University Financial Analysis: Accrued Expenses and Adjusting Entries

This assignment delves into the necessity of adjusting entries for accrued expenses, a key aspect of financial accounting. The analysis explains why adjusting entries are often required to accurately reflect a company's financial position by aligning with the accrual concept, ensuring that revenues and expenses are recognized in the correct accounting period. It highlights situations such as payroll and interest income, where adjustments are crucial, and emphasizes the role of the matching principle. However, the assignment clarifies that not all expenses necessitate adjusting entries, particularly when they are immaterial. The document references key accounting principles and provides a concise overview of the factors that influence the need for these adjustments, including the impact of omitting them and the relevant accounting literature.

Title: Financial Analysis
Task: Describe the reason that accrued expenses often require adjusting
entries but not in every situation.
University:
Lecturer’s Name:
Student Name:
Due Date:

Why accrued expenses often require adjusting entries but not in every situation
In real life, it is not always that business go to the extent of recording the equivalent amount
of salary as well as other related expenses alongside any liability. This, necessitates that before
any financial statements are produced, the firm’s accountant explores such omitted changes.
Such changes are then recorded either in debit or credit formats hence adjusting entries, after
which the outcome effect is made to the ledger (Schmitz, 2012). Ultimately, the objective of
adjusting all the entries is so that they conform to the accrual concept given that at the close of a
given accounting period it is possible that there are incomes and expenses which have not been,
“…recorded, taken up or updated; hence, there is a need to update the accounts” (Accounting
Verse, 2019)
Among the entries that that require adjusting are: payroll adjusting, Interest Income,
Matching Principle entries, Prepaid Expenses, Prepaid Expenses, accrued expenses etcetera.
Ideally, adjusting accounts should take place when dealing with accounts other than, cash,
receivable as well as payable accounts, fixed asset accounts, and capital. As such, it is in these
scenarios that the process of adjusting entries is not relevant.
In his article on adjusting entries, (Blanchard, 2018) defines accruals as, “…Revenues
earned or expenses incurred that have not been previously recorded”. Therefore, in accruals, any
income is to be identified in the event that it is earned despite the collection time and any
expense is also identified no matter when it is paid. That is, in accrued revenues, there is an
earning by the firm which however has not been recorded while in accrued expenses, the firm
incurs some expenses before making any payment. In this case, adjusting entries are necessary
due to the underlying matching principle of accounting. However, expenses such which are
immaterial are not accrued hence there is no need for adjusting entries (Ehrhardt & Brigham,
2008).

References
Accounting Verse. (2019, March 12). Introduction to Adjusting Entries. Retrieved from
Accounting Verse: https://www.accountingverse.com/accounting-basics/adjusting-
entries-introduction.html
Blanchard, S. (2018, June 12). What Is the Effect of Omitting Adjustments in Accounting?
Retrieved from Chron: https://smallbusiness.chron.com/effect-omitting-adjustments-
accounting-81114.html
Ehrhardt, M., & Brigham, E. (2008). Corporate Finance: A Focused Approach. Berlin: Cengage.
Schmitz, A. (2012). Accounting in the finance world. New York : DonorsChoose.Org.