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adjusting entries examples and solutions pdf
Adjusting entries examples and solutions pdf: If you have earned revenue during the month that hasn’t been reported yet, then your financial statement’s income figures will be artificially low. For example, If Laura offered services on January 31 to three clients, it’s possible that the clients won’t be charged for the products until January.
If Laura is not able to earn earnings earned by January 31, She will not be adhering to principles of revenue recognition that state that revenue has to be recognized at the time it’s earned.
While it’s important to recognize your revenue as well properly, it’s equally essential to keep track of all the costs you’ve paid for during the month. This is especially important when paying payroll costs and any expenses that you’ve incurred in the month but haven’t yet been invoiced for.
For instance, your computer is crashing in late February. A technician for computer repair is capable of saving your files; however, on February 29, you haven’t yet received an invoice for his services.
To be able to track the cost in the month of the month in which it was incurred, you’ll need to record it, then make a reverse entry after you receive the bill from the tech.