Adjusting Journal Example & How to Make Adjusting Journal – Do you want to apply more professional bookkeeping for a trade or service company? If so, one of the important journal entries for you to understand is adjusting entries.
This journal is used to find out the balance of account records in the general ledger. In other words, this adjusting entry becomes crucial in the final period of the financial statements because it contains various information that can later be used as a basis for making decisions concerning the company’s finances.
What is an Adjusting Journal?
Every recording of changes in the balance of a particular account can eventually show the actual balance. Well, this amount then becomes the real balance which is known at the end of a bookkeeping period which can also determine the recording of a company’s net income and expenses. The source of the adjusting journal comes from evidence of transactions that have occurred within a period.
Adjusting journals are also part of basic accounting and the most important part of adjusting journals is the use of logic, which is often considered difficult. In the book entitled Easy to Understand Adjustment Journals made by Despaten R. Purba this will be discussed so that understanding adjusting journals will be easier for Sinaumed’s to learn.
Because it is prepared to find out the actual balance at the end of a period, an adjusting entry will also be prepared at the end of that period as well. To be precise, this journal is made before the preparation of the worksheet and after determining the trial balance results. This is what then makes the adjusting journal used in order to determine the final balance which is generally entered in the general ledger records.
It can also be concluded that adjusting journals are journals that are prepared to record changes in balances on certain accounts which will later show the actual balance at the end of the period. Thus, the factors underlying the need for adjusting journals are transactions that have occurred but the information has not been recorded, and transactions that have occurred and have been recorded, but still require adjustments to the estimated balance.
Meanwhile, for a company engaged in services or services, this adjusting journal has a certain urgency, so it must be prepared at the end of the accounting period. Now, several factors cause service companies to make this adjusting journal, including:
- The company needs to adjust the recording for the supplies account. The reason is, in its operations, the company always uses consumable equipment, and this must also be recorded.
- Service companies must also be able to handle depreciation on fixed asset accounts by making separate notes in adjusting journals. In this way, the actual balance on this account can be known at the end of the period.
- The company must also be able to handle expenses that are past due or categorized as receivables that must be paid in advance.
- Companies need to make adjustments to pay debts due to services that have been used, but have not been paid.
Before discussing more deeply about adjusting journals along with examples of adjusting journals, the next discussion is accounts or matters that need adjusting journals first.
Accounts Required to Use Adjusting Journals
In general, there will be several things or accounts that need to be adjusted at the end of a company’s accounting period. These things can include:
1. Inventory of Goods and Services
Adjusting entries are used to eliminate inventory (beginning) in the trial balance and record inventory (ending) based on information from stock taking in the period. The inventory adjustment journal can be prepared using the Profit-Loss Summary method as follows:
| Profit and Loss Summary | Rp. XXX | |
| Initial Goods Inventory | Rp. XXX | |
| Ending Goods Inventory | Rp. XXX | |
| Profit and Loss Summary | Rp. XXX |
2. Supplies Equipment
A number of equipment that has been used during the period in the company’s activities also requires an adjusting journal which can be prepared in the following way:
| Equipment Expenses | Rp. XXX | |
| Equipment (worth the equipment used) | Rp. XXX |
3. Depreciation of Fixed Assets
Tangible fixed assets or fixed assets in one period also require adjusting entries which can be made using methods such as:
| Depreciation Load … | Rp. XXX | |
| Accumulated depreciation … | Rp. XXX |
4. YMH Fees Paid
Costs that are entitled (YMH) but have not yet been paid in cash also need to make an adjusting entry at the end of the period. Writing this account adjusting journal can use the following methods:
| Burden … | Rp. XXX | |
| … YMH Paid | Rp. XXX |
5. Prepaid Fees
Costs that have been used can be made an adjusting entry when making payments and recorded as prepaid expenses at the end of the period. Journal preparation for this account can be made as follows:
| Burden … | Rp. XXX | |
| …YMH Prepaid | Rp. XXX |
6. Assessment of Uncollectible Accounts
Losses on uncollectible accounts can be made an adjusting entry to find out the true value at the end of the period. Adjusting entries for these accounts can be prepared through methods such as:
| Uncollectible Accounts Losses | Rp. XXX | |
