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ADJUSTMENTS
ACCRUAL-BASIS ADJUSTMENTS
  
Income should be received and expenses should be paid in the accounting period or financial year on which the expenses relate. This is not always the case when income is received and expenses are paid. It happens regularly that all income is still not yet received during the accounting period or financial year or sometimes that income was received in advance for the next accounting period or the financial year. On the other hand expenses may have been paid in advance or that expenses that is incurred, are not yet paid for during the accounting period or the financial year. In order to reflect the income and expenses that relates to an accounting period or financial year, we need to do some adjustments.

The adjustments are normally done at the end of an accounting period or financial year to adjust the actual income that should have been received and expenses that should have been incurred or used during a specific accounting period or financial year. Some of the income or expenses that have been paid during the accounting period is arrears or in advance. Two words come to mind, outstanding and prepaid. Outstanding simply mean that there is amounts owed to the business or expenses owed by the business. Pre-payments mean income has been received in advance or expenses have been paid in advance.

There is an asset or a liability element in the income and the expense accounts, as the business has not yet received all the income or consumed the expenses incurred, but also has an element, pertaining to the next financial period. Each of these income and expense items has an income/expense portion and an asset or liability element. Most of the adjustments are necessary if the accrual accounting method is used.

 

The process for determining which adjustments needs to be made is as follows:
  1. Identify the accounts for which the adjustments need to be made.

  2. Apportion the balance of the identified account to its appropriate asset and liability elements.

  3. Record the adjustment in the general journal.

  4. Post the adjustments to the ledger.
After you have posted all the transactions for the financial year or accounting period, a trial balance is generated in TurboCASH, which is the pre-adjustment trial balance. This pre-adjustment trial balance would not usually include any of the following final adjustments before you close the financial year.

  1. Income received in advance

  2. Accrued or outstanding income

  3. Pre-paid Expenses (Expenses paid in Advance)

  4. Accrued or Outstanding Expenses

  5. Provision for Accrued or Outstanding Expenses

  6. Consumable Stores at Hand

Once these transactions have been processed and you have done the Year-end process in the Tools - Global Processes - Do Year-end menu option, you need to reverse the above-mentioned (items 1 - 6) adjustments in the new financial year. The reason for this is that these adjustments have served its purpose in the old financial year to assist you to generate the correct final financial statements.


In addition to these Accrual based transactions, you may also need to do the following adjustments or provisions.

  1. Disallow any Private Expenses

  2. Provision for Bad Debts

  3. Write-off Depreciation or Wear and Tear Allowances


Once you have entered the transactions in the general journal or any other batch type, and these batches or journals have been posted or updated to the ledger, you may generate a post adjustment trial balance. The post-adjustment trial balance would include these adjustments, but will still list all the balances for your income and expense accounts.


Once you are absolutely sure that all your adjustments and any corrections are done and your accounts is correct, you may proceed to perform the year-end process in the Tools - Global Processes - Do Year-end menu option.

TurboCASH also allows you to do the year-end and you may still do certain adjustments and corrections for the previous financial year (Last Year) and post it to Last Year.

You may to restrict posting to the previous financial year to prepare your adjustments. You may do this by clicking on the Setup - System Parameters - Reporting Dates menu option and remove the tick in the "Post to last year" field. Although you will not be able to post transactions to that financial year, you may still generate reports.

You may at any time select this field again should you need to post the transactions to the previous financial year. It is also recommended that you restrict posting to the previous financial year once the Financial Statements are finalised.