Annual adjustments and their classification;

Annual adjustments and their classification;

Annual adjustments are correction documents that accountants make to correct the accumulated profit and loss balance.

To put it more clearly, if we need to issue a correction document with important figures for profit and loss items (incomes and expenses), we will show the balance of the accumulated profit and loss account to the debit or credit side of some balance sheet accounts.

Accounting Standard No. 6 states: Annual adjustments are important adjustments that relate to previous years and result from changes in accounting procedures or correction of mistakes.

And of course, it is emphasized in the same standard that annual adjustments are not included, the usual recurring adjustments and the adjustment of estimates made in previous years.

For example, if we had made a smaller reserve for the previous year’s tax or if we had not recorded a large amount of the previous period’s credit sales, we would have issued the following documents:

bad accumulated profit and loss *
Payable tax is enough *

bad accounts receivable *
Accumulated profit and loss *

Classification of annual adjustments
Annual adjustments can include two general situations:

A) Adjustments related to the previous financial year

b) Adjustments related to financial years prior to the last financial year

For example, if it is determined in the company’s investigations that the unregistered sale of 100 million rials is related to the financial year 2019, i.e. 3 years before the financial year, then the accounting registration of the amendment document in the year 2019 will be as follows:

bad accounts receivable *
Accumulated profit and loss*
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
Group of accountants, auditors, Tabriz
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