Preparing the unadjusted trial balance – A list of general ledger accounts with their respective debit or credit balance. The purpose of the unadjusted trial balance is to provide evidence that the total debits in the general ledger equal the total credits and prepares the accounts for adjustments.
Preparing adjusting entries – To take up accruals, expiration of prepayments and deferrals, estimations and other events often not signaled by new source documents. Adjusting entries are made at the end of each accounting period. The concepts involved behind adjusting entries are ACCRUAL, MATCHING OF COSTS AGAINST REVENUE and ACCOUNTING PERIOD.
Typical Adjusting Entries classified according to timing of cash flow.
1. Prepayments and Deferrals – The cash flow precedes the revenue or the expense recognition.
