When preparing the financial reports at the end of the reporting period the accountant will carry out adjustments to the accounts, which will ensure a closer matching of revenue and expenses for the reporting period. It is very important that only revenue earned and expenses incurred relevant to the reporting period are included.
The following is a list of balance day adjustments that may be necessary at the end of a reporting period.
- Inclusion of expenses incurred but not yet paid or recorded (Accrued Expenses)
- Elimination of expenses already paid but which relate to a future period (Prepaid Expenses)
- Inclusion of revenue earned but not yet received or recorded (Accrued Revenue) (Covered in Unit 4)
- Elimination of revenue received but which will not be earned until some future period (Prepaid Revenue) (Covered in Unit 4)
- Adjustment for stock loss or gain
- Depreciation of non-current assets.