This past week, our team has been going over and reflecting on four main objectives. These main objectives are differentiating between accrual basis and cash basis accounting, the process of creating adjusting entries, and adjusted trial balances. We will also collectively discuss our opinions of what would be the most important skills learned in an accounting position. In accordance to week three’s objectives, I would have to say that everything that we have gone over is essential to our success in future accounting positions, however, we feel that the most important skill is to be able to accurately record the inflow (revenue earned) and the outflow (expenses: utilities, etc.) of monies.
Accural vs. Cash Basis Accounting According to the readings, accrual basis accounting is defined as in which companies record, in the periods in which the events occur, transactions that change a company’s financial statements, even if cash was not exchanged. In other words, it means that recorded or un-recorded, all transactions are taken and projected into the overall balance.
Cash Basis Accounting basis in which a company records revenue only when it receives cash, and an expense only when it pays out cash. This means that this means of accounting, only takes accountability of the physical cash that is at a physical location. The differences, Accural is all transactions whether recorded, unrecorded, or projected. Cash is the physical monies on hand at a physical location and does not record earnings until payments are actually made.
Create adjusting entries This week we have been given a lot of practice on how to create adjusting entries to financial documents and internal financial “memos” (such as balance sheets). There are five types of adjusting entries: Accrued revenues – making adjustments to a service that has been performed but not billed. 1. Accrued expenses – expenses such as wages paid to an employee. 2. Unearned revenues – payments for goods or services to be delivered at a future date. 3. Prepaid Expenses – assets that are prepaid and gets used up during the accounting period. 4. Depreciation – process of allocating the cost of an asset. When adjusting entries are created, they are created in real time. These entries are important so that the net profit or loss and the financial position can be established. Prepare an adjusted trial balance.
Again, we have practiced a lot this week in being able to successfully and accurately adjust entries in many different financial documents and of course, adjusting entries in trial balances have been some of those documents that we have worked on. In order to be a successful accountant, being to be able to successfully adjust entries in a trial balance sheet could be the very life factor in holding in accountant position. If we are unable to accurately record a trial balance the likelihood of us being able to hold our position as accountants is slim to none.