Manufacturing Entry

Introduction

Accounting and book keeping is based upon the double entry concept. It simply states that for each transaction conducted, the total debits are equal to total credits.

Adjusting entries in an accounting system refer to the entries made at the end of an accounting period to update the current account balances contained in the accounting reports in order to represent the most accurate balances.

Adjusting entries result due to goods purchased or supplied on credit and delay in payment or receipt. Henceforth, goods purchased on credit in the previous accounting period can be paid for in the current accounting period. An adjusting entry then is done to post transaction and money received or paid into the correct accounting period in which the transaction took place. On the other hand, current account balances only represent what happened on daily basis. It captures mainly cash received and paid out in the current period. It does not consider the timing of the items being paid for or items of monies received for but include transactions paid in cash basis without considering whet ether the expenses were incurred in the present or previous period.

Therefore, analyzing balances and information posted and ensuring they are posted to correct accounts and correct accounting periods is what is called adjusting entries in an accounting system.

Discussion

In any given accounting system there exists four types of basic adjusting entries.

These entries include prepaid expenses, accrued expenses, assets recorded as expenses and vice versa as well as liabilities posted as revenues and vice versa. The adjusting entries can be elaborated as follows;

* Accrued Expenses

These are expenses incurred but not yet paid for. They most probably will be paid for in the next accounting period but because they were incurred in the present period and not reflected in the current balance account, it is necessary to do an adjusting entry so that the profit of the current period may not be overstated. The following journal is made for electricity bill incurred of Ksh. X and not paid for in the current period.

Date Detail Debit Credit

Electricity bill expense X

Electricity bill Expense payable X

* Prepaid expenses:

These are expenses paid for in advance for the next period but are currently recorded as expense incurred in the present period. An entry is passed to reduce the present period expenses and increase the next period's expenses by the amount recorded as advance expense. For example, if a business pays for electricity in advance for an amount of Ksh. X. The current's period electricity bill expense will be reduced by Ksh. X and the next's period increased by Ksh. X. The following journal will be made.

Date Detail Debit Credit

Electricity bill expense X

Prepaid Electricity bill Expense X

* Accrued revenue;

These refer to revenue earned but not yet received. Goods sold on credit to trust customers of the organization mainly fall into this category. In a manufacturing company shipping of goods may cause delay in payments because customers pay for goods after they receive them and are usually invoiced by the firm. As result, income for various transactions may be delayed and posted to the next period. Therefore, an adjusting entry is necessary. The amount is posted in the profit and loss as a credit so that to increase profit to its accurate state and to avoid understating the profit. For instance, Good sold on credit to Patel of amount Ksh. X will be posted as follows;

Date Detail Debit Credit

Accrued Revenue X

Revenue X

* Revenues Not yet Earned;

These refer

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