What you’ll learn to do: Describe the process of making adjusting journal entries
Let’s review our accounting cycle again. The first three items represent our daily activities as a bookkeeper—keeping the books (journal and ledger) up to date:
- Analyze Transactions
- Prepare Journal Entries
- Post Journal Entries
Step four (Prepare Unadjusted Trial Balance) is something we do monthly (or more often, if necessary) to ensure that everything is in order for step five: Make Adjusting Journal Entries. We may do this step monthly or quarterly, but almost always annually. The only reason we wouldn’t create financial statements is if we were out of business, but even then we have to file a final tax return and we’ll need financials to do that.
The Accounting Cycle
- Analyze Transactions
- Prepare Journal Entries
- Post Journal Entries
- Prepare Unadjusted Trial Balance
- Make Adjusting Journal Entries
- Prepare Adjusted Trial Balance
- Prepare Financial Statements
- Prepare Closing Entries
- Prepare Post-Closing Trial Balance
- Create and Post Reversing Entries, if needed
In the last section, we took NeatNiks right up to the unadjusted trial balance at the end of the month of October. The next step for that company will be to systematically analyze the accounts one by one to determine which ones, if any, need to be adjusted before we compile our final October accrual-basis financial statements.