| Allowance for Uncollectible Accounts | Rp. XXX |
7. Adjustment of Cash Balance at the Bank with a Statement of Account Statements
If there is a difference between the cash balance in the bank recorded by the company and the balance in the bank checking account, then the correction at the end of the period can be made using an adjusting journal. Well, adjusting entries for accounts like these can be prepared in the following way:
| Cash in the Bank | Rp. XXX | |
| Bank Adm Expenses | Rp. XXX | |
| Interest income | Rp. XXX |
8. YMH Income Received
Income that is entitled (YMH) but cash has not yet been received also needs to be made an adjusting entry until the end of the period. While writing can use the following methods:
| … YMH Accepted | Rp. XXX | |
| Income… | Rp. XXX |
9. Adjustment of Cash Balance in the Bank with the Bank’s Current Account
Adjusting entries can also be used to check the correspondence between the account balances recorded by the company and those recorded by the bank. Meanwhile, an example of this adjusting journal, for example, can be structured as follows:
| Information | debit | Credit |
| Bank Admin fee | ||
| Accounts payable | ||
| Accounts receivable | ||
| Notes Receivable |
Adjusting Journal Function
- To determine the nominal account (revenue account and expense) for a period and find out the actual condition of the account,
- To estimate the actual nominal (income and expenses) in the period in question,
- To determine the balance of records entered in the general ledger account later at the end of the period, so that the estimated balance of liabilities and assets will show the actual amount, and
- To find out the actual situation of the real accounts (assets, liabilities and capital) at the end of the period in question.
Now, after discussing the function of adjusting journals, the next discussion is an example of an adjusting journal. By knowing examples of adjusting journals, hopefully you can understand and practice adjusting journals.
Example of Adjusting Journal
The book entitled Analysis of Financial Statements made by Dr. Kasmir will explain how important it is for a company to understand an existing financial statement using financial ratios.
If you intend to start applying adjusting entries in your books, then some things you might need to do are understand the basic rules of debit-credit flow in accounting and start paying attention to every transaction that occurs in the account. For more details, you can see a number of examples of adjusting journals according to accounts in a business below as a reference.
1. Prepaid Expenses
Not infrequently a business pays expenses for future periods, or what is referred to as prepaid expenses. In this case, you have expenses that must be paid in the coming period but need to calculate expenses that must then be reported in the current period. An example of an adjusting entry made for this account is as follows:
On the trial balance there is IDR 3,800,000. At the end of the period, the remaining account balance is IDR 3,000,000. This means that the insurance premium that becomes a burden is IDR 3,800,000, then minus IDR 3,000,000 so the result is IDR 800,000. This IDR 800,000 nominal is then recognized as insurance expense and can reduce the amount of insurance that must be paid at the outset.
| Date | Information | Ref | debit | Credit |
| December 2020 | Insurance expense | IDR 800.000,- | ||
| Prepaid insurance | IDR 800.000,- |
2. Receivable Income or Accrued Income
Receivable income is income that has become the right of the company, but has not yet been received. This right is then recorded as revenue in the related period. An example of an adjusting entry applied to this account is as follows:
A work worth IDR 600,000 has been completed, where this amount has not been included in the trial balance of IDR 15,600,000 which is the company’s revenue receivable. Thus the adjusting journal containing income will increase and become IDR 16,200,000.
| Date | Information | Ref | debit | Credit |
| December 2020 | Revenue Receivables | IDR 600.000,- | ||
| Services revenue | IDR 600.000,- |
3. Prepaid Building Rent Expenses
For this expense, the recording is almost the same as the example of prepaid expenses. An example of an adjusting entry for this account is as follows:
The balance for the building lease account that was paid in advance is Rp. 19,200,000, – where this figure still does not show the actual situation because the rent has already been used for Rp. 4,200,000.-. This made the rental expense increase while the prepaid rent decreased by Rp. 4,200,000.-.
| Date | Information | Ref | debit | Credit |
| December 2020 | Rental expenses | IDR 4.200.000,- | ||
| Prepaid lease | IDR 4.200.000,- |
4. Equipment Depreciation
There are still other things that must also be recorded in the adjusting journal as depreciation expense or equipment depreciation expense. An example of an adjusting entry applied to an equipment or supplies depreciation account is as follows:
For the December 2020 period, the depreciation expense (depreciation) was recorded at IDR 2,400,000, – which then added to the depreciation expense and accumulated depreciation of IDR 2,400,000.
