Accounting › Section C · The adjustment process › Topic C.1
Accrual accounting and why adjustments are needed
Cash rarely moves in the same period as the work it pays for. Accrual accounting reports revenue when it is earned and expenses when they are incurred, and at the end of every period a set of adjusting entries brings the ledger up to date so that the statements tell the truth about that period.
In this topic
- A balanced ledger that is still wrong
- Cash basis and accrual basis
- The principles behind adjusting
- Accounting periods
- Worked example: two bases, two profits
- Why the ledger falls out of date
- Two families of adjustments
- Rules every adjustment follows
- Worked example: spotting Larkhill's adjustments
- Common mistakes to avoid
- Key takeaways
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