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Journal entries and adjusting entries
#cfa-level-1 #reading-23-financial-reporting-mechanics

  • A journal is a document or computer file in which business transactions are recorded in the order in which they occur (chronological order). The general journal is the collection of all business transactions in an accounting system sorted by date. All accounting systems have a general journal to record all transactions. Some accounting systems also include special journals. For example, there may be one journal for recording sales transactions and another for recording inventory purchases.

  • Journal entries—recorded in journals—are dated, show the accounts affected, and the amounts. If necessary, the entry will include an explanation of the transaction and documented authorization to record the entry. As the initial step in converting business transactions into financial information, the journal entry is useful for obtaining detailed information regarding a particular transaction.

  • Adjusting journal entries, a subset of journal entries, are typically made at the end of an accounting period to record items such as accruals that are not yet reflected in the accounting system.

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arket value bypass the income statement and are recorded directly into shareholders’ equity under a component referred to as “other comprehensive income.” This topic will be discussed in more detail in later readings. In summary, <span>where valuation adjustment entries are required for assets, the basic pattern is the following for increases in assets: An asset is increased with the other side of the equation being a gain on the income statement or an increase to other comprehensive income. Conversely for decreases: An asset is decreased with the other side of the equation being a loss on the income statement or a decrease to other comprehensive income. <span><body><html>

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ved and the corresponding liability to deliver newsletters) and, subsequently, 12 future adjusting entries, the first one of which was illustrated as Transaction 12. Each adjusting entry reduces the liability and records revenue. <span>In practice, a large amount of unearned revenue may cause some concern about a company’s ability to deliver on this future commitment. Conversely, a positive aspect is that increases in unearned revenue are an indicator of future revenues. For example, a large liability on the balance sheet of an airline relates to cash received for future airline travel. Revenue will be recognized as the travel occurs, so an increase in this liability is an indicator of future increases in revenue. <span><body><html>


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