Adjusting entries are entries that are made at the end of an accounting period to adjust the company’s records for any incomplete or inaccurate transactions. These entries are necessary to ensure that the company’s financial statements are accurate.
Closing entries are entries that are made at the end of an accounting period to close out the temporary accounts and transfer the balances to the permanent accounts. These entries are necessary to prepare the company’s financial statements.
Here are some of the specific types of adjusting entries that are commonly made in banking:
- Accrued expenses: Accrued expenses are expenses that have been incurred but have not yet been paid. For example, if a company has incurred rent expenses but has not yet paid the rent bill, the accrued rent expense will need to be adjusted.
- Accrued revenues: Accrued revenues are revenues that have been earned but have not yet been received. For example, if a company has provided services but has not yet received payment, the accrued revenue will need to be adjusted.
- Depreciation: Depreciation is the gradual decrease in the value of an asset over time. Depreciation is an adjusting entry because it is a non-cash expense that needs to be recorded in the company’s financial statements.
- Provisions: Provisions are liabilities that are uncertain in amount or timing. For example, if a company has a lawsuit pending, it may need to make a provision for the potential liability.
Here are some of the specific types of closing entries that are commonly made in banking:
- Closing revenue accounts: Revenue accounts are closed by transferring their balances to the retained earnings account. This is done to reflect the fact that the revenue has been earned and is now part of the company’s net assets.
- Closing expense accounts: Expense accounts are closed by transferring their balances to the retained earnings account. This is done to reflect the fact that the expenses have been incurred and have reduced the company’s net assets.
- Closing dividend accounts: Dividend accounts are closed by transferring their balances to the retained earnings account. This is done to reflect the fact that the dividends have been paid out to the shareholders and are no longer part of the company’s net assets.
Adjusting and closing entries are an important part of the accounting process. By making these entries, companies can ensure that their financial statements are accurate and that they are in compliance with accounting standards.