Correcting the accounts at the end of the financial period;
What is correction of accounts?
During the financial period, some institutions and companies use funds for insurance costs, rental costs, etc. They pay in advance, since according to the matching principle, the expenses of each period must be deducted from the income of the same period, therefore, the cost of the current period is deducted from the advance account and transferred to the profit and loss account, this process is called the modification of prepaid accounts has it.
On the other hand, during the financial period, institutions and companies receive funds for services from customers in advance, in order to provide services for a certain period of time, since according to the realization principle, the realized income should be credited to the profit account and Losses are transferred, therefore, the realized amount is deducted from the income prepayment account and transferred to the current year’s income account, this process is called the correction of prepayment accounts.
Due to the fact that at the end of each period, various financial statements and reports are prepared, it is necessary to adjust the general ledger accounts before preparing them.
In other words, the purpose of making corrections in the accounts at the end of the financial period is that:
A) Prepayment of expenses related to the financial period should be withdrawn from this account and recorded in the relevant expense account.
b) Advance receipt of incomes that have been realized, should be deducted from the advance receipt account and deposited into the current year’s income account.
c) Unregistered expenses should be reflected in the debit of the current year’s profit and loss account.
d) Unregistered income should be reflected in the creditor of the current year’s profit and loss account.
What things need to be corrected in the accounting system?
1- Amendment of accounts with the nature of prepayment of expenses
2- Amendment of accounts with the nature of pre-receipt of income
3- Correction of unregistered expenses
4- Correction of unregistered incomes
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
Link to the audit accounting clinic
https://t.me/joinchat/BnzBsTuioTshiXBwf9bBPQ