Posting the Transaction to the Worksheet - the Balance Sheet (Accounting Equation)
Having completed the calculations to obtain the balances corresponding to transactions involving use of cash in the four financial statements, or unadjusted transactions, we need to adjust the statements to further include those transactions that are either non monetary but have an economic value like the depreciation in the use of buildings, equipment, etc., or obligations towards creditors for unpaid supplies that although have been consumed in the period have not been as yet been paid when the statements are prepared.
The final financial situation of the firm is only disclosed when adjustments are included as, for instance, the level of accrued obligations to creditors, meaning debt, may be so high that the firm is in danger of becoming insolvent and not being able to meet its obligations to debtors.
Prepayments are also important as they show how cash has been spent in goods or services, which the firm has not as yet utilised, but that will be used in future periods. Thus it is possible to see how the funds of the company are being spent.
There are two adjustments in the period, prepayments and accruals. The Exhibit below shows the entries for prepayment adjustment, transaction O9A and the entries for accruals adjustment, transaction O9B. Transaction O9C refers to the closing of the Income Statement. These transactions are amply described later on in Section 2: Operating the Firm and Typical Transactions > First Month First Year (M1) Accounting Period.
As a quick accuracy check the sum of all balances after adjustments to the left of the equation, asset side,
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