You can make adjusting entries as follows:
| Date | Information | Ref | debit | Credit |
| December 2020 | Equipment Depreciation Expense | IDR 2.400.000,- | ||
| Equipment Depreciation Accumulation | IDR 2.400.000,- |
5. Income Received in advance
When a company receives income received in advance, the income cannot be recorded as income immediately, but is recorded as debt first. The reason is because there has been no realization of income, which means that it is still not the right of the company. An example of an adjusting entry made in accordance with this account is as follows:
Income received in advance with a balance of IDR 5,000,000.-. However, the company is still working on only Rp. 2,000,000, which means that Rp. 3,000,000 is still owed on income.
| Date | Information | Ref | debit | Credit |
| December 2020 | Prepaid income | IDR 3.000.000,- | ||
| Rental Income | IDR 3.000.000,- |
6 Equipment Remaining or Equipment Usage
Equipment is material purchased for the benefit of the company’s operations and not for resale, which means the company must keep records of the use of this equipment. Usually this recording is also done by physically counting the number of remaining equipment. An example of an adjusting entry for this account is as follows:
The equipment account has a balance of IDR 4,500,000. At the end of the period, the information on the remaining equipment is Rp. 2,700,000, – or in other words the company uses equipment worth Rp. 4,500,000, – which is reduced by Rp. 2,700,000, – which is Rp. 1,800,000, – by recording it in the adjusting journal as follows
| Date | Information | Ref | debit | Credit |
| December 2020 | Equipment Expenses | IDR 1.800.000,- | ||
| Equipment | IDR 1.800.000,- |
7. Completing Adjusting Journal
In completing the adjusting journal, please see this table as an additional reference;
Those are some examples of service company adjusting journals and trading company adjusting journals . So, are you going to immediately try to make an adjusting journal like the example of an adjusting journal above?
How to Make Adjusting Journal
After knowing examples of adjusting journals, the next discussion is how to make adjusting journals. The steps for making adjusting entries are as follows.
- Prepare an unadjusted trial balance
- After that, do an analysis of each account in a business
- Look for all transaction data that has previously been recorded, but does not match the actual situation
- Looking for transaction data that has been lost or has not been recorded, but has occurred
- Start recording adjusting journal entries
Purpose of Adjusting Journal
- Adjusting entries are made with the aim of sorting mixed accounts into real accounts and nominal accounts. At the end of a certain period, there will be several real accounts showing the exact amount. This is mainly in real accounts of the types of debt and assets in a balance sheet.
- Adjusting journals are made with the aim of being able to provide an overall picture of the income in nominal accounts at the end of the period which also means that adjusting journals will provide a valid picture of the amount of expenses and the amount of income.
- Adjusting entries are also made with the aim of suppressing any potential errors that may occur due to several anticipatory items.
- Adjusting entries can also be made with the aim of maintaining consistency that has been established in the accounting of a company according to predetermined guidelines.
Example of Adjusting Journal Questions
In a company, some equipment is used for the benefit of the company. However, all of these materials do not need to be resold. The equipment account in the company amounts to Rp. 5,000,000.- and at the end of the period, the remaining balance of the equipment is Rp. 3,000,000.-. In other words, using an equipment account of IDR 5,000,000 which is then reduced by IDR 3,000,000, so the balance becomes IDR 2,000,000. Then how do you make an adjusting journal entry for this case?
| Date | Information | Ref | debit | Credit |
| February 2021 | Equipment Expenses | IDR 2.000.000,- | ||
| Equipment | IDR 2.000.000,- |
Conclusion
Thus an explanation of the meaning, how to make and examples of adjusting journals. In order to be more proficient in making adjusting journals, practice is needed by looking at examples of adjusting journals and practicing them.
In essence, this adjusting journal is prepared in order to find out the actual balance amount. Therefore making this journal requires precision and caution. By knowing what is the purpose and function of making this adjusting journal, you can also make better accounting records. Hope it is useful.