How to Adjust for General Ledger Errors
6 of 12 in Series: The Essentials of Bookkeeping Transactions
Four of the most common reasons for General Ledger adjustments are:
Depreciation: A business shows the aging of its assets through depreciation. Each year, a portion of the original cost of an asset is written off as an expense, and that change is noted as an adjusting entry. You need to be able to determine how much should be written off.
Prepaid expenses: Expenses that are paid up front, such as a year’s worth of insurance, are allocated by the month using an adjusting entry. This type of adjusting entry is usually done as part of the closing process at the end of an accounting period.
Adding an account: Accounts can be added by way of adjusting entries at any time during the year. If the new account is being created to track transactions separately that once appeared in another account, you must move all transactions already in the books to the new account. You do this transfer with an adjusting entry to reflect the change.
Deleting an account: Keep in mind that accounts should only be deleted at the end of an accounting period.
You can change already posted information or correct entries in the General Ledger. This entire process is streamlined when you use a computerized accounting system.