Lesson Four: Journalizing Adjusting Entries
Before we dive right in, let’s review the general steps of the accounting cycle. As a note, these steps may differ slightly from your textbook, so please be sure to compare this resource to your textbook’s presentation of the accounting cycle.
- Journalize general journal entries for business transactions throughout the accounting period
- Post each journal entry to the general ledger
- Prepare an unadjusted trial balance
- Journalize adjusting entries
- Post each adjusting entry to the general ledger
- Prepare an adjusted trial balance
- Prepare the company’s financial statements
- Journalize closing entries
- Post closing entries to the general ledger
- Prepare a post-closing trial balance
At the end of each accounting cycle, the accountant must review additional information to see if any of the accounts do not currently reflected the accurate balance for that account. A common example of this is the purchase of supplies (pens, paper, etc.). When we purchase these items, standard practice is to increase the supplies account at the time of purchase. Throughout the accounting cycle, supplies will be removed from storage and “used up” by the company. These supplies that have been used should be moved from the asset account supplies to the expense account supplies expense. However, it would be too tedious for the account to do a journal entry every time someone takes a ream of paper or a pencil for use, so instead, the remaining supplies in the supplies closet are counted at the end of the accounting cycle, and the accountant prepares an adjusting entry to move the cost of the used supplies into the supplies expense account. You will see an example of this in our video lesson below.
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