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Adjustments-Additional Information in Preparation of Final Accounts

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Whenever a person starts off a business, it is taken into consideration that this business would continue for an indefinite period. Given such a scenario, it is not possible for a person to wait for eternity to get details regarding how a particular business is functioning in a correct manner. Hence, it is important that there be a specific period against which details of this can be taken.

The period that is taken for counting and detailing of financial gains is a year, post which a Balance Sheet is prepared. At the end of the year details associated with trading, profit and loss accounts, list of assets and liabilities can be prepared for a particular company to depict the amount of profit or loss a particular company has incurred in order to carry on business in a further manner.

Issues associated with preparing of Balance Sheet:

There are multiple issues that a particular organization can face in regards to preparing financial details of that company.

  • There may be certain pending expenses of the current year along with expenses of the next year.
  • At times there is discrepancy in regards to income of current year and the upcoming year.
  • The costs associated with depreciation of assets, payment of interest and certain bad debts have not been recorded into the Accounting books. It is due to this reason that total costs associated cannot be understood.
  • It is only correct adjustment of these amounts that would result in getting the correct profit and loss value of that company.
  • Journal entries, errors, and omissions made are also not included in these accounting details.
  • Since they do not appear in Trial Balance, hence it needs to be adjusted after a certain point of time in two places.

Given such a host of problems, one needs to be very careful of the adjustment sand addition that is made in regards to this account.

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