Question

Essay Questions: (5pts each) 1. Why is the adjustment process important in accounting bookkeeping? 2. Why is the closing process important in the accounting bookkeeping? 3. Suppose a new accountant at your firm has worked for service businesses in the past. This is their first job with a merchandising business and they send you an e- mail asking you whether there is any difference in the way service and merchandising businesses complete adjustments. How would you answer the question? Suppose that you are doing part-time accounting work for a business and being paid by the hour. The owner asks you why you are bothering to prepare a worksheet. He thinks that you can save time by preparing the financial statements from the account balances in the general ledger. How would you convince him that it is worthwhile to spend time preparing a worksheet? List at least five (5) reasons. 4. 5. How does a cash discount differ from a trade discount?

Answer 1

`. 1. Adjustment process is important in accounting and book keeping for the following major reasons :

1. Adjustments are important for the accuracy of the accounts. Adjusting entries are necessary for the simple reason that a single transaction may affect revenues or expenses in more than one accounting period and also because all transactions may not necessarily be documented during the period.
2. Since a major part of the data entry process is still done manually it is prone to errors and mistakes. Human beings in general are prone to making mistakes. And Accountants are no exception to that general rule . Though at a later date this problem may be solved due to automation. The detection of mistakes and its correction after the review of the ledgers is one of the purposes of the adjustment process.
3. There are some year end adjustments that need to be made in relation to some accounts. In case of balance sheet items that involve multi currency items , the multi currency accounting requires that all the Monetary Balance Sheet accounts have to be adjusted at year end to reflect the rate of exchange of the last date of the fiscal year of the reporting currency.
4. The concept or idea behind recording adjusting entries lies with the matching concept. The matching concept records the cost of doing business during the same period that the company earns the revenue. The financial records then communicate the activities that occurred rather than the actual money that was transferred. An example of that would be they provide services for customers and bill them later for the work
5. Adjusting entries aid in the financial reporting process as it allows the accountant to communicate a more accurate picture of the company’s finances and financial position. This happens because everything that occurred during the month is reported even if the financial part of the transaction occurs later. A financial statement if prepared without taking into account the adjusting entries would misrepresent the financial health of the company.