dei Paschi di Siena, 22(2-1993), pp.265-285. Needles, B.E., Powers, M. and Crosson, management., 2013.Financial and managerial accounting. Cengage Learning. Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning. Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial managerial accounting. John Wiley Sons.